02/23/2017 03:30 PM Senate STATE AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| SB34 | |
| Presentation: Bridging the Fiscal Gap - Meaningful Reductions & Leveraging Savings by Senator Dunleavy | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 34 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
SENATE STATE AFFAIRS STANDING COMMITTEE
February 23, 2017
3:31 p.m.
MEMBERS PRESENT
Senator Mike Dunleavy, Chair
Senator David Wilson
Senator Cathy Giessel
Senator John Coghill
Senator Dennis Egan
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
SENATE BILL NO. 34
"An Act relating to the implementation of the federal REAL ID
Act of 2005; and relating to issuance of identification cards
and driver's licenses; and providing for an effective date."
- HEARD & HELD
PRESENTATION: BRIDGING THE FISCAL GAP - MEANINGFUL REDUCTIONS &
LEVERAGING SAVINGS BY SENATOR DUNLEAVY
- HEARD
PREVIOUS COMMITTEE ACTION
BILL: SB 34
SHORT TITLE: DRIVER'S LICENSE & ID CARDS & REAL ID ACT
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
01/23/17 (S) READ THE FIRST TIME - REFERRALS
01/23/17 (S) STA, FIN
02/23/17 (S) STA AT 3:30 PM BUTROVICH 205
WITNESS REGISTER
SHELDON FISHER, Commissioner
Alaska Department of Administration
Juneau, Alaska
POSITION STATEMENT: Provided an overview of SB 34.
LESLIE RIDLE, Deputy Commissioner
Alaska Department of Administration
Juneau, Alaska
POSITION STATEMENT: Addressed questions regarding SB 34.
MARLA THOMPSON, Director
Division of Motor Vehicles
Alaska Department of Administration
Anchorage, Alaska
POSITION STATEMENT: Addressed questions regarding SB 34.
JIM HARPER, Vice President
Competitive Enterprise Institute
Washington D.C.
POSITION STATEMENT: Testified in opposition to SB 34.
DANIEL GEORGE, Staff
Senator Mike Dunleavy
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented Chair Dunleavy's fiscal plan,
"Bridging the Fiscal Gap."
ALEXI PAINTER, Fiscal Analyst
Alaska Division of Legislative Finance
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Provided analysis of the proposed fiscal
plans.
ROB CARPENTER, Fiscal Analyst
Alaska Division of Legislative Finance
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Provided analysis of the proposed fiscal
plans.
ACTION NARRATIVE
3:31:33 PM
CHAIR MIKE DUNLEAVY called the Senate State Affairs Standing
Committee meeting to order at 3:31 p.m. Present at the call to
order were Senators Wilson, Giessel, Coghill, Egan, and Chair
Dunleavy.
SB 34-DRIVER'S LICENSE & ID CARDS & REAL ID ACT
3:32:08 PM
CHAIR DUNLEAVY announced the consideration of SB 34.
3:32:18 PM
SHELDON FISHER, Commissioner, Alaska Department of
Administration, Juneau, Alaska, provided an overview of SB 34 as
follows:
Currently there's legislation within the state that
prohibits the department from pursuing any activity to
comply with the federal REAL ID Act; this is in
compliance with a federal law is what we are trying to
offer here or at least compliance with federal
requirements to get access to certain military bases
or to be able to fly.
We have received waivers of the federal REAL ID
requirements, those waivers will expire in June and at
that point we are currently being informed by DHS that
those who do not have REAL ID compliant licenses, if
the state is not pursuing compliance, will have to
seek alternative ID to be able to get on bases and
that might be a passport of theirs and we will go
through a list of other IDs, then in January of 2018,
that same rule will apply to flights, so individuals
will have to have those alternative IDs.
This act, our proposal is optional, it does not
require that the state issue a REAL ID compliant
license, it gives the individual the option of whether
they would like a compliant REAL ID and it charges a
fee which will cover the cost of issuing that license,
so to some extent the individual will be bearing the
cost associated with this.
3:34:46 PM
COMMISSIONER FISHER commenced his presentation and referenced
slide 2, "Federal REAL ID Act" as follows:
· REAL ID covers all 50 states, 5 territories and Washington,
D.C.
· Establishes minimum requirements for secure issuance and
production of state-issued driver licenses and IDs:
ƒRequires states to verify a person's identity & lawful
status.
ƒRequires special card design features like digital
photo, signature, and unique card number.
ƒRequires safeguards for issuance and production of
licenses; i.e. clearly marking temporary, limited, or
otherwise non-compliant licenses as "Not for Federal
Identification."
· Twenty-six states currently offer REAL ID compliant cards.
· Nineteen states including Alaska have extensions allowing
continued issuance and production of non-compliant cards.
· Five states that are non-compliant - WA, MN, MO, ME, MT:
ƒMinnesota and Washington do have Enhanced IDs (chip
cards) which are approved for REAL ID Compliant and
TSA.
ƒWashington and Minnesota have current bills in 2017
for compliance.
3:36:01 PM
COMMISSIONER FISHER referenced slide 3, "SB 34 Driver's License,
State IDs, and REAL ID ACT" as follows:
· What SB 34 Does:
ƒAllows DMV to offer Alaskans a choice between a REAL
ID compliant driver's license or ID, or a "standard"
noncompliant license or ID.
ƒGives DMV the authority and funding to upgrade
systems, equipment and processes for REAL ID/DL card
production.
ƒAllows DMV to charge an additional $5 fee for REAL ID
licenses and IDs to cover the increased cost of
production.
· Why SB 34 is Needed:
ƒAS 44.99.040 (a)(2) prohibits DMV from spending state
funds to comply with REAL ID Act.
ƒWithout compliant ID, Alaskans will need another form
of federal ID for TSA security screenings or to gain
access to military bases and secure-entrance federal
buildings.
ƒREAL ID Act was designed to decrease fraud and ensure
that states are checking the validity of documents
presented with applications.
He noted that it costs $1.5 million to comply with REAL ID and
the $5 fee will not recover that $1.5 million; however, a $10
would recover the $1.5 million initial capital cost in about 5
years. If one of the concerns is the cost of funding that, then
there is an option to shift that cost to the participant.
CHAIR DUNLEAVY stated that he believed there should always be
concern about additional cost.
COMMISSIONER FISHER agreed with Chair Dunleavy. He reiterated
that the bill is necessary because of current legislation that
prevents the Department of Administration from pursuing a REAL
ID compliant license or spending funds to comply with REAL ID
which the department is prohibited to do.
3:37:46 PM
He referenced slide 7, a flowchart about the Real ID process. He
pointed out that the process is essentially the same as the
state's current ID process with the following exceptions:
· Take photo to store with application in Alaska.
· Electronic Verification of Vital Events (EVVE).
Electronically verify date of birth with SSA and the
National Association of r Public Health Statistics and
Information Systems (NAPHSIS).
· Systematic Alien Verification for Entitlements (SAVE).
Electronically verify document held by DHS.
· US Passport Verification Service (USPVS). Electronically
verify US Passport document data against DHS.
· New permanent license with "Real ID Star" printed by
Central Issuance Facility and mailed to applicant.
He addressed slide 8 regarding three different validation steps
which depend on which information is presented by the applicant.
He noted that EVVE verifies that a person's state issued a U.S.
birth certificate that matches the record of the issuing state.
He specified that a query is sent to a database that is
maintained by the National Association for Public Health. He
pointed out that the National Association for Public Health is
not a government agency, but a nonprofit organization.
3:40:17 PM
CHAIR DUNLEAVY asked about information collection and referenced
a comment Commissioner Fisher's made earlier that when the
information is collected, "The information stays with us," but
noted his previous statement that information is contained in a
nongovernmental agency.
COMMISSIONER FISHER explained that the reference he made earlier
was specific to a photo taken by the state that it remains in an
Alaskan database and is not shared or transmitted anywhere else.
He specified that the step he previously noted is a query sent
to confirm data from the National Association for Public Health.
He reiterated that the National Association for Public Health is
not a government agency, but rather a public health organization
that has created a database of birth certificate records and
validating birth certificates with the organization is a
standard practice.
CHAIR DUNLEAVY asked if the information that is contained in
REAL ID is shared with the very federal government and that is
compelling Alaska to do the REAL ID process.
COMMISSIONER FISHER answered no. He specified that the essence
of REAL ID is the state validating the information that has been
provided. He detailed that the EVVE system noted earlier is one
example, but there are two more options depending on what
information is presented by the applicant. He said the first
example is based upon a birth certificate being presented, the
second one is if the person is an immigrant with a visa that is
validated by dipping into another database maintained by DHS. He
explained that the third scenario is if a passport is presented
and the passport is validated by dipping into the database that
is also maintained by DHS.
3:42:22 PM
CHAIR DUNLEAVY asked what the department is sharing with DHS's
database.
COMMISSIONER FISHER explained that the department verifies with
DHS that a passport is valid.
CHAIR DUNLEAVY asked if the department must share data with
DHS's database.
COMMISSIONER FISHER answered correct.
CHAIR DUNLEAVY asked if that data is being shared with DHS's
database.
COMMISSIONER FISHER replied yes. He explained that the
department's "dip" has a certain amount of information
associated with it.
SENATOR WILSON addressed the initial photo used in comparison
for state purposes and asked how the photo will be used. He
inquired if the photo will only be used for state purposes. He
asked if destroying the photo after the comparison has been
considered.
COMMISSIONER FISHER replied that the department has no intention
of doing anything other than storing the photo within the
Division of Motor Vehicles (DMV). He said there is a potential
for a future discussion if the Legislature or someone else deems
there is some other worthy use of the photo. He noted that there
may be a requirement that the DMV photo is maintained.
3:44:10 PM
LESLIE RIDLE, Deputy Commissioner, Alaska Department of
Administration, Juneau, Alaska, explained that the department
saves the photo because law enforcement has the authority to
access the database. She added that the photo is also saved in
case a person loses all forms of identification and the photo
can be used for verification purposes.
SENATOR WILSON asked if a separate database is being created
outside of the current database for driver's license photos.
MS. RIDLE answered no, she explained that the photo would be in
DMV's database.
SENATOR WILSON asked that the photo-to-ID process be explained
in detail and to verify that the photo stays in the state.
3:46:05 PM
MARLA THOMPSON, Director, Division of Motor Vehicles, Alaska
Department of Administration, Anchorage, Alaska, explained that
an individual's photo and information is stored in DMV's
database in Alaska. She detailed that the photo and information
is presented to Gemalto, a company located in Indiana that
prints and mails the driver's license to individuals.
3:50:08 PM
SENATOR WILSON confirmed that Alaskans' biometric data is sent
to Gemalto, an international company that does business in 80
different countries. He asked if Alaskans are being notified
that their biometric data is being sent out of state during the
driver's license process. He assumed that the state's REAL ID
process will be the same as the driver's license process.
MS. THOMPSON explained that all of the information checking
occurs in Alaska prior to sending to Gemalto for printing.
COMMISSIONER FISHER concurred with Ms. Thompson.
CHAIR DUNLEAVY opined that some people would find it hard to
believe that data would never be shared or leaked considering
reports in newspapers that database breaches are occurring.
3:52:07 PM
COMMISSIONER FISHER referenced slide 4, "What Will Change" as
follows:
· Alaska DMV will take a photo at time of application and
store that image in Alaska.
· DMV will validate birth certificates or passports if
provided by applicant.
· REAL ID/driver's license (DL) cards will have unique design
or color indicator to clearly distinguish from noncompliant
cards.
· Noncompliant cards will state "Not for Federal
Identification."
· DL & ID's will now be valid for 8 years instead of 5 years.
He explained that the additional cost for the REAL ID compliant
license is justified from a consumer's perspective based on the
additional years that the ID is valid.
He referenced slide 5, "What Won't Change" as follows:
· DMV will still require the primary document, secondary
document, and proof of Alaska residency for compliant and
noncompliant cards.
· DMV will continue to background check employees.
· DMV will continue to use a secure facility to produce
compliant and noncompliant cards.
3:52:56 PM
He referenced slide 6, "What Do People Need to Bring to Get
Alaska ID/DL" as follows:
· Primary Document:
ƒAn original or certified copy of a U.S. birth
certificate.
ƒPassport or passport card issued by the United States
or U.S. Territory.
ƒA foreign passport with appropriate immigration status
forms issued by DHS, U.S. Citizenship and Immigration
Service.
ƒA resident alien, temporary resident alien, or
employment work authorization document issued by DHS,
U.S. Citizenship and Immigration Service.
ƒU.S. military identification for active duty, retiree,
or reservist.
ƒCertificate of Citizenship, Naturalization, or Birth
Abroad.
· Secondary Document:
ƒAll Primary Documents.
ƒLicense from another state or Alaska.
ƒBureau of Indian Affairs card permit.
ƒEmployee photo ID or School ID.
ƒHealth insurance card.
ƒMedical records.
ƒMilitary dependent identification.
ƒPilot's license.
ƒMarriage License.
ƒVoter Registration Card.
ƒTransportation Worker Identification Credential (TWIC)
Card.
· Proof of Principal Residence:
ƒUtility bill.
ƒAlaska voter registration card.
ƒAlaska title and/or registration (Issued at least 30
days prior to application).
ƒPaycheck Stub.
ƒMedical Assistance card.
ƒPublic Assistance card.
ƒCanceled check or bank statement.
ƒMortgage or rental documents.
ƒLetter from employer on letterhead verifying
applicant's residence address.
· Proof of Social Security Number:
ƒSocial Security number or letter from the Social
Security Office stating that the applicant is not
eligible for a Social Security number.
ƒCommercial drivers must bring their actual Social
Security card.
3:53:27 PM
COMMISSIONER FISHER referenced slide 9, "Timeline" as follows:
· January 2017 - Governor introduced bill to allow DMV to
produce both compliant REAL ID/DLs and noncompliant DLs.
· June 6, 2017 - Alaska's waiver from DHS ends.
· June 7, 2017 - Unless Alaska is granted an additional
waiver, approved federal ID will be required to access
military bases and federal facilities.
· January 22, 2018 -REAL ID compliant ID/DLs or other federal
ID will be required at Transportation Security
Administration (TSA) security check points, unless Alaska
has passed legislation and is working toward compliance.
· October 1, 2020 - REAL ID compliant ID/DLs or other federal
ID will be required at TSA security check points. No
additional HSA waivers will be granted.
· If Real ID bill passes this session:
ƒDecember 2017-DMV completes Alaska License and Vehicle
Information Network (ALVIN) upgrade and begins REAL ID
upgrades.
ƒMid-2018 - first REAL ID cards available to Alaskans.
3:55:11 PM
He referenced slide 10, "REAL ID - Accessing Military Bases, Who
Will Be Most Impacted If Waiver Expires" as follows:
· State Employees:
ƒDMVA,
ƒDHSS,
ƒState Troopers,
ƒDOLWD - OSHA inspectors.
· Civilians:
ƒMoving companies,
ƒFacility maintenance companies,
ƒRetailers,
ƒConstruction workers,
ƒVisitors.
· Anchorage School District:
ƒFour schools.
· Fairbanks North Star Borough School District:
ƒFour schools.
He referenced slide 11, "REAL ID - Possible Alternative
Documents" as follows:
· Prior to the waiver granted in October 2016, Alaska
military installations were poised to require federal ID to
enter a military base.
· Current list of IDs acceptable for access to Joint Base
Elmendorf-Richardson (JBER):
ƒUnited States passports/United States passport cards.
ƒPermanent Resident card/Alien Registration Receipt
Card (Form I-766).
ƒForeign passports with a temporary (I-551) stamp.
ƒAn employment authorization document that contains a
photograph (Form I-766).
ƒCurrent/valid driver 's license or identification card
issued by a state or outlying possession of the U.S.
which follows the REAL ID Act of 2005.
ƒIdentification card issued by federal, state, or local
government agencies that are REAL ID act compliant.
(Minnesota and Washington identification card holders
can have access to federal installations if their
driver licenses bear a small red, white, and blue U.S.
flag logo on the front.)
ƒVA health identification card issued by the U.S.
Department of Veterans Affairs.
ƒMerchant Mariner card issued by DHS/U.S. Coast Guard.
· TSA has not yet identified which forms of federal ID they
will accept in Alaska in lieu of REAL ID/DLs, when
enforcement commences in 2018.
SENATOR WILSON asked Commissioner Fisher to explain the waiver
process, how waivers are granted and what Alaska would need to
do to receive an additional waiver.
3:57:08 PM
COMMISSIONER FISHER explained that Alaska has asked for waivers
from DHS in the past; however, Alaska was notified in January
that a final waiver would be granted until June to see if the
state passes its REAL ID legislation. He noted that DHS said
that an additional waiver should not be expected if the
legislation does not pass.
CHAIR DUNLEAVY noted that under the proposed program a person
does need to get a REAL ID if they do not want to. He asked if
all that needs to be done is repeal the 2008 law. He believed
that a law was passed in Alaska that said the state would not
dedicate resources to assisting with the REAL ID concept.
COMMISSIONER FISHER answered that he thought Chair Dunleavy was
right. He added that the legislation also authorizes for the
collection of another $5 fee.
CHAIR DUNLEAVY asked if Alaskans who do not want to get the REAL
ID will be issued a regular driver's license.
COMMISSIONER FISHER answered yes.
CHAIR DUNLEAVY pointed out that Commissioner Fisher provided a
list of different alternative documents that people could get if
they so choose. He noted that during Commissioner Fisher's
presentation that at the bottom of a slide it says, "TSA has yet
to identify what if any additional documents they will require."
He asked if the TSA statement is correct.
COMMISSIONER FISHER answered true. He said it would seem logical
that TSA would accept passports and that sort of information,
and some others they may not.
4:00:04 PM
CHAIR DUNLEAVY asked if is possible that TSA may change what
they accept for identification.
COMMISSIONER FISHER answered that the list may change. He
asserted that the REAL ID compliant license will be accepted,
but the alternatives may be a shorter list.
CHAIR DUNLEAVY asked if the idea is from the federal government
and not from the state of Alaska.
COMMISSIONER FISHER answered correct.
CHAIR DUNLEAVY asked if the federal government wants the state
to their work for them.
COMMISSIONER FISHER explained that the federal government has
said that they will accept a REAL ID compliant license to enter
a federal facility.
CHAIR DUNLEAVY reiterated that the federal government is having
the state do the work for them. He said there is nothing
preventing the federal government from setting up a federal
office.
COMMISSIONER FISHER concurred and remarked that there is nothing
preventing the federal government from creating their own ID,
but noted that passports are a version of the federal government
ID. He stated that the reason why he is advocating for the REAL
ID is its user-friendly approach where people have an option to
simply pay an extra $5 to be compliant, plus the license will
have three more years of validity to it.
4:02:18 PM
CHAIR DUNLEAVY opined that there is nothing preventing the
federal government from coming up with a new law or a new
regulation that somehow cracks open the new databases.
COMMISSIONER FISHER specified that the databases the department
is dipping into already exist and no new database are being
created through the REAL ID process.
CHAIR DUNLEAVY remarked that the safe approach is to assume that
data is going to be shared in the process rather than saying
that data is not going to be or will not be shared.
COMMISSIONER FISHER noted that checking on someone's passport
does not create a new database. He explained that all the
process does is confirm a valid passport.
CHAIR DUNLEAVY replied that Commissioner Fisher is right. He
specified that once a person provides data, the assumption must
be that the information is going to be shared.
COMMISSIONER FISHER reiterated that the data already exists.
CHAIR DUNLEAVY restated that the chances of a person's data
being shared in the REAL ID process is pretty good. He asked
Commissioner Fisher if his prior assumption is correct.
COMMISSIONER FISHER replied that he does not understand Chair
Dunleavy's question. He repeated that the REAL ID process is a
validation of information that already exists. He remarked that
he is not certain what new data would be stored because the
department is validating data that exists in the federal
government's database.
4:04:50 PM
MS. RIDLE confirmed that no new database is being created with
REAL ID and the information has already come into DMV's
database.
SENATOR COGHILL noted that he appreciated the part where REAL ID
is voluntary. He concurred with Chair Dunleavy's concerns that
the state would be doing the federal government's job. He opined
that the federal government gives and takes away where one day
the federal government might change its mind and require a
national ID card.
SENATOR COGHILL noted that the legislation put into place that
Chair Dunleavy referenced regarding national ID was debated over
whether the state's driver's license was for driving or for
identification purposes. He added that the Legislature stressed
in the legislation that the state would not assist with a
national ID.
He pointed out that commerce was a point made for REAL ID and
noted that Fairbanks has two military bases and its impact is
going to be a big deal. He disclosed that a person can get a
yearlong access to a military base if they do their own
checking.
He summarized that he struggles with a national ID, especially
with sovereign states and commented as follows:
I think we are supposed to be a free people and right
now the fear of government is too high. When you get
any reluctance from me it's going to be based on that
kind of basic philosophy.
4:08:17 PM
SENATOR GIESSEL rhetorically asked the committee what
information the federal government does not already have about
us. She pointed out that she must do a criminal background
check, submit tax returns, obtain a concealed-carry permit, and
use a driver's license. She said while she shares the concerns
voiced in the committee that the federal government is going to
control our movement, she remarked that she did not know if the
federal government has the data already. She stated that she is
not 100-percent sure the legislation is worse than what the
federal government already has.
SENATOR COGHILL replied that the concern is not that the federal
government has the information, but that people fear that the
federal government will use the information on an individual's
ability to move. He opined that that the state struggles with
driver's licenses used for identification rather than for
driving. He stated that he appreciates the voluntary aspect
because it allows commerce to happen. He asserted that he does
not know that he is willing at this point to capitulate with the
federal government.
SENATOR WILSON noted that 19 states do not have REAL ID. He
opined that with 19 states he does not believe airports in those
states are going to shut down within 3 years. He admitted that
there are other options of acquiring federal identification and
noted that some truck-driver associations stated that they are
not effected getting on military bases because the drivers have
their identification cards. He added that other federal IDs
include passport cards and passports. He remarked that the
federal government is not paying Alaska to implement the REAL ID
program and the state will have to bear the $1.5 million to
implement the program. He opined that using the enhanced "chip
cards" would cost less than a whole other driver's license. He
summarized that the REAL ID program is an additional requirement
without a real benefit for the state. He added that he is not
okay with the state storing on a new ID database that can be
used for other purposes deemed by new regulations.
4:12:10 PM
CHAIR DUNLEAVY stated that Commissioner Fisher is not causing
the issue. He said he knows Commissioner Fisher believes REAL ID
is going to facilitate some good things for Alaska. He remarked
that the whole data issue has become insidious and pervasive in
everyday life. He agreed with Senator Giessel that the federal
government has everyone's data, but asserted that he is not yet
willing to rollover and is going to make them work a little
harder to get the data. He reiterated that the federal
government has outlets on bases to do the work, but decided to
coercively have the state help put a program in place by making
it hard for Alaskans to get on bases or fly if the state did not
want to help.
COMMISSIONER FISHER set forth that SB 34 is a policy decision
that the Legislature needs to make. He said his goal is to
provide the necessary information to make an informed and
appropriate decision. He opined that the federal government does
have a program and that is passports and passport IDs. He said
an option to present Alaskans is that the Legislature is not
going to pass REAL ID and citizens will have to get a passport
or passport card, an option that will impose costs and burdens;
then the question is what is the benefit associated with that
and he opined that consideration not to pass REAL ID becomes
more of a statement then any real change. He stated that he
agreed with Senator Giessel that the information is there and
really all the department is doing is validating its existence
and validity of documents that are presented.
CHAIR DUNLEAVY announced that the committee will hear from
invited testimony.
4:15:24 PM
JIM HARPER, Vice President, Competitive Enterprise Institute,
Washington D.C., testified in opposition of SB 34. He disclosed
that he has analyzed REAL ID since the law was passed because
the policy imposes so heavily on state governments to carry out
federal mandates regarding identification. He agreed with
Commissioner Fisher that REAL ID is a policy question and
emphasized that the most important policy is security.
He set forth that based on his study of how a national ID works
and how REAL ID works, there is essentially no national security
benefit from implementing REAL ID. He noted that REAL ID was not
a 9/11 Commission recommendation. He opined that not only does
REAL ID not bring citizens more national security, but the
policy creates new security and privacy problems. He said
creating the REAL ID database creates hacking risks and fraud
risks.
He disclosed that REAL ID requires states to share information
from their databases nationwide. He opined that more ID scanning
will occur when cards are uniform across the country. He set
forth that REAL ID is a national ID that undermines state
sovereignty. He remarked that compliant states will give back
power that they will not get back.
He summarized that REAL ID will ultimately give the federal
government control over an individual's identification, the tool
used by everyone to access all the benefits of society.
4:26:30 PM
CHAIR DUNLEAVY held SB 34 in committee.
4:26:56 PM
At ease.
^ PRESENTATION: BRIDGING THE FISCAL GAP - MEANINGFUL REDUCTIONS
& LEVERAGING SAVINGS BY SENATOR DUNLEAVY
PRESENTATION: BRIDGING THE FISCAL GAP - MEANINGFUL REDUCTIONS &
LEVERAGING SAVINGS BY SENATOR DUNLEAVY
4:29:43 PM
CHAIR DUNLEAVY called the committee back to order. He announced
that his office will present a fiscal approach that is in
response to the state's fiscal issue. He disclosed that his
office has worked on its fiscal approach for a couple of months
both with the Alaska Permanent Fund Corporation, Legislative
Finance Division, and economists that work with the Institute of
Social and Economic Research (ISER).
CHAIR DUNLEAVY set forth that his fiscal plan calls on Alaska's
stakeholders, legislature and governor to come up with a way to
navigate the state out of its fiscal issue. He said the state's
fiscal issue is due to the dramatic drop in oil revenues, oil
production, and increased spending since 2006 that has led to a
$2.6 billion to $3.0 billion fiscal gap.
He noted that the Legislature has worked on reducing spending
over the last few years, mainly in the capital budget area, and
work continues to drive down the budget to get as close as
possible to the revenues used to pay for the government.
He said the Senate Majority has put together an approach and
noted that his plan is very similar. He detailed that the Senate
Majority is looking at reductions of about $750 million and his
plan calls for reductions of about $1.1 billion over 4 years.
He added that his office's plan does the following to address
the state's fiscal gap:
· Use savings from the Constitutional Budget Reserve (CBR)
and other endowed funds to help bridge the gap to a
sustainable budget.
· Uses the 50-50 approach initially advocated by former
governor Jay Hammond where the Permanent Fund Dividend
(PFD) is calculated and distributed, and the remaining 50
percent in the Permanent Fund Earnings Reserve could be
used in a manner that the government saw fit; for example,
inflation proofing the permanent fund.
He said people asked for a bill, but his plan does not lend
itself well to a bill because there are different components. He
noted that his plan is a multi-year approach that addresses the
continuously opined path that additional revenue and eventually
taxes would be needed to get the state through its fiscal issue.
He disclosed that further mathematical analysis has led his
office to believe that additional revenue is not necessarily an
absolute and rather is a choice.
He conceded that steep reductions will be politically difficult.
He explained that his office has identified ways to reduce the
budget through program elimination and spending reductions. He
pointed out that constituency groups attached to some programs
will advocate for their retention. He remarked that growing
government by creating more programs is a lot easier than
reducing it.
4:33:48 PM
DANIEL GEORGE, Staff, Senator Dunleavy, Alaska State
Legislature, Juneau, Alaska, explained that Chair Dunleavy's
office has an approach rather than a bill before the committee.
He noted that the Legislative Finance Division is on hand to
present their modeling on Chair Dunleavy's approach as it
relates side-by-side to bills that have been presented: SB 21,
SB 26, and HB 115.
CHAIR DUNLEAVY detailed that the bills referenced by Mr. George
deal with the permanent fund and an income tax. He reiterated
that his approach is a complete multi-component and multi-year
plan to address other aspects that are not seen in the bills
referenced by Mr. George.
MR. GEORGE set forth that the intent of the hearing is to
introduce a sensible approach that can be used to address the
state's current fiscal crisis. He pointed out that although the
plan's approach is not a new concept, the concept has not been
openly debated in committees.
He stated that the plan's approach is presented in a simple
manner. He disclosed that Chair Dunleavy's plan has the backing
of the Legislative Finance Division and noted that their
modeling will be shared with the committee. He detailed that
Chair Dunleavy's plan has a ten-year outlook that has been
developed in conjunction with the Legislative Finance Division
and made available to the public since the beginning of session.
He asserted that the plan is mechanically and mathematically
sound.
4:35:52 PM
He conceded that with all modeling and projections, one's
assumptions are important. He detailed the plan's assumptions as
follows:
· Projections are all presented in a flat-budget scenario and
are consistent across all presentations.
· Governor's $125 million supplemental budget is not
addressed.
· FY2018 budget amendments are not addressed.
· Assumes payment in full of last year's dividend.
· Inflation proofing is not addressed.
· Future obligations that involve unfunded liability
obligations or the pursuit of a large project like a gas-
line are not addressed.
MR. GEORGE noted that inflation proofing addressed in SB 21 and
SB 26 would both repeal the inflation-proofing statute.
4:36:49 PM
CHAIR DUNLEAVY summarized components of his fiscal plan as
follows:
· Looks at a 5 to 10-year horizon.
· Full payout of the dividend to address the Alaska's
recession by putting $700 million into the hands of
Alaskans.
· Contemplates Jay Hammond's 50-50 approach that currently
exists in the constitution and statute.
· Gradual $1.1 billion budget reduction over 4 years so that
Alaska's economy is not shocked.
· State's savings accounts will grow without taxes.
· SJR 2 has been introduced to revise the current
appropriation limit via constitutional amendment to ramp
down government's size and growth.
· Judicious use of the state's savings in the CBR and
endowments.
· Biennial budget for two-legislative sessions that allows
for better budget planning.
4:39:21 PM
MR. GEORGE set forth that one key aspect of the 50-50 usage of
the permanent fund's earnings reserve is that it helps to
immediately address the state's fiscal. He explained that the
plan focuses on balancing the budget within the next 5 years
with a sustainable budget in 10 years. He added that the plan's
philosophy of a smaller government is at its heart and attempts
to address the gap from both sides.
He noted a correction in the plan's outline and pointed out that
Chair Dunleavy's plan draws $1.54 billion versus the governor's
$2.56 billion. He pointed out that the governor's plan includes
$700 million for dividends which equates to a draw that is 20
percent higher than the 50-50 plan because the 50-50 plan
divides half for government and half for dividends.
He noted that the 50-50 plan's 5 and 10-year horizons do not
require any imposition of new taxes. He added that the 50-50
plan's modeling does not contemplate any new taxes and assumes
the governor's motor-fuel tax does not pass with its revenue
removed.
4:41:01 PM
CHAIR DUNLEAVY explained that there are no assumptions on any
additional revenue coming from the new finds on the North Slope
from ConocoPhillips, Caelus, Armstrong, and any others that may
come. He emphasized that modeling is a conservative approach
where new finds that come on line will be added revenue that
Alaska can put back into savings.
MR. GEORGE noted that one of the key factors in each of the
fiscal plans has been the highly touted dividend levels to
Alaskans. He disclosed that the dividend under Chair Dunleavy's
plan would be approximately $2,200 in the next fiscal year and
would grow to $2,800 in 6 years. He emphasized that the dividend
under Chair Dunleavy's plan remains whole and grows.
He addressed a 10-year outlook for the 50-50 plan that uses the
Alaska Department of Revenue's Revenue Sources Book numbers. He
added that the Alaska Permanent Fund Corporation provided data
that was given to the Legislative Finance Division to create the
plan's 10-year spreadsheets. He explained that a draw will be
required to balance the budget for FY2018, FY2019 and FY2020
under the 50-50 concept. He pointed out that $368 million
surplus is forecasted for FY2021 under the 50-50 plan and noted
that any surpluses modeled under the 50-50 plan are deposited
into the CBR.
4:43:27 PM
CHAIR DUNLEAVY pointed out that by year-four there would be a
surplus if budget reductions are made. He conceded that the
proposed budget reductions are steep, but emphasized that
surpluses will accumulate without taxes.
MR. GEORGE reiterated that the 50-50 plan's modeling is a flat-
budget scenario with increasing surpluses going out 10 years. He
noted that the plan's modeling does not account for inflation.
He explained that the 50-50 plan's flat-budget scenario is done
to provide an apples-to-apples comparison with the other plans.
He addressed the 50-50 plan's revenue and detailed that federal
revenue is projected flat because what the federal government is
going to do is not known. He explained that other revenue and
"designated" general funds (DGF) also remains flat due to
manipulation where more tuition or fees can be collected. He
pointed out that the motor fuel's tax increase was backed out
and appears in the projection as an increase in "unrestricted"
general funds (UGF). He detailed that UGF revenue grows
according to the Alaska Department of Revenue's Revenue Sources
Book numbers. He disclosed that an assumption is made that all
programs that are 100-percent federal revenue will continue only
if 100 percent of that revenue continues to be received and
there is no augmentation from the state. He added that the
projection for FY2027 matches FY2026 because data is not
available in the Revenue Sources Book for FY 2027.
4:45:25 PM
MR. GEORGE detailed that the next slide in his presentation
lists the state's major savings accounts. He detailed that the
CBR has a balance noted in the modeling at $4.38 billion for the
end of FY2017 with a withdrawal of $270.5 million in FY2018. He
disclosed that the 50-50 plan also includes using the remaining
balance in the Statutory Budget Reserve (SBR) of $288 million
for FY2018. He noted that the Alaska Higher Education Investment
Fund is available but not used in the 50-50 plan. He pointed out
that the governor has proposed a $58 million draw from the
Alaska Higher Education Investment Fund for the current year. He
detailed that a one-time withdrawal from the Power Cost
Equalization (PCE) fund of $300 million is contemplated for
FY2018 as well.
CHAIR DUNLEAVY explained that the PCE withdrawal is from the
endowment and does not curtail or negatively impact the services
delivered under the PCE program.
MR. GEORGE continued to address the use of savings accounts and
noted that the Earnings Reserve Account's (ERA) draw is the 50-
50 draw previously noted in the presentation. He detailed that
the ERA's balance is $8.35 billion for the end of FY2017.
CHAIR DUNLEAVY asked that Mr. George address the balances for
each of the savings accounts over time.
4:47:08 PM
MR. GEORGE detailed the forecasted ending balances for the CBR
as follows:
· FY2017: $4.375 billion,
· FY2018: $4.324 billion,
· FY2019: $4.149 billion,
· FY2020: $4.367 billion,
· FY2021: $4.974 billion,
· FY2022: $5.754 billion,
· FY2023: $6.609 billion,
· FY2024: $7.551 billion,
· FY2025: $8.648 billion,
· FY2026: $9.851 billion,
· FY2027: $11.111 billion.
MR. GEORGE detailed that the ending balances included
withdrawals, settlements, and earnings of 2.89 percent. He noted
withdrawals and deposits into the CBR as follows:
· FY2017: $2,907.2 million withdrawal,
· FY2018: $270.5 million withdrawal,
· FY2019: $390.6 million withdrawal,
· FY2020: $3.1 million withdrawal,
· FY2021: $368.4 million deposit,
· FY2022: $520.1 million deposit,
· FY2023: $570.2 million deposit,
· FY2024: $631.7 million deposit,
· FY2025: $755.5 million deposit,
· FY2026: $828.0 million deposit,
· FY2027: $849.0 million deposit.
4:48:35 PM
He revisited savings and addressed the Alaska Housing Capital
Corporation (AHCC) money where $27.1 million is used in the
FY2018 budget. He specified that the community sharing and
community assistance is not touched. He pointed out that when
using the PCE, some of the excess revenues from PCE are used for
community assistance.
SENATOR COGHILL asked that that the withdrawals from the PCE
account be clarified.
4:49:20 PM
ALEXI PAINTER, Fiscal Analyst, Alaska Division of Legislative
Finance, Alaska State Legislature, Juneau, Alaska, explained
that SB 196, which passed the previous year, allows the PCE
Fund's excess earnings to be used for other programs such as
community assistance and rural energy projects. He specified
that up to $30 million of earnings beyond what is needed for the
PCE program can be used for community assistance, so reducing
the capitalization of the PCE Fund by withdrawing money would
impact community assistance. He detailed that in FY2017 a
portion of the community assistance program was paid for with
PCE funding. He disclosed that the Legislative Finance
Division's modeling assumes that about half of the community
assistance will be for going forward.
SENATOR COGHILL recalled that SB 196 had a "prioritization,"
where PCE is the first thing being paid and then excess allows
it to go to community assistance and one other after that. He
asked at what level does the expected earnings diminish if the
$300 million draw-down occurs on the PCE Fund's $900 million
account.
MR. PAINTER replied that one-third of the PCE Fund is reduced so
one-third less earnings would occur. He forecasted that a 6-
percent return assumption would equate to $57 million per year
in earnings that would drop down to $40 million which is roughly
the cost of the PCE program, so there really wouldn't be any
excess earnings if $300 million was taken out of the PCE Fund.
4:51:35 PM
SENATOR COGHILL commented that the $300 million withdrawal from
the PCE account is a huge chunk and a problem coming forward.
SENATOR WILSON asked if the Revenue Sharing/Community Assistance
program's balance is approximately $90 million.
MR. PAINTER replied that the fund's balance is $90 million and
one-third of that is paid out each year, approximately $30
million is annually paid out.
MR. GEORGE addressed UGF reductions as follows:
· FY2018: $318 million or 6.9 percent UGF reduction which is
a 3.2 percent reduction in state services.
· FY2019: $319 million or 7.4 percent UGF reduction which is
a 3.3 percent reduction in state services.
· FY2020: $320 million or 8.0 percent UGF reduction which is
a 3.4 percent reduction in state services.
· FY2021: $200 million or 5.8 percent UGF reduction which is
a 2.3 percent reduction in state services.
4:53:30 PM
He addressed the ERA balances based in millions of dollars as
follows:
· FY2017:
¾Starting Balance: $8,345.0
¾Dividend Transfer: $696.0
¾Earnings Reserve Draw:
¾Statutory Net Income: $2,733.0
¾Ending Corpus Balance: $39,726.0
¾Ending Total Fund Value: $55,756.0
· FY2018:
¾Starting Balance: $10,383.0
¾Dividend Transfer: $2,227.5
¾Earnings Reserve Draw: $1,544.5
¾Statutory Net Income: $3,342.0
¾Ending Corpus Balance: $40,025.0
¾Ending Total Fund Value: $56,126.0
· FY2019:
¾Starting Balance: $9,953.0
¾Dividend Transfer: $1,526.5
¾Earnings Reserve Draw: $1,526.5
¾Statutory Net Income: $3,356.0
¾Ending Corpus Balance: $40,354.0
¾Ending Total Fund Value: $57,310.0
· FY2020:
¾Starting Balance: $10,256.0
¾Dividend Transfer: $1,580.0
¾Earnings Reserve Draw: $1,580.0
¾Statutory Net Income: $3,418.0
¾Ending Corpus Balance: $40,696.0
¾Ending Total Fund Value: $58,482.0
· FY2021:
¾Starting Balance: $10,514.0
¾Dividend Transfer: $1,714.5
¾Earnings Reserve Draw: $1,714.0
¾Statutory Net Income: $3,477.0
¾Ending Corpus Balance: $41,053.0
¾Ending Total Fund Value: $59,484.0
· FY2022:
¾Starting Balance: $10,562.0
¾Dividend Transfer: $1,797.5
¾Earnings Reserve Draw: $1,797.5
¾Statutory Net Income: $3,525.0
¾Ending Corpus Balance: $41,414.0
¾Ending Total Fund Value: $60,391.0
· FY2023:
¾Starting Balance: $10,492.0
¾Dividend Transfer: $1,821.0
¾Earnings Reserve Draw: $1,821.0
¾Statutory Net Income: $3,565.0
¾Ending Corpus Balance: $41,778.0
¾Ending Total Fund Value: $61,305.0
· FY2024:
¾Starting Balance: $10,415.0
¾Dividend Transfer: $1,847.0
¾Earnings Reserve Draw: $1,847.0
¾Statutory Net Income: $3,606.0
¾Ending Corpus Balance: $42,143.0
¾Ending Total Fund Value: $62,219.0
· FY2025:
¾Starting Balance: $10,327.0
¾Dividend Transfer: $1,871.0
¾Earnings Reserve Draw: $1,871.0
¾Statutory Net Income: $3,646.0
¾Ending Corpus Balance: $42,514.0
¾Ending Total Fund Value: $63,140.0
· FY2026:
¾Starting Balance: $10,231.0
¾Dividend Transfer: $1,893.0
¾Earnings Reserve Draw: $1,893.0
¾Statutory Net Income: $3,686.0
¾Ending Corpus Balance: $42,844.0
¾Ending Total Fund Value: $64,066.0
· FY2027:
¾Starting Balance: $10,131.0
¾Dividend Transfer: $1,914.0
¾Earnings Reserve Draw: $1,914.0
¾Statutory Net Income: $3,726.0
¾Ending Corpus Balance: $43,250.0
¾Ending Total Fund Value: $64,538.0
MR. GEORGE detailed that in FY2018 the dividend transfer is
$2.23 billion to reflect the presumption that the rest of the
2016 dividend in paid out, resulting in an additional $683
million built into the FY2018 dividend transfer. He pointed out
that inflation proofing is not addressed in the plan. He added
that the dividend transfer and the earnings reserve draw are
equal because the plan calls for a 50-50 usage. He noted that by
FY2017 the modeling projects the ERA to maintain around $10
billion, the ending corpus balance grows from $39.7 billion to
$43.3 billion, and the ending total fund value increases to
$64.5 billion. He specified that there are no changes to the
statutory-dividend formula so legislation is not required.
4:55:07 PM
SENATOR COGHILL asked if the statutory net income modeling is
based on an average of what the whole fund has earned, a
combination of the ERA and the fund, or is it just the ERA.
MR. GEORGE replied that Mr. Painter will provide an answer. He
noted that the numbers for the modeling is provided by the
Alaska Permanent Fund Corporation with an assumed return of 6.95
percent. He added that he assumed the permanent fund's corpus
and ERA are invested together.
SENATOR COGHILL explained that the reason for his question is
due to a previous presentation by the Chief Executive Officer of
the Alaska Permanent Fund Corporation where fluidity was
addressed for inflation proofing and investments from the ERA.
He inquired if the projected $10 billion in the ERA is enough
for investment flexibility in addition to his previous question
on the whole fund.
MR. PAINTER asked Senator Coghill if he is asking what is
statutory net income.
SENATOR COGHILL answered yes.
4:57:01 PM
MR. PAINTER explained that the total return as follows:
The total return is basically the difference between
where you start at the beginning of the year to where
your investments end up.
The statutory net income is how money goes from the
principal to the earnings reserve and that is the
realized earnings of the fund, so if the fund holds a
stock and it increases in value and they continue to
hold it at the end of the year, that gain is not
realized, so that money would not move into the ERA.
If a stock gained and then they sold it, the
difference would be a realized gain that would be a
part of the ERA. For the real estate portfolio, the
rent they may receive on an asset, that would be
realized gains, but the increase of value of that
asset if they continue to hold it would not be.
There are two projections that I have, 6.95-percent
total return and then they project 6.24-percent
realized return each year; there was some discussion
of that in the House Finance Committee just now and
again in the Senate Finance Committee tomorrow about
that assumption of realized versus unrealized gains.
Our model of the Legislative Finance Division uses a
more conservative figure for the amount realized then
the Alaska Permanent Fund Corporation.
SENATOR COGHILL commented that whenever net income is addressed
he tries to know where the line is drawn. He remarked that the
plan's income stream looks to be over what generally has been
put into inflation proofing, now the question is a matter of the
flexibility.
4:59:20 PM
MR. GEORGE noted that the Legislative Finance Division will
provide the committee with their comprehensive modeling of the
50-50 plan.
MR. PAINTER explained that his overview references a status quo
scenario which is no action. He added that his overview will
also reference the permanent fund, flat budget, and the three
bills in conjunction with Chair Dunleavy's 50-50 plan.
He explained that in the status quo scenario, the Legislative
Finance Division starts with a conservative realized figure,
57.25 percent of income realized, about 4.00 percent a year
rather than the permanent fund's 6.24 percent. He detailed that
with the status quo deficits continue and unplanned draws
beginning in FY2019 will cause reserves to run out by the end of
FY2026.
CHAIR DUNLEAVY asked if status quo means the state continues to
spend and draw at its current levels.
MR. PAINTER answered correct and added that statutory inflation-
proofing would continue as well.
He addressed the governor's plan and noted that the plan is
basically the same as what the Senate passed the previous year,
SB 28. He detailed that the governor's plan has a 5.25-percent
percentage of market value (POMV) draw with a dividend that is
based on 20 percent of the draw plus 20 percent of UGF
royalties. He noted that there is a dividend floor of $1,000 for
the first two years and a dividend formula after that. He said
the effect of the governor's plan is that it does not balance
the budget for several years, but reserves would be stabilized.
He pointed out that the 5.25-percent POMV draw becomes an
effective draw of 4.7-percent because fund-balance averages from
previous years are used.
5:04:53 PM
ROB CARPENTER, Fiscal Analyst, Alaska Division of Legislative
Finance, Alaska State Legislature, Juneau, Alaska, explained
that the formula used after the guaranteed $1,000 dividend for 2
years will distribute dividends beyond the initial 2 years at
approximately the $1,000 level as well.
CHAIR DUNLEAVY asked how much the government takes from the
governor's plan.
MR. CARPENTER replied that the amount for the general fund would
start out at $1.8 billion and rise from there as the fund value
grows. He added that the modeling assumes a flat budget with no
budget cuts and no taxes. He pointed out that the governor has a
motor-fuel tax increase that is not shown in the modeling.
He addressed HB 115 and noted that the plan does have an income
tax. He detailed that HB 115 has a 4.75 percent POMV draw and an
income tax equal to 15 percent of federal income taxes paid. He
added that the plan pays one-third of the POMV draw to the
dividend. He noted that the dividend draw starts out higher than
the governor's plan at $1,100 and rises from there. He pointed
out that the plan closes the deficit earlier by FY2023 with
rising reserves. He added that the plan's 4.75 percent POMV
payout levels out to about a 4.17-percent effective payout over
time. He said the fund more than keeps up with inflation and
noted that in FY2026 the fund would be 109 percent of the real
value.
5:06:47 PM
MR. GEORGE pointed out that when the combined value of the ERA
and the corpus is noted as keeping pace with inflation, what is
happening is the ERA is growing, but the corpus is not because
there are no inflationary deposits into the corpus. He explained
that the entire ERA is available for appropriation today in its
entirety, should that happen the fund would not have kept up
with inflation.
MR. PAINTER said inflation proofing in the noted plans do not
use the traditional inflation-proofing mechanism. He explained
that the traditional method uses the actual inflation amount
that happened in that year and then puts that amount back into
the principal, also known as a "spillover" method. He detailed
that if the ERA's balance exceeds four-times the draw, the
amount over the four-times draw would go to the principal.
MR. PAINTER explained that SB 21, Senator Stedman's bill, has a
4.5-percent POMV draw with 50 percent going to dividends. He
noted that dividends in SB 21 start out at $1,600 and rise from
there, above the status quo line. He disclosed that SB 21 does
not completely close the budget deficit, so the CBR would be
exhausted in FY2021 and then there would be unplanned draws from
the ERA unless there are additional actions taken; as a result,
SB 21 does not hold the real value as much because there are
unplanned draws. He noted that if there were reductions to the
budget or other taxes to offset that because of the lower draw,
a higher real value would result. He added that the effective
draws also show as very high in SB 21 because of the unplanned
draws.
5:08:52 PM
CHAIR DUNLEAVY noted that what is important to know about SB 21
is the bill is a POMV 50-50 approach where the government's take
and the dividend are equal.
MR. PAINTER explained that Chair Dunleavy's 50-50 plan as
outlined uses income rather than a POMV draw is essentially the
difference with SB 21. He said the 50-50 plan's dividend is very
close to the status quo scenario. He noted that the 50-50 plan
looks a little different from the earlier presentation because
the Legislative Finance Division's modeling uses a more
conservative realized figure and no budget cuts. He said without
the budget cuts, the reserves would be declining, the CBR would
still diminish, and the plan would just barely keep pace with
inflation. He detailed that the 50-50's plan's draws to the
general fund would begin at $1.5 billion.
CHAIR DUNLEAVY stated that Mr. Painter's description of the 50-
50 plan is different from his office's explanation.
5:10:08 PM
MR. PAINTER replied correct. He addressed budget cuts and noted
that the cuts are an important part of the 50-50 plan. He
explained that the Legislative Finance Division incorporated
budget cuts into its modeling at various cumulative amounts. He
detailed that the following cumulative budget cut amounts were
used: $300 million, $600 million, $900 million, and $1.1
billion. He referenced modeling using budget cuts with various
variables and commented as follows:
That looks more like the picture you saw, still a
little different because we are using this more
conservative realized figure. So, under using this
57.25 percent realized, you still close the budget
deficit, you have dividends roughly the same as status
quo, increasing ERA balance, and the CBR holds.
So, to get to what you have in front of you, switch
this higher realized value, this is more what the
permanent fund is expecting, and the effects of that
is that then you do have increasing CBR balances,
higher dividends, and surpluses; however, at that
point you are not maintaining pace with inflation in
the fund because the real value of the fund would be
declining. So, if you use this more conservative
realized figure then it is keeping pace with
inflation, but reserves aren't as healthy, if you use
the more aggressive figure you are not keeping pace
with inflation, but reserves are healthier.
CHAIR DUNLEAVY opined that there are tradeoffs in all of the
approaches in terms of dividends, government take, and keeping
up with inflation.
5:12:06 PM
MR. PAINTER noted that the same budget cuts applied to SB 21
shows very similar effects where the budget deficit is closed at
roughly the same time and has comparable dividends. He set forth
that the primary difference between the approaches is going to
be how they perform with more volatile investment returns. He
specified that the advantage of the POMV approach is that it
provides more stable amounts for government than the other
approach.
CHAIR DUNLEAVY addressed Senator Coghill's concern on revenue
sharing and offered that there is flexibility where more could
be drawn from the CBR or the Alaska higher Education Investment
Fund. He said Senator Coghill's concern probably is the central
issue for all the plans regarding how much should be drawn, how
much should be cut, and should there be revenue enhancements
from taxes.
He said what his office put forward is to show an approach that
mathematically and mechanically can work with reductions because
reductions are the key. He asserted that without reductions
there is a case to be made that the state may end up chasing
costs with revenue that may be difficult to get through taxes.
He emphasized that his office wanted to show different
approaches to a sustainable budget in four years, maintain the
dividend, and keep the cost of government locked down through an
appropriation limit if people vote in the affirmative. He set
forth that the 50-50 approach can grow the combined fund
balances into the $65 billion range.
CHAIR DUNLEAVY reiterated that there are tradeoffs and the
tradeoff in the 50-50 approach is to avoid taxes by drawing on
the ERA under the existing statute, budget reductions, and a
judicious use of other savings accounts. He summarized that the
50-50 plan and the Senate Majority approach can address
reductions early on while lessening the need for a tax.
5:15:42 PM
SENATOR COGHILL noted that the ERA could be depleted in an ad
hoc way if the Legislature did not have a systemic way to work
with it. He asserted that Chair Dunleavy has shown that a
systemic approach is only true if cutting government is not
started. He concurred that cutting government is harder than
going into savings accounts. He said Chair Dunleavy has clearly
shown that the plans could work with some self-discipline.
CHAIR DUNLEAVY commented that the reviewed plans are all
statutory, meaning that they can be changed by the Legislature.
He reiterated that his office wanted to address the thought that
the state cannot get out of its fiscal problem without taxes and
a real restructuring of the permanent fund. He reiterated that
budget reductions must be contemplated along with the use of
savings. He added that his office has also demonstrated that the
state's savings can be maintained and in many cases the savings
grow.
5:17:38 PM
CHAIR DUNLEAVY asked for unanimous approval that SCR 2, April
2017 Sexual Assault Awareness Month, be waived from the Senate
State Affairs Standing Committee to the next committee of
referral. He said seeing no objection, SCR 2 is waived to the
next committee of referral.
5:18:13 PM
There being no further business to come before the committee,
Chair Dunleavy adjourned the Senate State Affairs Committee at
5:18 p.m.