HB 209-PERMANENT FUND DIVIDEND: INCOME THRESHOLD  2:20:47 PM CHAIR GRAY announced that the final order of business would be HOUSE BILL NO. 209, "An Act relating to the Alaska permanent fund; relating to income of the Alaska permanent fund; relating to the amount available for appropriation and appropriations from the earnings reserve account; relating to the permanent fund dividend; and providing for an effective date." 2:21:04 PM The committee took a brief at-ease at 2:21 p.m. 2:22:28 PM REPRESENTATIVE ZACK FIELDS, Alaska State Legislature, as prime sponsor, presented HB 209. He said many people in the public are not aware of how dire Alaska's fiscal situation is becoming with declining oil prices. He stated that paying a $1,000 dividend will become impossible without significant new taxes, means-testing, or wholesale elimination of programs. He said there are hard choices ahead and HB 209 provides one more option on the table for those Alaskans who see value in having a meaningful permanent fund dividend (FPD). He referred to a PowerPoint presentation on HB 209 [included in the committee packet] that shared the history of the Alaska Permanent Fund, the establishment of the dividend, historic dividend averages, and Legislative Finance Division (LFD) models. He shared that the bill would set the PFD at $1,000, which is in line with the historical average. In comparing the LFD models, he indicated that paying a full statutory dividend, a 50/50 dividend, or a 75/25 dividend would not be possible without a significant tax increase. He stated that a $1,000 dividend would be achievable if its means-tested with minor to no taxes, or modest taxes. 2:32:20 PM EVAN ANDERSON, Staff, Representative Zack Fields, Alaska State Legislature, on behalf of Representative Fields, prime sponsor, presented the sectional analysis for HB 209 [included in the committee packet], which read as follows [original punctuation provided]: Section 1: This section amends AS 37.13.140 to authorize the Department to compute the net income of the Permanent Fund annually on the last day of the fiscal year, excluding any unrealized gains or losses. It removes the statutory calculation that income available for distribution equal 21% of the net income of the fund for the last five fiscal years. Section 2: This section amends AS 37.13.145(b) to authorize the legislature to appropriate funds from the earnings reserve account to the dividend fund and to pay out a dividend of $1,000 to each eligible individual per fiscal year. Section 3: This section amends AS 37.13.145(c) to give the legislature the ability to appropriate additional funds from the earnings reserve account to the principal of the Permanent Fund in order to offset the effect of inflation during that fiscal year. Section 4: This section amends AS 37.13.145(d) replacing the words "distribution" and "transfer" with "appropriation" to conform with previous sections. Section 5: This section amends AS 37.13.145(f), which gives the legislature the authority to appropriate funds from the earnings reserve account to the general fund. This is a conforming change. Section 6: This section amends AS 37.13.300(c), making conforming changes to the statute that disallows the legislature from including income from the mental health trust fund in the funds available for appropriation. Section 7: This section amends AS 43.23.005(a), to establish a new income threshold for Permanent Fund Dividend eligibility. Individuals who earn $50,000 or less annually, or married couples who earn $100,000 or less of combined income are eligible to receive a dividend. Individuals who are exempt from filing a federal income tax return are also eligible. Section 8: This section amends AS 43.23.028(a) to remove the annual public notice requirement for the Permanent Fund Dividend amount and instead replace it with a similar disclosure that each recipient of the PFD will receive. Section 9: This section is a conforming change to AS 43.23.045(d) to delete the phrase "determining the amount of" because the PFD is capped at $1000. Section 10: This section repeals AS 43.23.025(a) which directs the Department to calculate the amount of the dividend annually. This section also repeals AS 43.23.028(b), which directs the Department to transfer the amount that would have been owed to ineligible applicants to the restorative justice fund. Section 11: This section adds new language to uncodified law to clarify that the provisions of this bill apply to the dividend qualifying year 2025 for the 2026 dividend. Section 12: This section sets an immediate effective date for the bill. 2:35:20 PM CHAIR GRAY sought questions from committee members. 2:35:34 PM REPRESENTATIVE KOPP spoke to the importance of talking honestly about the state's fiscal situation and thanked the sponsor for initiating this conversation. He commented on the volatility in the price of oil and said paying a full statutory dividend in this year's budget would result in a $1.6 billion deficit. He added that paying the full statutory dividend in years past stretched communities so thin and almost resulted in a recall of the governor. He added that whether this is the right solution or not, putting parameters around the dividend is an important conversation. 2:38:50 PM REPRESENTATIVE MINA expressed appreciation for the bill sponsor for educating the public on the structural deficit. She asked whether there are instances in which a corporation would exclusively limit who receives a dividend. REPRESENTATIVE FIELDS responded yes, the dividend has been used as a universal basic income program but as the Alaska Supreme Court opined, it could be based on a rational income test that wouldn't discriminate Equal Protection laws. CHAIR GRAY asked Mr. Mills to comment. 2:40:55 PM SEAN MILLS, House Majority Staff, Alaska State Legislature, said the Zobel v. Williams case offers legal guidance on designing a system for a PFD distribution. He explained that similarly situated people cannot be treated differently under Equal Protection rights in the U.S. Constitution. He described the Zobel case in greater detail, which struck down a prior system of distributing the dividend based on years of residency; however, a means test based on current income would not be considered permanent classification and would avoid a similar Equal Protection issue. He opined that there would not be Equal Protection issues with HB 209. 2:45:33 PM CHAIR GRAY asked whether the Alaska Supreme Court "got it right" with regard to the Zobel case. MR. MILLS said the most significant question raised is whether the Alaska Supreme Court used a more lenient standard than what was appropriate at the time. There was a dissent in the case by Justice William Rehnquist who believed that a stricter standard should have been applied, which is also reflected in some of the concurring opinions. Nonetheless, the law failed under the lowest rational basis standard. 2:48:19 PM REPRESENTATIVE MINA pointed out that in the bill, the PFD is means tested at $1,000. She referred to the PowerPoint presentation and asked whether the historic dividend averages were adjusted for inflation. REPRESENTATIVE FIELDS answered no. REPRESENTATIVE MINA estimated that $1,000 in 1982 would be $3,300 when adjusted for inflation in today's dollars. In that sense, she asked whether $1,000 is an accurate average. REPRESENTATIVE FIELDS stated that the fund is a renewable resource, most of which has been generated by investment and is consistent with the voter's original intent in 1976. He opined that "good legislation" must honor that original intent and grow that renewable resource. For that reason, he said he would never vote for overspending beyond the 5 percent POMV cap. 2:51:20 PM REPRESENTATIVE VANCE asked why the legislature should turn the dividend into welfare. REPRESENTATIVE FIELDS said he put the bill forward for voters to inform the legislature of their preferences in a tough fiscal climate. He said the legislature could choose not to means test the dividend and let its value erode; however, he argued that he would not consider means testing as welfare. REPRESENTATIVE VANCE countered the idea that it's would not be welfare by citing Section 7, which would specifically distribute the dividend to low-income people. She asked how $50,000 per individual and $100,000 for a couple was decided upon. REPRESENTATIVE FIELDS stated that the bill is a compromise between those who rely on the dividend and those who want to get rid of it. He said the dividend could be means tested to determine the right dollar figure and peg it to inflation. He reiterated his belief that it doesn't make sense for his family to receive a dividend when they make hundreds of thousand dollars per year while essentially taking it away from someone in Mountain View. 2:55:26 PM REPRESENTATIVE UNDERWOOD shared an example of a person with millions in assets who chose to earn a salary of less than $50,000. She asked given the Wielechowski v. State of Alaska decision, whether the legislature could still choose to appropriate or not appropriate if the bill were to pass. REPRESENTATIVE FIELDS reiterated that the dividend would diminish to zero on its current path. He asked whether it would be better to update the formula with something achievable and pay $1,000 to those who need it most. In response to Representative Underwood's first example, he said it would make sense to ask the Department of Revenue (DOR) how to best capture the high-net-worth low adjusted gross income individuals. 2:58:07 PM REPRESENTATIVE COSTELLO said she struggled with the idea of making the dividend program something other than a share in the state's mineral wealth. She stated that the dividend is sacrosanct to Alaskans and said she's not sure this bill is something the public would ever support. She spoke to the history of the dividend and asked the bill sponsor to respond to her concerns. REPRESENTATIVE FIELDS shared his understanding that the key purpose of the PFD was to grow the fund, as established by voters in the constitution, which was a new idea for states. He added that the dividend gave people a stake in growing the fund and was designed to be a means to that end. He posited that although circumstances are different in today's fiscal climate, fidelity to the fund must remain consistent. REPRESENTATIVE COSTELLO argued that the dividend protects the corpus of the fund, so making it means tested would stray from its intended purpose. 3:03:57 PM REPRESENTATIVE EISCHEID sought to clarify that the bill would set the PFD at a max of $1,000 for eligible recipients. REPRESENTATIVE FIELDS answered yes, it would update the PFD formula to $1,000. REPRESENTATIVE EISCHEID asked if the bill were to pass, whether it would cut the PFD for those who qualify due to inflation. REPRESENTATIVE FIELDS pointed out that most budget items are not pegged to inflation. REPRESENTATIVE EISCHEID asked whether as written, the dividend would be an inflationary cut. REPRESENTATIVE FIELDS responded no, because it would actually increase the dividend for the people who need it relative to its current path, which is on a rapid decline. He reiterated that at projected oil prices, the dividend would be in the low hundreds of dollars within the next 3 to 4 years. REPRESENTATIVE EISCHEID expressed concern that a $1,00 dividend would shrink each year when adjusting for inflation. 3:06:50 PM CHAIR GRAY characterized the PFD as the most progressive fiscal policy in America, which has resulted in much less income equality in Alaska. He said the dividend is amazing because of its benefit to the poorest in Alaska. He said he liked the bill but it's too conservative because it's not tied to inflation, the income cap is too low, and $1,000 is not enough. He commended the bill sponsor for telling the truth and in that spirit, he shared his own truths about HB 209: the income thresholds would be raised, the dividend amount would be doubled, and it would be tied to inflation. He announced that HB 209 was held over.