HOUSE BILL NO. 1003 An Act relating to the income of and appropriations from the Alaska permanent fund under art. IX, sec. 15(b), Constitution of the State of Alaska, and making conforming amendments; relating to permanent fund dividend payments of at least $1,000; relating to the determination of net income of the mental health trust fund; and providing for an effective date. CHERYL FRASCA, DIRECTOR, DIVISION OF MANAGEMENT & BUDGET, OFFICE OF THE GOVERNOR, observed that the legislation would provide for a dividend that is equal to 50% of the annual POMV income or a $1,000 dollar dividend, whichever is greater. ROBERT D. STORER, EXECUTIVE DIRECTOR, ALASKA PERMANENT FUND CORPORATION, DEPARTMENT OF REVENUE, explained that the income from the Amerada Hess settlement may not be distributed as a dividend under current law. Income from the settlement can only go into the principal of the Fund. These funds are a component within the Fund, which has continued to grow. The legislation would change this status and allow the funds to be considered in the calculation of dividends. In response to a question by Representative Croft, Mr. Storer felt that the change could be made within the limits of the settlement. He did not have a legal opinion to substantiate this opinion [Mr. Storer later notes that the legislation would not include this change.] Representative Hawker corrected the previous statements by Mr. Storer and pointed out that language in the original version (HB 298) made the income available. He observed that HB 1003 would hold the status quo and the income would not be available for distribution. Mr. Storer acknowledged that the distinction would remain the same as under current statute. Representative Joule MOVED to ADOPT conceptual Amendment #1 for the distribution: 7.5 percent for municipalities, 32.5 percent to public education and 60 percent to dividends. Co-Chair Williams OBJECTED. Representative Hawker suggested that the amendment would place dividends at a higher priority to education. Representative Joule disagreed and pointed out that there is a formula for education, regardless of the funding source. The amendment is a switch in the fund source. Representative Hawker asked if Representative Joule would support a reduction of the dividend payout to 50%. Representative Joule did not support the change. A roll call vote was taken on the motion. IN FAVOR: Foster, Joule, Moses, Stoltze, Croft OPPOSED: Hawker, Meyer, Chenault, Fate, Williams Co-Chair Harris was absent from the vote. The MOTION FAILED (5-5). Representative Chenault asked what would happen if the Permanent Fund did not have a market gain in a period of time. Ms. Frasca pointed to page 3, line 26: if funds were insufficient to meet the $1,000 [dividend] minimum, the other percentages would be reduced accordingly with the anticipation that the legislature would back fill to fully fund the 45 and 5 percent payouts [to education and municipalities.] Mr. Storer explained that the POMV approach allows a 5 percent payout with any distribution. Under the proposal a $1,000 dividend would be given priority; as long as 5 percent of the average of the Fund equal to $1,000 [times the number of dividend recipients] is available, the dividend would be paid. The Fund size would have to average around $14 billion to [pay a $1,000 dividend]. He observed that during the past three year's bear market the Fund went from $28 billion to $21 billion, which still allowed for inflation proofing and full funding of the dividend. Statistically there is a small possibility [that the Fund would drop below the level needed to fund a $1,000 dividend]. There would have to be an extremely severe bear market in the stock market. Ms. Frasca pointed out that the legislation would provide a statutory change. The legislature would have the latitude to amend the statute. In response to a question by Vice-Chair Meyer, Ms. Frasca reiterated that the $1,000 minimum provision was added by the Governor and was not in the version passed by the House [HB 298]. TAPE HFC 04 - 1, Side B  Representative Foster MOVED to report HB 1003 out of Committee with the accompanying fiscal note. There being NO OBJECTION, it was so ordered. HB 1003 was REPORTED out of Committee with a "do not pass" recommendation and with a zero fiscal note by the Department of Revenue.