HOUSE BILL NO.3 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. REPRESENTATIVE NORMAN ROKEBURG noted that the legislation would return the percentage of all mineral lease royalties and bonuses deposited into the Permanent Fund to the constitutionally mandated 25% percent. HB 3 proposes changes to a statute, not the Constitution. He advised that the surplus situation with State revenues no longer exists today. He claimed that it is time for the State to redirect the extra 25% to the General Fund. Passage of the bill would generate an estimated $29 million dollars per year over the next thirteen years. As Prudhoe Bay and Kuparuk fields, which currently contribute to the general fund at a 25% rate diminish, the State needs to replace that production with new, smaller satellite fields contributing at the same 25% rate, not at the 50% rate. Representative Rokeburg claimed that while the State can and should continue to make budget reductions, it would be foolish to ignore the source of general fund revenue in solving the budget problem. Prudent fiscal management requires a statutory change. HB 3 would be a small step in the right direction. He urged the Committee's support of what he called "fiscally prudent" legislation. JIM KELLY, DIRECTOR OF COMMUNICATIONS, ALASKA PERMANENT FUND CORPORATION (APFC), DEPARTMENT OF REVENUE, provided information to Committee members. [Copy on File]. He noted that the impact on oil contributions would total $333 million dollars between 2001-2011. The impact on per capita dividends would total $90 million dollars over the same eleven years. He offered to answer questions of the Committee. In response to queries by Representative Croft, Mr. Kelly explained that it would be the income earned on the oil revenues and would be averaged over five years. A reduction taken in oil revenues would amount to $40 million dollars a year. That would amount to the expected income earned on the $40 million dollars. Representative Harris asked if the effect on the dividend would be higher than the Capital Budget Reserve (CBR). Mr. Kelly replied that the amount of money coming out of the CBR for FY02 was approximately $500 billion dollars. That is more than the legislation proposes to take over the next ten years. To replace that with Permanent Fund income, the impact would be much more dramatic. The market during the past few months has reduced the dividend by more than the bill would reduce it over the next ten years. Representative Hudson noted his support for the legislation. The total revenue received from oil at the original time was over $3.5 billion dollars. Currently, oil revenues are at $800-$900 billion dollars. He stressed that oil provides the State two dividends. · It provides the permanent fund dividends; and · It provides for the funding of essential services of government. Representative Hudson stated that funding has been deposited in excess to the statutory requirement. He observed that the Legislature has been an outstanding trustee. At this time, there is not enough funding in the second dividend for essential services. It is time to redirect the income stream to where it was originally. The 25% contribution would be the number excluding the bonus originally given. The bonus should be stopped, allowing the State of Alaska to provide an income stream and continue to provide essential services. Representative Hudson MOVED to report HB 3 out of Committee with the accompanying fiscal note. Representative Davies OBJECTED for the purpose of discussion. Representative J. Davies agreed that HB 3 was a piece of a long-range fiscal plan, but he emphasized that it is a "small" piece relative to what the problem is. He expressed concern that the State's fiscal problem is being addressed "piece meal". Representative J. Davies WITHDREW his OBJECTION. Representative Croft OBJECTED and stressed that there has been no comprehensive discussion on a fiscal plan. He reiterated that no components of a plan have been addressed to date. Representative Croft maintained that there should be a comprehensive discussion and indicated that a five-year fiscal plan should raise revenues. Representative Harris commented that the legislation would raise revenues into the General Fund that otherwise, would not have been available. Representative Rokeberg disagreed with the indication that the legislation was a mistake except as part of a total plan. A roll call vote was taken on the motion. IN FAVOR: Bunde, Davies, Harris, Hudson, Lancaster, Williams OPPOSED: Croft Representatives Moses, Foster, Mulder, and Whittaker were absent from the vote. The MOTION PASSED (6-1). HB 3 was reported out of Committee with a "do pass" recommendation and with a fiscal note by Department of Revenue dated 3/13/01.