CS FOR SENATE BILL NO. 72(FIN) "An Act relating to the community revenue sharing program; and providing for an effective date." 1:45:22 PM Representative Thomas MOVED to ADOPT the work draft for CSSB 72(FIN), labeled 25-LS0506\F, Cook, 2/13/08. There being NO OBJECTION, it was so ordered. 1:46:04 PM SUZANNE ARMSTRONG, STAFF, CO-CHAIR MEYER, recalled that last year during testimony on SB 72 there were elements that surfaced as important in a statutory program: fairness, stability, affordability, and sustainability. She maintained that the Community Revenue Sharing proposal contains these elements. Ms. Armstrong referred to a handout entitled "Community Revenue Sharing" (copy on file.) She explained the elements of the proposed revenue sharing: the fund, the formula, and the mechanics. Ms. Armstrong highlighted page 4, Community Revenue Sharing Fund. The purpose of the fund is for making community revenue sharing payments to local communities. It consists of appropriations of 20 percent of the revenue generated under the progressivity surcharge, not to exceed the great of $50 million or the amount to bring the fund balance to $150 million. Interest earned on the fund may be appropriated to the fund. The money in the fund does not lapse and is not a dedicated fund. Ms. Armstrong explained the formula on page 5. If the fund balance at the end of the fiscal year, June 30, is at least $50 million, there will be revenue sharing. Without further appropriation, the Department of Commerce, Community and Economic Development will distribute one third of the fund balance as revenue sharing payments. The amount of distribution is very similar to the amounts used during the last two years - $50 million as grants in the capital budget. Ms. Armstrong turned to the chart on page 6 to show how the basic payments are distributed. 1:48:23 PM Representative Nelson asked if these were place holder numbers or actual numbers. Co-Chair Meyer replied that they are good place holders and work similarly to last year's capital budget distribution. Representative Gara pointed out that in 2007 there were Energy Assistance and PERS, instead of revenue sharing. He asked if there was a PERS reduction this year. Co-Chair Meyer said this legislation is separate from PERS/TRS. Ms. Cunningham related that this bill is separate from SB 125, which deals with PERS/TRS changes. In previous years revenue sharing was not done through statutory program, but as grants in the capital budget, and was used to assist communities with energy assistance and rising retirement costs. 1:50:29 PM Representative Kelly thought it was important to follow through with Representative Gara's point. He agreed that it was an addition to the PERS/TRS payment. Co-Chair Meyer compared it to a three-legged stool: the PERS/TRS fix, revenue sharing, and education funding. He added that the $50 million figure was a place holder. The Governor is proposing $75 million. Representative Nelson noted that under the Governor's proposal it would be a 50 percent increase and would a matching grant program. The revenue sharing could then be used for operating costs as well as for capital expenditures, which she thought was good because some communities ran into red tape in the past. Co-Chair Meyer said there were no strings attached. Anchorage will be using it for property tax relief. Representative Nelson recalled the heroes list, those communities that paid retirement costs into the future. She wondered if the hero communities would be accounted for in other areas of the budget. Co-Chair Meyer thought that would happen in the PERS/TRS fix. Ms. Armstrong agreed that would be addressed in SB 125. 1:54:18 PM Representative Gara pointed out that the minimum amount an unincorporated city would get is $20,000 to $25,000, which he thought was low. He recalled that last year's minimum was closer to $40,000. He shared a history of the amount allotted for revenue sharing. He expressed concern about cutting the amount. Co-Chair Meyer noted different ways revenue sharing has been implemented throughout the years. Ms. Armstrong explained that the basic payments in this bill are similar to the basic payments allowed for in the capital budget grant last year. There is also a per capita distribution on top of the basic payment. Representative Gara repeated that $20,000 was too small. Co-Chair Meyer agreed, but thought the amount would go to very small communities that didn't need as much money. 1:56:18 PM Ms. Armstrong turned to page 7, the Per Capita Distribution. She explained that the remaining balance of the $50 million is distributed per capita. Communities in an unorganized borough cannot have a total payment that exceeds the city basic payment. The excess amount is then distributed to the remaining qualifying communities in the unorganized borough. The population of each city in a borough is deducted from the total borough population. Ms. Armstrong addressed what happens when the amount available is larger than $50 million, page 8. The formula has a "floating" basic payment structure. Ms. Armstrong described what happens when there is less than $50 million available, page 9. The floating payment kicks in, but in reverse. The basic rationale is that every community would retain their slice of the pie. 1:58:26 PM Representative Nelson asked if it was a 50/50 distribution regarding base and per capita. Ms. Armstrong replied that it was actually 40 percent basic payment and 60 percent per capita. Representative Nelson asked if that was flexible. Co-Chair Meyer said it was. Representative Crawford asked who does the counting of population. Ms. Armstrong reported that the Department of Commerce does it. There is language in the bill defining how population is considered. She recalled it was by PFD qualification or by an allowable method that the department determines appropriate. 1:59:49 PM Representative Gara said he understands there are two methods of revenue sharing, an appropriation or an endowment. He related that he does not understand creating a $150 million endowment to spin off $50 million. Co-Chair Meyer reported the Senate's concept of the progressivity rate for three years so municipalities could adjust. Ms. Armstrong added that it was to provide stability to communities. Ms. Armstrong continued with page 10. She explained that a minimum base has been inserted in order to protect smaller communities when there is less than $50 million available for a program. The minimum borough basic payment in the draft proposal is $220,000. Ms. Armstrong showed page 11 to explained the minimum basic payments when the program is at $36 million Ms. Armstrong turned to page 12 to explain the fund mechanics. Each of the three years there would have to be a payment of $50 in order to keep the fund balance at $150 million. Ms. Armstrong explained page 13, a hypothetical example of what happens when oil prices fall below $60 per barrel and remain there through FY 2013. 2:03:56 PM Ms. Armstrong reported on page 14 that the fund has bounce back potential. Interest may be appropriated to the fund by the legislature. Other revenue such as general funds may be appropriated to the fund. Most importantly, when higher oil prices trigger the surcharge, the fund can immediately recover to the $150 million level and payments the following year would be $50 million. Ms. Armstrong summarized the revenue sharing program on page 15. She reviewed the four elements need to decide if it meets the test: fairness, stability, affordability, and sustainability. The fund has basic payments that adjust with the funds available for the program, coupled with a per-capita payment. The communities will know payment levels well in advance. The program is funded when the surcharge is triggered or other appropriations are made. The fund has quick "bounce back" potential, as long as the total cost of the program is a sustainable cost for the state. Co-Chair Meyer commented that public testimony would be held at another time. He noted that there is an on-line revenue sharing model available to look at. He emphasized that there was an attempt to keep the distribution similar to the last two year's distributions. 2:06:50 PM Representative Thomas asked if the overhead could be made available. Ms. Armstrong said she would make the information available. Representative Gara requested more information about the progressivity surcharge formula on page 5, lines 4 and 5, "20 percent of the money received by the state during the previous calendar year under AS 43.55.011". Ms. Armstrong said that was the statutory reference. Representative Gara asked for a projection of 20 percent at various oil projections. Ms. Armstrong agreed to provide that information to the committee. She referred to subsection (b) on page 5 as a work in progress. The intent is that it would be 20 percent of the money received under the surcharge in an amount not to exceed $50 million or what it would take to capitalize the fund at $150 million. Representative Gara inquired if the intention is that the fund never exceeds $150 million. Ms. Armstrong replied that subject to legislative appropriation, it could. This draft bill idealizes a $50 million revenue sharing program. Representative Gara commented that it makes it a maximum of $50 million, which will decrease with inflation. He said he liked the progressivity element. 2:10:25 PM Co-Chair Meyer commented on what happens when oil prices are higher. Representative Kelly noted that there are at least three competing schemes for the same oil dollars. Representative Crawford thought that this bill might be a direct conflict with the progressivity piece. He thought the concepts should be combined. Ms. Armstrong pointed out that a constitutional amendment would trump statute. 2:13:06 PM Representative Joule said that there is nothing that prohibits the legislature from earmarking funds for revenue sharing down the line. The challenge could be in the first five years. Ms. Armstrong referred to documents that portrayed how the payments would look under several scenarios. Representative Gara wished to hear from the Administration on the bill. CSSB 72(FIN) was heard and HELD in Committee for further consideration. 2:16:09 PM