CS FOR SENATE BILL NO. 78(FIN) "An Act creating the education endowment fund and the dividend raffle fund; authorizing donations from the permanent fund dividend for educational purposes and to enter the permanent fund dividend raffle; relating to transfers from the dividend raffle fund and the education endowment fund; relating to the duties of the Department of Revenue; relating to the definition of 'gambling'; and providing for an effective date." 9:08:16 AM SENATOR CLICK BISHOP, SPONSOR, thanked the committee for hearing the bill. He shared that his heart and soul were in education and workforce development. He relayed that 120 testifiers had stressed that need for education funding and the lack of the raise in the average daily memberships (ADM). He hoped one day the bill would be fully funded and would be injecting new money into education; supporting Pre-K, workforce development, STEM programs, and others. He believed that the bill was a vehicle that used the power of earnings as a renewable resource to help fund education in the state. Representative Grenn asked about the number of participants and the average donation. He referenced a sheet titled "Random Sample at 50,000 Participants giving $200 each" (copy on file). He wondered what data the expectation of participation was based on. PETE FELLMAN, STAFF, SENATOR CLICK BISHOP, he replied that the Legislative Finance Division had created the models for the legislation. He said that another model used 10,000 participants. There was no way to know the number of people would choose to participate in the raffle. He stated that roughly 400,000 adults received permanent fund dividends but that it was unknown how many people would choose to donate to education. Representative Grenn wondered about a marketing number or promotions amount to generate interest in the lottery. Mr. Fellman pointed to administration cost on the spreadsheet, which were solely from the lottery portion of the donations; the program was self-funded. He said there would be minimal start up costs. He stressed that the program would be self-sustaining after the first year. 9:14:12 AM Representative Grenn was looking for a promotion cost. He noted that the Department of Revenue fiscal note reflected a cost of $10,000 for FY 19, under "services." He reiterated his desire to understand the costs associated with promotions and advertising. Mr. Fellman answered there would be a cost to put the raffle on the webpage, but the cost was not expected to be significant. 9:15:33 AM AT EASE 9:16:33 AM RECONVENED Mr. Fellman would follow up with the startup advertising cost. He noted there had been a fiscal note from the previous year that had been updated. Representative Guttenberg understood that the raffle would be created under the assumption that the payouts would be don automatically. He asked what part of the raffle money was subject to legislative appropriation. Mr. Fellman replied that a legal opinion had been drafted that addressed the issue of appropriation. The opinion said that because they were private donations donated for a private purpose, a court could say that the donations had to be used for the purpose donated - education and a raffle. According to a March 31, 2017 legal opinion from Legislative legal Services (copy on file) donations made for a specific purpose had to be used for the purpose for which they were donated. He said that this did not mean that the legislature could not attempt to appropriate the funds, but that doing so would be a bold step that could be challenged in court. 9:20:26 AM Representative Guttenberg maintained discomfort with the issue. Co-Chair Foster asked Mr. Fellman to review the changes in the CS. Mr. Fellman complied. The first change reduced the cap on the lottery in order for money to be more quickly put into education. The changes were on Page 5 and deleted $500 million and inserted $300 million. The Education Endowment Fund at $300 million in order for the fund to grow at a quicker rate. The second change, on Page 6, reduced the payout percentage for prizes to allow more money to be put forward for education. The change on Line 5 of the page deleted 10 percent and inserted 8 percent; on line 7, deleted 5 percent and inserted 4 percent; on Line 9, deleted 3 percent and inserted 2 percent; on Line 11 deleted 2 percent and inserted 1 percent. He stressed that the bill was an effort to set up a system for extra education funding. The effective date had been changed on page 6, line 14. 9:23:43 AM Representative Guttenberg queried the assumptions that showed how long it would take for the fund to reach $300 million. Mr. Fellman replied there was no way to know how much money would move until it hit the cap and they did not know how long it would take to hit the cap. When the $300 million was hit, everything above that amount in the raffle balance would flow into the education endowment fund. Representative Ortiz asked whether the changes in the reduction of the percentage of payouts the were based on an intuition that they could reduce the incentive to participate. He asked if the sponsor assumed that participants would be people who really wanted to donate to education or people who were attracted to participating in a game of chance. Mr. Fellman responded that in modeling the program over a ten-year timespan, there came a point once the cap was hit of the possibility that more money could be paid out than was being put in or that little would remaine in the endowment. He said that the reduction would leave more money in the raffle fund. He thought that the motivation for playing the raffle was a moot point since the money ultimately went to fund education. He reiterated that as the program matured, money would be put into education every year and a small percentage of the raffle fund would be used to pay out prizes. He elaborated on the powerful way that the multiplication of earnings on the endowment would benefit education funding in the state. 9:28:34 AM Representative Ortiz supported the bill. He thought that the level of participation based on the reduced pay-out should be considered. Representative Wilson understood that participation in the raffle was limited to the once a year dividend application. Mr. Fellman answered in the affirmative. A participant had to be 18 years of age and they could not use their children's money to donate to the raffle. He added that playing could only be done with PFD money and a person had to be a resident. They could participate in $100 increments. Every $100 got a person one raffle ticket in the bucket. They could use their entire PFD in $100 increments. Representative Wilson recalled that the University of Alaska had a raffle program. Mr. Fellman answered that with the college fund a person could donate and get a scholarship; another program put their name in a raffle for a chance to double their dividend. He agreed that there were similar programs working in the state. 9:31:22 AM Representative Wilson asked for examples in other locations where lotteries had positively impacted education. Mr. Fellman answered that many states were using lottery money to help fund education. He said that the success rate varied for different programs in different states. He stated that some states used 70 percent of lottery money for education funding, while other states supplemented education funding with lottery monies. He said that it was not a guarantee that the lottery money would not supplant other general fund money, but some states had been able to reduce the amount of state money that was put into education because of lottery funding. Co-Chair Seaton MOVED to ADOPT the proposed committee substitute for SB 78, Work Draft 30-LS0534\Y (Martin, 3/14/18). There being NO OBJECTION, it was so ordered. 9:33:34 AM Vice-Chair Gara believed Senator Bishop wanted more money for education and job training. He had two concerns that he believed could be addressed. If they wanted the money to supplement education funding he thought it needed to be addressed in the bill. He worried that the fund would supplement general funds dollars, rather than increasing education funding. He stressed the importance that donors receive assurances that the money they donate will go to increase education spending. He understood that no money would go into education until the endowment reached $300 million. 9:35:52 AM Mr. Fellman replied in the negative. He explained that every year 50 percent of the raffle funds would go directly to education; 25 percent of all donations would go into the endowment fund and 25 percent would go into the raffle fund. Everything above the $300 million cap would go directly to the endowment. Vice-Chair Gara reiterated his desire that language be written into the bill that defined whether the fund would be used as additional funding or supplemental funding. Mr. Fellman answered that the money would go to education. He said that he had no control over how the legislature would appropriate to education in future operating budgets. He said that the level of funding for education in the future would be established by formulas in statute and the choices made by the legislature. He stressed that the money would help the state. He was not sure how guarunte4es could be written into the language that funding for education would increase as a result of the legislation. Vice-Chair Gara agreed that it was not possible to bind future legislatures. He thought that the legislature used "may spend" language often and that a provision could be written into the bill that distributed the raffle fuds through the foundation formula. A future legislature could decide to honor or not honor the decision. He wanted to let people know that their money may only be going to supplant other funding to education. Mr. Fellman thought that the issue garnered further discussion and believed that language could be crafted that addressed the concern. 9:39:57 AM Co-Chair Foster asked Mr. Fellman to review the sectional analysis. Mr. Fellman complied, stating that Section 1 amended gambling laws. Section 2 gave priority over donations - if people were donating to other things the raffle was at the bottom of the priority list. Section 3 created the endowment fund and the dividend raffle fund. The effective date was January 1, 2019. SB 78 was HEARD and HELD in committee for further consideration.