SENATE BILL NO. 107 "An Act relating to the Alaska capital income fund." 3:14:35 PM Co-Chair Foster indicated the committee heard SB 107 by the Senate Finance Committee on May 2, 2017. He invited Senator McKinnon to speak to the bill. SENATOR ANNA MACKINNON, SPONSOR, had discussed with the House co-chairmen the use of the capital income fund. The fund did not sweep into the general fund. Typically, capital budget chairmen swept projects that had already been utilized for other capital projects around the state. It was money that remained after the allotted time and was still sitting unused. The legislature had two choices for those funds. First, the legislature could place it back into the general fund and spend it like GF dollars. Instead, what SB 107 proposed to do was dedicate the Alaska capital income fund to deferred maintenance. In other words, the money that was being rolled into the fund from lapsing projects would be designated for a higher use and prioritized deferred maintenance spending to extend the life of state assets. She read from the prepared sponsor statement: The State of Alaska maintains over 2,200 facilities which span over 14 entities, including the University of Alaska and the Court system. These facilities total 19 million square feet of space and have a combined replacement value of $8.6 billion. The State's current outstanding deferred maintenance backlog totals over $1.84 billion, which peaked in FY2012 at $2.3 billion. With current funding levels and no consistent funding source, the deferred maintenance backlog is expected to trend up, causing our facilities to fall into disrepair. The Alaska capital income fund was created in 2006 and receives an annual deposit of the earnings from the Amerada Hess Settlement invested by the Permanent Fund. Senate Bill 107 envisions using these funds, which cannot be used for dividends, to provide reliable annual funding for preventative and deferred maintenance. It is important we set up this mechanism to continue to preserve our investment in these facilities as the infrastructure ages and cost for repairs and replacement increases. Co-Chair Seaton commented that part of the capital income fund money came from the Amerada Hess fund. He asked if the money had already been appropriated. He was trying to determine whether the swept money would be designated general funds. He asked about keeping track of reappropriated funds. He was concerned with the duplication of funds. Co-Chair MacKinnon did not know the answer and deferred to Mr. Carpenter. 3:18:29 PM ROB CARPENTER, ANALYST, LEGISLATIVE FINANCE DIVISION, replied that the bill was structured to take the revenue stream from the Amerada Hess Settlement, about $28 million per year, to the Alaska capital income fund for deferred maintenance projects. Historically, the funds were used in the budget for deferred maintenance and all capital projects. However, when the legislature started to consider using the earnings reserve account as general fund revenue, it was discovered that the Alaska capital income fund was not a designated fund source. The money went to the unrestricted general fund. The amendment would make it a designated fund source. Furthermore, to the question of about putting reapropriations inside the fund, there would not be a problem with funds being mixed because the reappropriations had been counted in prior sessions in prior fiscal years. Co-Chair Seaton indicated that the legislature received reports on duplicated funds and regular undesignated general funds. He was trying to figure out how to account for spending each of the funds that were mixed. He asked if it would be difficult to tract how duplicated and non- duplicated funds were spent from an accounting aspect. Mr. Carpenter responded that to-date the state had not reappropriated funding to the capital income fund. Currently, the state would operate with the Amerada Hess funds. Conceptually, if the state were to send reappropriations into the capital income fund and then spend from it, he did not think there would be a problem with duplication only in regard to how the state counted the general fund revenue. The state always equated designated general fund revenues to the designated general fund expenditures. They were always equal, therefore, there would not be a duplication. Co-Chair Seaton suggested that if the legislature put reapporpriations into the capital income fund, they had already been appropriated. Mr. Carpenter responded, "Correct." Co-Chair Seaton wondered, if they were spent, whether the state would be reappropriating them again. He wanted to make sure things were accounted for if the state mixed duplicated and non-duplicated funds. He was fine with the bill but wanted to make the committee aware of mixing two types of fund sources. He wanted to raise the issue. Representative Guttenberg understood that part of the Amerada Hess Settlement was the agreement that the funds could not be used for dividends. The projected lapse of time for that specification to change was 15 to 20 years. He believed that theoretically the funds could be used for dividends in the future. Mr. Carpenter thought Representative Guttenberg was correct that the settlement timeline had passed and that the funds could be redirected for any use. He noted that in prior versions of Percent of Market Value (POMV) bills there was a provision getting rid of the capital income fund and rolling the funds into the Permanent Fund. However, there was nothing precluding the legislature from keeping the capital income fund and the Amerada Hess Settlement monies set aside. 3:24:20 PM Vice-Chair Gara understood the Amerada Hess portion of the capital income fund. He wondered if the legislature had placed funds in the capital income fund in addition to the Amerada Hess funds. He wondered if the bill being discussed would govern whatever other funds were in the capital income fund. Mr. Carpenter believed in the past the legislature had put other money in the capital income fund. He could not recall the time or amount. The bill specifically spoke to the revenue shrink from the Amerada Hess going into the capital income fund. It did not indicate that the legislature could not appropriate additional money in the fund. It could create a burden in terms of counting the funds. Vice-Chair Gara thought it governed the whole capital income fund. He did not see anything in the bill talking about only the Amerada Hess income stream. Mr. Carpenter responded that unless the legislature appropriated money into the fund it would only be the amount flowing into the fund which was about $28 million. Vice-Chair Gara did not need to know if there was additional money in the fund. He forgot his question. 3:26:20 PM Co-Chair Foster OPENED public testimony. 3:26:44 PM Co-Chair Foster CLOSED public testimony. Co-Chair Foster directed Vice-Chair Gara to review the fiscal note. Vice-Chair Gara read the zero fiscal note for SB 107. The fiscal note assumed that there were no additional funds inside the capital income fund. It stated that the funds from the Amerada Hess settlement would now become designated general funds as opposed to undesignated general funds. It relabeled the $28 million income stream. Co-Chair Seaton MOVED to report SB 107 out of Committee with individual recommendations and the accompanying fiscal note. There being NO OBJECTION, it was so ordered. SB 107 was REPORTED out of committee with a "do pass" recommendation and with a new zero fiscal note by the House Finance Committee. Co-Chair Foster reviewed the agenda for the meeting at 5:00 PM. Representative Wilson had heard from a superintendent earlier in the day who was also a principal and an elementary teacher. He was short a special needs teacher. She wondered where the retired teacher bill was in the legislative process. Co-Chair Foster indicated that both bills were in the House Finance Committee and he would determine when the bills would be heard. Representative Pruitt clarified that the Senate had its version in Senate Finance and the House version was in House Finance. Representative Wilson relayed she had heard there were teacher openings because of positions being difficult to fill and that some of those positions could be filled with retirees. She thanked Co-Chair Foster for the update. Co-Chair Foster indicated there were no further comments from members.