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." 2:26:13 PM Co-Chair Seaton invited Mr. Fellman to the table. 2:26:39 PM PETER FELLMAN, STAFF, SENATOR CLICK BISHOP, noted that he had no comments. 2:27:11 PM Representative Guttenberg announced that he would not be offering Amendment 1. 2:27:34 PM Vice-Chair Gara MOVED to ADOPT Amendment 2, 30-LS0534\Y.8 (Martin, 4/12/18) (copy on file): Page 1, following line 6: Insert a new bill section to read: "* Section 1. The uncodified law of the State of Alaska is amended by adding a new section to read: LEGISLATIVE INTENT. It is the intent of the legislature that the funds generated by the permanent fund dividend raffle created in this Act be used to supplement and not to supplant state aid provided by the public school funding formula under AS 14.17.410." Page 1, line 7: Delete "Section 1"  Insert "Sec. 2" Renumber the following bill sections accordingly. 14 Page 5, line 5, following "appropriation": Insert "; money transferred under this paragraph to the public education fund may be used in addition to the state aid to districts calculated under AS 14.l 7.410(b)(l)" Page 5, line 31, following "AS 14.17.300.": Insert "Money transferred under this subsection to the public education fund may be used in addition to the state aid to districts calculated under AS 14.l 7.410(b)(l)." Representative Wilson OBJECTED for discussion. Vice-Chair Gara explained the amendment. He said that the intent was that the legislature could supplement education funding with the proceeds. Representative Wilson expressed appreciation for the amendment. Representative Wilson WITHDREW her OBJECTION. Co-Chair Seaton clarified that the amendment was version Y.9. There being NO OBJECTION, Amendment 2 was ADOPTED. 2:30:51 PM AT EASE 2:32:19 PM RECONVENED ALEXEI PAINTER, ANALYST, LEGISLATIVE FINANCE DIVISION, reviewed the fiscal notes. He explained that the fiscal note was under the additional foundation funding allocation under K-12 school districts in the Department of Education and Early Development (DEED) but would impact several areas of the state budget. He furthered that none of the impacts would be felt in FY 19, so the division felt that, rather than creating fiscal notes for allocation that had yet to exist, allocations had been incorporated into one fiscal note. The following items outline the budget actions associated with the legislation. Other than the two Department of Revenue fiscal notes which request (1) $10.0 GF/PR (Permanent Fund Dividend Division) in FY 19 for programming changes to set up the database; and (2) $25.0 GF/PR (Tax Division) in FY 19 for program promotion, the remaining budget items would occur in FY 20 or subsequent fiscal years: 1. Flow to the Department of Education and Early  Development - FY 21  50 percent of dividend contributions shall be appropriated to the Department of Education and Early Development (using the new Raffle fund code which will be created in FY 20 as grants supplementing the foundation formula. 2. (new) Education Endowment Fund - FY 20  Using the new Raffle fund code, 25 percent of dividend contribution will flow to the new Education Endowment Fund. Eventually, an additional Endowment fund code will need to be created for funding that comes out of the Endowment Fund as overflow payments to the Public Education Fund. There is no fiscal note because there is no money anticipated during the first five years of the program. 3. (new) Dividend Raffle Prize Fund - FY 20  25 percent of the dividend contribution will flow to the Dividend Raffle Fund using the new raffle fund code. There will be a new Prize fund code for management of the Raffle funds plus any overflow to the Education Endowment Fund. Prizes will be paid without further appropriation. 4. Programming costs for DOR/PFD Dividend Division -  FY 19  (see DOR/Permanent Fund Division fiscal note) - $10.0 GF/PR is required in FY 19 for DOR to program their database in time for 2019 PFD applications (which will be paid out in FY 20). 5. Manage endowment - DOR/Taxation and Treasury - FY  20  (see DOR/Treasury Division fiscal note) - The current fiscal note estimates management costs ranging from $4.4 in FY 20 up to $26.3 in FY 24. This will be paid for using the new Prize fund code. 2:36:01 PM Representative Wilson pointed to the DOR note, OMB component 2476, and DOR note, OMB component 981, which reflected program receipts. She noted that there were no program receipts, and she asked whether the intent had been to show that DOR would provide the funds and then the money would be paid back as the program made money. Mr. Fellman replied that that was his understanding. Representative Wilson thought that the department would unlikely have and additional $35,000 to fund the initial payouts. She surmised that the funds would be undesignated general fund (UGF) dollars initially, which would be returned as designated general funds (DGF). Mr. Fellman responded that initially, pre-program dollars were supposed to be spent for advertisement. He said that he had pointed out that the language in the fiscal note should be changed. Representative Wilson directed committee attention to fiscal note OMB # 2476, Page 2: For FY 19, the Department of Revenue intends to provide $25,000 in raffle proceeds to the Department of Education and Early Development. DEED will use the funds to inform Alaskans of the existence of the raffle and that a large portion of their ticket purchases goes to directly support education programs. Mr. Fellman deferred to Mr. Alper to respond. He understood that the appropriation was to cover the first year of advertising. 2:38:53 PM KEN ALPER, DIRECTOR, TAX DIVISION, DEPARTMENT OF REVENUE, said that the note had been written to relay that a small fraction of money that came into the fund would be used for marketing. He stated that how to fund that advertising in year 1 had been recently discussed. He related that he did not precisely know how the first year of the program would fund advertising. Representative Wilson explained that her issue was with the fund code. She expressed curiosity that the intent was that the money be paid back with designated general funds, when no fund currently existed. She understood that the state would be paid back out of the first $35,000 raised in the fund. Mr. Painter believed the fiscal note should indicate UGF if there were no DGF to spend. He recommended amending the note. Representative Wilson wanted additional clarification in the note in the form of intent language. 2:41:44 PM Representative Guttenberg referred to the DEED note, OMB component 3112. He asked whether one-fifth of the fund was the total of prizes distributed. Mr. Fellman replied that the one-fifth represented one- fifth of the money in the fund. Representative Guttenberg expressed concern that only one- fifth of the total fund went out in prizes. Mr. Fellman responded that one-fifth was 20 percent. He did not believe the chart attached to the note reflected the current CS. He stated that the other 80 percent would stay in the fund for education. He said that if the fund exceeded $300 million by a $1 million, the $300 million would be where the prized were drawn from and the additional $1 million would go directly into the Education Endowment Fund. Mr. Alper stated that currently the profits of charitable gaming in the state, predominately pull-tabs and bingo, was approximately $350 million, of which 10 percent passed through to eventual recipients as charitable donation. He said that a great bulk of the difference was distributed in prizes and used to pay costs to operate the games. 2:45:50 PM Vice-Chair Gara wondered if it would be proper to meld what Representative Wilson and Mr. Painter stated into a conceptual amendment that clarified intent. Vice-Chair Gara MOVED to ADOPT Conceptual Amendment 3 to amend fiscal note OMB component 2476, to change the the $25,000 to UGF, and to state in the analysis that it was the intent of the legislature that the funds be repaid in the future out of raffle proceeds. Representative Wilson OBJECTED. Representative Wilson thought the same amendment should be made to fiscal note OMB component 981. Vice-Chair Gara agreed. He said that he would move a separate amendment for OMB component 981. Representative Wilson WITHDREW her OBJECTION. There being NO OBJECTION, Conceptual Amendment 3 was ADOPTED. Vice-Chair Gara MOVED to ADOPT Conceptual Amendment 4 to amend fiscal note OMB component 9816, to change the $10,000 to UGF, and to state in the analysis that it was the intent of the legislature that the funds be repaid in the future out of raffle proceeds. There being NO OBJECTION, it was so ordered. Representative Kawasaki was uncertain that he would support the bill on the floor but would not stop it from moving forward from committee. He expounded on his reasoning. He expressed concern that non-profits would lose funds from the Pick-Click-Give program. 2:51:48 PM Representative Grenn would be objecting to moving the bill from committee. He echoed Representative Kawasaki's concerns that non-profits would lose funding. Representative Wilson praised the innovative nature of the bill. She thought that it was clear where the money would be distributed. She expressed 100 percent support. 2:57:19 PM Representative Guttenberg categorized the legislation as a "gaming bill disguised as educational funding." He thought that the assumptions built into the bill were random and arbitrary. He felt that a more comprehensive analysis of the repercussions of the legislation should be executed. He thought that gambling was disproportionately detrimental to the poor. He expressed opposition to the bill. 3:00:17 PM Co-Chair Seaton was in support of the bill. He spoke of suggested tax credits to industry members that made significant contributions to education. He felt that the inducement was more significant than the potential payout. He thought that the supplemental funding would be beneficial to all districts in the state. 3:02:30 PM Representative Grenn thought if the bill was about education and not gambling, the proceeds would be given to schools. 3:02:59 PM Representative Grenn asked where in the application, on the website, would be the option to purchase the raffle tickets. SARA RACE, DIRECTOR, PERMANENT FUND, DEPARTMENT OF REVENUE, responded that the this was currently unknown but that there was a new application under development that broke out voluntary options for directing funds. Representative Grenn asked whether the items would be listed on the same page. Ms. Race replied in the affirmative. Representative Grenn asked who would oversee advertising. Ms. Race thought that DOR would advertise in partnership with the Permanent Fund. 3:04:32 PM Representative Grenn was uncomfortable with the logistical unknowns. 3:04:46 PM Vice-Chair Gara respected the various views of committee members on the bill. He believed that the legislation should be debated on the floor. He supported moving the bill from committee. 3:07:05 PM Representative Pruitt supported moving the bill out of committee. He echoed concerns mentioned by other committee members. He felt that the bill should be voted on the floor. 3:08:29 PM Representative Ortiz wondered how the raffle option would be clearly separated from the Pick-Click-Give option. Mr. Fellman felt that the options that were already available. He believed that the option would be clearly delineated on the alienation. He stressed that assumptions were hard to make but that sometimes chances had to be taken. Ms. Race added if an individual was selecting many options that they wanted to voluntarily give to, making sure that there was a clear understanding of payment priority was a consideration. Representative Ortiz asked whether it would possible to require clicking a button that took the applicant to a separate donation page for the raffle option. Ms. Race responded that it was possible and had been considered during the application redesign process. 3:12:12 PM Representative Kawasaki wondered about an analysis of the economic repercussion of the lottery money not filtering through the economy by other means or regular spending. Mr. Fellman responded that many businesses advertise PFD specials. He said that it was hard to tell how people would spend their dividends, but that the money would filter down eventually. He noted that there were already 15 different variations of raffles in the state, generating $388 million yearly. He could not say whether an evaluation of those fund had been conducted. Representative Kawasaki cautioned that there could be a negative impact on Pick-Click-Give recipients, as well as less PFD money circulating in the state economy. Mr. Fellman argued that at least 75 percent would go directly into savings or education. He contended that at least 50 percent of the raffle funds would go back into the economy. 3:16:22 PM Co-Chair Seaton MOVED to report HCSCSSB 78(FIN) out of Committee with individual recommendations and the accompanying fiscal notes. Representative Grenn OBJECTED. Representative Wilson asked clarifying questions about the fiscal notes. Co-Chair Foster suggested calling them forthcoming fiscal notes. A roll call vote was taken on the motion. IN FAVOR: Ortiz, Pruitt, Thompson, Tilton, Wilson, Gara, Kawasaki, Foster, Seaton OPPOSED: Grenn, Guttenberg The MOTION to report the bill from committee PASSED (9/2). HCSCSSB 78 (FIN) REPORTED out of committee with four "do pass" recommendations, four "do not pass" recommendations, and three "no recommendation" recommendations and with five new fiscal notes: three fiscal impact notes by the Department of Revenue; one indeterminate fiscal note by the Department of Education and Early Development; and one zero fiscal note by the Department of Law. 3:18:24 PM AT EASE 3:21:15 PM RECONVENED