HJR 48 - RESTRUCTURE PERMANENT FUND Number 548 MARY A. NORDALE, a Juneau attorney representing herself, testified against HJR 48. She presented a written statement to the committee for the record. Ms. Nordale objected to HJR 48 because it replaces the precision of the language of Article IX, Section 15 (mineral, with very imprecise language); it requires taxes, severance and income, to be deposited into the fund; and it specifies an investment strategy that, if interpreted correctly, will yield less, rather than more revenues for the support of government. She also opposed the resolution because, if adopted, it will insure that entitlement programs will dominate state government, it would leave as revenue sources for the support of general government only incomes taxes, it will impair the state's credit and will chill natural resource development. Number 643 REP. PORTER referred Ms. Nordale to point number four in her written statement, which states if adopted entitlement programs would dominate state spending, and asked for her reasoning on that point. Number 650 MS. NORDALE replied that when you get a very static sum of money, you get vested interests in the status quo, which is dominated at this particular time by entitlement programs. She explained that population growth and inflation increase those, but they don't change them, so the longer the static income exists, the more likely the vested interest of the entitlement programs becomes and you get into a hamstrung situation. Number 657 The committee discussed Ms. Nordale's comments. Number 719 JOHN WILLIAMS, Mayor of Kenai, testified he was representing the opinions of the City of Kenai, the City of Soldotna, the City of Homer, and the Kenai Peninsula Caucus, all of whom have taken a very positive attitude towards HJR 48 and support of the Cremo plan, or a variation of the plan that would do basically what the Cremo plan would be expected to do. MAYOR WILLIAMS concluded there has to be a change, and the time for that change is now, and this legislature has the opportunity to become the developers of a legacy for our children for years to come; or on the other hand, they can always go down in history as the wrecking ball that refused to take the time and opportunity to create a good solid place for Alaska. He added that the Cremo plan lays the groundwork for the creation of that plan. TAPE 94-17, SIDE B Number 000 MAYOR WILLIAMS and the committee discussed various aspects of the Cremo plan. Number 101 VINCENT O'REILLY testified via teleconference from Kenai in opposition to HJR 48 and supported Ms. Nordale's earlier testimony. Mr. O'Reilly acknowledge that the legislature was faced with a fiscal gap, and said the legislature has a budget mechanism process that encourages unpredictable fluctuations of revenue available for appropriation, which places unbearable pressure on legislators to appropriate wisely and appropriately, with the result of creating a boom bust cycle. Mr. O'Reilly reiterated his objection to HJR 48 and referred to Ms. Nordale's comments. Number 241 REP. PHILLIPS said she had a question that would be a big premise if the legislature is to be successful in doing a plan such as this, and that is, overall the message legislators are getting is no new taxes until you cut the budget, but in order for a plan like this to be successful, we are going to have to put taxes on it in order to have enough revenues. She told Mr. O'Reilly, with the two conflicting opinions on taxes now, that is going to be one of the main questions they deal with. Discussion regarding taxes and Rep. Phillips comments ensued. Number 420 JAMES ELSON, testifying via teleconference from Kenai, said he has been employed in the private sector for about 25 years and wanted to approach his comments from a different point of view. He agreed that another approach to the budget must be found, but the thing that concerned him is the nonrenewable resource concept, and that we can put money from nonrenewable resources in the permanent fund and nurture it, so it becomes a renewable resource. Mr. Elson said his other concern was that whatever the state does within its own budget has a significant impact on the private economy. He said the Cremo plan seems to be the best option, it may not be the answer, but he urged the legislature to find some way to stabilize state government spending. Number 518 ROGER CREMO, author of the plan that led to introduction of HJR 48, testified via teleconference and discussed comments made by Ms. Nordale. He said he was opposed to using taxes in the savings fund, but said he found it hard to consider the type of taxes considered here, but surely a broad tax on the people, income, sales or property tax have no place in the fund. Mr. Cremo indicated he didn't understand the entitlement points and ruining the state's credit that Ms. Nordale made and couldn't comment there. MR. CREMO discussed HJR 48 at length with the committee. Number 679 REP. MARK HANLEY, House Finance Committee Vice Chair, testified that all the questions were good, and they brought forth a good debate in which to work out a plan. Rep. Hanley indicated that he thought the legislature first needed to look at the current system to see if the legislature can sustain what it's doing, see if it is a viable system, and what kind of problems are we going to arrive at if we continue down this road. Rep. Hanley said Ms. Nordale brought up some good points for discussion, but he doesn't think cash drives resource development; stability and reasonable regulations drive development; and let the private sector do the development and bring in the resources. Rep. Hanley continued, saying he thought the Cremo plan was a constitutional plan; we could change the constitutional spending limit, the constitutional budget reserve and a lot of other things. He pointed out that a lot of the problems people have pointed out about the Cremo plan can be attributed to the current system, and he didn't think that was a good reason to be extremely critical of it. Number 780 The committee continued to discuss the testimony regarding HJR 48. Number 838 REP. PORTER asked the committee for their consideration of assigning HJR 48 to a subcommittee to help address the concerns that have come up and then come back and discuss the specifics with the full committee. TAPE 94-18, SIDE A Number 000 The committee discussed Rep. Porter's suggestion. Number 104 REP. PORTER appointed Rep. Phillips to chair a subcommittee on HJR 48 made up of Reps. James, Nordlund and Green.