HJR 49-CONST AM: PERM FUND INCOME DISTRIBUTION Number 0206 CHAIRMAN KOTT announced the next order of business is HOUSE JOINT RESOLUTION NO. 49, Proposing an amendment to the Constitution of the State of Alaska to guarantee the permanent fund dividend, to provide for inflation proofing, and to require a vote of the people before changing the statutory formula for distribution that existed on January 1, 2000. [Before the committee was CSHJR 49(STA).] REPRESENTATIVE SCOTT OGAN, Alaska State Legislature, noted that he had distributed to committee members a list of people who had contacted Representative Green's office in support of HJR 49. [This list illustrates that] HJR 49 has [prompted] a fair amount of people contact the sponsor. He requested that the committee put HJR 49 up for vote [because] until the legislature takes the dividend program off the table, the legislature will not develop a long-term solution to the state's financial situation. Number 0254 REPRESENTATIVE GREEN asked Representative Ogan if he was aware that there have been some model studies indicating that if the legislature stays with the current way the formula uses the Permanent Fund (PF) earnings, the PF will eventually go the other way and will have to be re-determined. If the legislature puts HJR 49 into the constitution then the legislature does not have the opportunity to react. REPRESENTATIVE OGAN acknowledged that he is aware of those studies and said that 83 percent of the people who voted in the September 14, 1999 election did not believe in the study. He noted that the study is an indictment of the existing [PF] program which has been working for 18 years. He indicated that the study was based on many assumptions; for example, the study assumed that Alaska is never going to develop the Arctic National Wildlife Refuge (ANWR) or gas-to-liquids (GTL) or the gas pipeline. He commented that the study had assumed that Alaska was an old state in "state years" and he takes issue with those assumptions since he tends to be a little bit more of an optimist about the future of Alaska. He mentioned that Alaska should not run on high just because some study said something. Although HJR 49 does inhibit the legislature's ability to do something, it does not eliminate their ability; it just raises the bar from a simple majority vote to a two-thirds vote. He specified that in the worst-case scenario happens then the legislature would react and could change the [PF] program and put it before the voters. He recognized that Representative Green was correct in that the legislature could not do it as easily as a statute change, but the legislature could still react. REPRESENTATIVE GREEN noted that all it [the scenario] requires is the reversal of a bull market and the situation exists. He pointed out that historically a bull market cannot continue forever. Number 0357 REPRESENTATIVE ROKEBERG informed everyone that Representative Green is referring to the "mother of all models" study done by Callan & Associates in January 2000, the study done prior to the plebiscite on September 14, 1999. Representative Rokeberg asked if Representative Ogan was aware of that. REPRESENTATIVE OGAN replied that he was not aware of that; however, he thinks both studies came to the same conclusion. REPRESENTATIVE ROKEBERG clarified that the studies did not come to the same conclusion; the Callan & Associates study was the first time a run had been done with actual numbers. He noted that Callan & Associates had presented the study to the Senate and House Finance Committees for the PF Corporation in order to brief the legislature about the effects of what would happen in "up and down" markets. Callan & Associates chose the decade of the '70s when there were three down years in a row and had shown impacts on the dividend and the inflation-proofing calculation under existing statute in view of the fact that the statute requires a pay back. Callan & Associates had concluded that without the very large amount of earnings reserve that was in place in January [2000] the PF Corporation could continue paying a dividend, but it would go down substantially. Representative Rokeberg envisioned that there would be a ten-year period when no inflation proofing would take place. If, after that time, the market came back up, the inflation proofing that had not been paid would have to be paid back [to the PF]. Therefore, the PF would always be behind. REPRESENTATIVE ROKEBERG emphasized that the inflation-proofing formula in Alaska statute is broken. However, Representative Ogan has the temerity to come into this committee and tell this legislature that the people of the state should put into the constitution a piece of statute that does not even work correctly because Alaska has gotten away with an "up" market for years. For example, he mentioned that the particular Callan & Associates model was only for a three-down-year period with only 10 percent per year three years in a row. He indicated that the Nikkei average in Japan's stock market went down and stayed down ten solid years during the decade of the '90s. He acknowledged that the United States stock market is down 35 percent in the last 30 days on the Nasdaq and that the U.S. stock market had the biggest meltdown today that it has had since October '87. Therefore, he really thinks that HJR 49 is irresponsible. Number 0478 REPRESENTATIVE OGAN asked the Chairman to call a point of order as it is inappropriate for Representative Rokeberg to question people's motives. REPRESENTATIVE ROKEBERG replied that this is a working committee and the question is on the floor [for discussion]. He stated that he is not questioning Representative Ogan's motives rather he is questioning Representative Ogan's intellectual honesty when Representative Ogan talks to the voters of this state. REPRESENTATIVE OGAN said that if Representative Rokeberg had been present yesterday, Representative Rokeberg would have heard him say that he does not claim to be a financial expert and is willing to consider enshrining other models into the constitution. He viewed HJR 49 as a policy call because Alaska's PF program is seriously in need of protection. He reiterated that yesterday he did say there should be a discussion of perhaps a different formula. He indicated that the only way the public is going to trust the legislature is if the legislature constitutionally enshrines some use of the PF dividend program and this is the issue with which the legislature needs to come to grips if it ever plans to use the PF earnings reserve [with public consent]. He noted that when the PF was set aside the intention was [to provide government funds for a rainy day]. He recognized that HJR 49 is a committee call. He emphasized that he is open to discussion of what kind of formula to enshrine. REPRESENTATIVE OGAN asked permission to digress and talk about another bill or at least other concepts which are included in other legislation. He acknowledged that some of the concepts might be good, but there are parts that he does not like. Therefore, any concept should be kept in the context of what the formula is going to be and thus the committee should have the discussion and not "blow it [one concept, HJR 49,] out of the water" just because of somebody's study. Number 0567 REPRESENTATIVE KERTTULA announced that Mr. Lorensen, Attorney, is waiting on line. She informed the committee that Mr. Lorensen had testified in Senate Finance and had provided to her, which she in turn provided to committee members, the opinion of Morrison & Foerster. She mentioned that she had requested Mr. Lorensen's presence because there was question enough about the fund and the dividend program as it is and to her, it seems apparent that the committee does not have to wait for an opinion from the Internal Revenue Service (IRS). If HJR 49 passed, it is fairly obvious that the legislature would be jeopardizing the state's tax free status. Therefore, she had called Mr. Lorensen in order to get to the heart of that information. Number 0666 RONALD LORENSEN, Attorney, testifying via teleconference from Anchorage, said he has reviewed HJR 49. He noted that several different outside counsel opinions have been issued on the tax question over the years, a couple of [those opinions] date back to 1988. Those counsel opinions have not been released and probably will not be released because they raise important questions about taxes in relation to the fund. He explained that the counsel opinions had made some recommendations for changes, many of which have been made. Because of those changes made since 1988 a very strong basis has been provided for saying that under the current status the PF income would not be taxable under federal tax law. He pointed out he provided the Senate Finance Committee with the 1998 Morrison & Foerster opinion, which is now a matter of public record. That opinion did raise some important concerns in the context of a very similar proposal for a constitutional amendment that had been offered back in 1998. The 1998 proposal looked very similar to the one being heard both in the House and Senate this year. He indicated that the 1998 opinion really raised some important questions as to what the IRS would look for. MR. LORENSEN informed the committee that what the IRS would look for, which becomes the key question, as to whether or not the PF is a state fund and asset that is subject to taxation or not, is if the legislature would lose its ability to appropriate that money. He remarked that the key question is discussed in the opinion and the effect of the constitutional amendment is to do exactly that. This bill, HJR 49, would remove from the legislature the ability to decide what should happen to the income of the PF from year to year and cast in stone in the constitution the distribution mechanism, which is now in statute. He pointed out that the difference between the constitutional amendment and the statute is that when [the distribution mechanism] is in the constitution the legislature does not have the ability to change that distribution mechanism on its own. However, [with the distribution mechanism] in statute the legislature, at least in theory, retains the ability every year whether to decide to do something different with that income. He reiterated that as long as the legislature retains the ability to decide how that income would be distributed, the IRS would continue to be consider the PF as state income which is not subject to taxation. He specified that ultimately it comes down to: will the legislature retain the ability to decide what happens to that income for which the state would like to assert tax exempt status? Number 0826 REPRESENTATIVE OGAN asked if Mr. Lorensen is an attorney. MR. LORENSEN replied yes. REPRESENTATIVE OGAN inquired if Mr. Lorensen had seen the language in Section 3 of HJR 49. MR. LORENSEN answered that he has HJR 49. REPRESENTATIVE OGAN said he had put language in Section 3 to address the [IRS] question. He noted that he had acquired the idea from the gas pipeline situation in which the port authority requested an opinion from the IRS as to whether or not the gas pipeline would be taxable; apparently, the IRS had come back with a favorable ruling. He asked Mr. Lorensen if Section 3 would effectively settle the question. MR. LORENSEN stipulated that he is not a tax expert and not familiar with IRS tax procedures; however, he related his understanding that the IRS does not have to give a tax opinion in which case a person is left in limbo. In such a case, he did not know how a person would even address or anticipate that possibility in this kind of an effective date provision. He commented that the approach of the effective date provision made sense if a person could get a ruling from the IRS, however he is not confident that a person could count on the IRS actually taking a position. Number 0914 REPRESENTATIVE OGAN pointed out that the constitutional amendment (HJR 49) does not happen until the IRS makes a ruling; however, he appreciated Mr. Lorensen's observations regarding a ruling from the IRS if the IRS did make a ruling. REPRESENTATIVE CROFT remarked that he was playing with the "Mother of all Models" (MOMA) crash model numbers. He then turned to Section 3, which he thought said that "'final decision' means a ruling, order, or decision that cannot be appealed to the Internal Revenue Service." He asked if, at some point, someone could appeal an IRS ruling to the court. REPRESENTATIVE JAMES replied yes. MR. LORENSEN said that he does not know that the IRS can appeal its own ruling. However, he guessed that at some level of the IRS agency Section 3 contemplates that a determination would be made [with the idea that no appeal could be made because the determination was already made at the highest IRS level]. REPRESENTATIVE CROFT assumed that the legislature would have the right to take the determination to court if the legislature disagreed with the ruling. MR. LORENSEN replied that he did not know the answer. He reiterated that he did not know if the determination is in the context of litigation or if the legislature can file a court case just because the legislature did not like the IRS ruling. Number 0991 REPRESENTATIVE CROFT said that if it is just preliminary [ruling], it might not. However, if it is a ruling on an actual tax matter, then clearly the legislature has the right to have a court hearing if the legislature does not think it should be paying tax. MR. LORENSEN commented that Representative Croft's explanation might be right, but the legislature probably would not get to that actual tax matter ruling until after the legislature has a real case or controversy, as the lawyers say. REPRESENTATIVE CROFT concluded then that the legislature has to put the amendment in, the tax comes in and then the legislature starts litigating and gets to the core. MR. LORENSEN agreed as that is the way it has been done in a couple of decisions over the last decade. He recalled that there was some dispute in the early 1990s over the taxability of state- created funds and that ended up being litigated. Number 1026 REPRESENTATIVE CROFT asked Mr. Lorensen to go back to the key point of taking what the legislature has the discretion to do and putting that discretion where the legislature cannot change it. Representative Croft asked if there are court cases that emphasize the control that the sovereign still retains over the distribution technique. Number 1045 MR. LORENSEN replied that although he cannot point to specific cases, the simple answer is yes. The IRS looks at whether or not the legislature has retained the ability to deal with whatever fund is at issue. REPRESENTATIVE CROFT acknowledged that in that sense the legislature is taking the very step with HJR 49 that puts the PF fund at the most tax risk. He remarked that a big [tax] factor is how much control the legislature has over the fund. Therefore, he surmised that by taking the fund out of legislative control the legislature steps right into one of those IRS defined categories. MR. LORENSEN stated that he believed that Representative Croft's assessment is correct. Number 1075 REPRESENTATIVE GREEN inquired as to the time frame for litigation if a tax were imposed [on the PF fund] and the legislature appealed it. He reminded the committee that the discussion concerns hundreds of millions of dollars and if [litigation] carries over to another year, then the dollar amount doubles and the situation becomes even worse. He expressed concern that somewhere down the road if [the PF loses money], there would be no funds to pay tax [which might result in drawing upon the PF] corpus [to obtain funds]. MR. LORENSEN answered that, practically speaking, the committee is talking about a litigation sequence that probably would not be resolved in less than two years and could be longer than three. REPRESENTATIVE GREEN exclaimed that at a billion dollars a year that is... REPRESENTATIVE ROKEBERG reminded Representative Green that "you never ask the question unless you know the answer." Number 1129 REPRESENTATIVE CROFT inquired as to the consequence if the legislature is wrong. He asked if the legislature would be treated as a corporation and if so, what is the corporate tax rate? MR. LORENSEN replied that he believes that the corporate tax rate is 39 percent but, again, he does not claim to be a tax expert. REPRESENTATIVE ROKEBERG said that the corporate tax rate varies. REPRESENTATIVE KERTTULA noted that Mr. Lorensen has worked with the PF too. MR. LORENSEN explained that he has a private law practice in Juneau but he is also outside counsel to the PF under contract. Number 1210 REPRESENTATIVE JAMES commented that she knows why the sponsor has put HJR 49 before the committee and she knows that his beliefs are very deep seated. Furthermore, his district is probably very supportive and demanding of this issue. She remarked that her district has been labeled the most conservative in the state only because the percentage of registered Republicans in her district is more than in any other district. In regard to the September 14, 1999, vote, the 83 percent "no" vote did not mean absolutely "no, no way." She surmised that the vote really meant that the voters thought that getting into the earnings reserve was a "camel's nose under the fence," which she believes to be the case. REPRESENTATIVE JAMES commented that her 35 years' experience with tax preparation and education has left her scared to do anything about the PF that would put it in any jeopardy. She said that the situation can be solved another way, and furthermore the situation that Representative Ogan is trying to fix can be resolved without doing HJR 49. She noted that she has been a proponent of doing nothing this year until the legislature works out something that the public will buy into, which she believes the legislature can do. However, she did not know what that "something" is nor does she think any legislator knows; still, the legislature needs to work on it. The legislature needs to come to a conclusion and determine how much money is needed and where it is going to come from. REPRESENTATIVE JAMES informed the committee that she had sent out a survey recently and those who have responded have proven that her understanding of the 83 percent vote is fairly correct. Although the answers on her survey range all over the place, there is a small percentage that says "leave the earnings alone and leave the PF dividend alone and don't do anything but just get out of there and don't touch anything." She emphasized that she does not want to discredit Representative Ogan for what he is doing because he honestly believes that HJR 49 is a solution. However, she does not believe that [HJR 49] is a solution because she believes it does pose a threat for which the legislature has no defense or answer. Number 1385 REPRESENTATIVE ROKEBERG apologized for his earlier, but he feels very strongly about it. He noted that he had asked Representative Ogan before [if he wanted to watch the video] of the Callan & Associates presentation to the Finance Committee, which he offered to provide to Representative Ogan because he needs to understand [some of the problems]. Representative Rokeberg said that before "something" is put into the constitution Representative Ogan should make sure that was fixed first. REPRESENTATIVE ROKEBERG informed the committee that personally he believes that the legislature needs to develop some type of endowment system so that the legislature does not get involved in an inflationary deposit that has to be piecemealed out as a direct appropriation. He commented that one reason the market crashed today was because the consumer price index (CPI) release was the worst in years. The CPI came out at 0.7 percent for the month of March [2000] and the core rate was 0.4 [percent]. Accordingly, the CPI figure was 8.4 percent adjusted non-core on an annualized basis and the market "tanked." He explained that those figures mean that the PF interest reserve and corpus go down at the same time that the legislature must withdraw a larger amount of money from the PF earnings reserve to inflation-proof the fund and place it in the corpus. He remarked that the legislature has been able to do this because the PF has been in an up-market condition. However, no plan can be made on that basis nor can [plans] be memorialized into the constitution that do not fit all scenarios. He reiterated that there is much disinformation [on this topic], and therefore people really need to know the truth. Number 1503 REPRESENTATIVE GREEN said he subscribed to the same theory. He noted his appreciation of Representative Rokeberg's explanation as to why he is so excited because any time a representative testifies at a committee or on the floor, no other legislator should demonstrate a critical or belittling demeanor. Representative Green hoped that Representative Ogan understood that although the majority of the committee is not in favor of HJR 49, by no means is Representative Ogan discredited, in fact, Representative Green champions the fact that Representative Ogan brought something forward because that is what the legislature needs, more ideas. REPRESENTATIVE OGAN said that he does not take things personally because he also gets excited sometimes. Furthermore, he noted his acceptance of criticism as a positive thing. Moreover, he said that he does not disagree with much of what he has heard. Although he does not claim to be a financial expert, he recommended that the legislature fix this system if it is broken. He recognized that the "fix" is going to result in very contentious debate because the legislature has lost the confidence of the people. Therefore, maybe someone else, such as another legislature should try to fix the problem. Perhaps, HJR 49 would be a good vehicle to fix the problem. Although the legislature needs to come up with a fix, he does not think people are going to trust the legislature until they know that the PF program is not going to go away, especially since the courts themselves have said that the PF program is at the whim of the legislature. Number 1667 REPRESENTATIVE CROFT noted that there are two points to this issue. First, should it be constitutionalized at all. Second, if it is constitutionalized, what does the legislature want to put in the constitution. He explained that HJR 49 proposes to immortalize a five-year running average methodology into the constitution. He echoed Representative Rokeberg's point that the PF has been in on one of the biggest stock market rides in history. Now that the stock market has just hit a correction bump or may remain flat for a while the legislature would run a risk by setting in stone a five-year running average. He explained that when the stock market flattens, the PF will [continue to] pay for the 20 percent years with nothing in the bank from which to draw. He envisioned a scenario in which the PF Corporation comes to the legislature and says that the PF Corporation had a bad year with zero income, although the last four years have been fabulous. In such a scenario, the legislature owes a dividend based on a great four years plus one zero year, but there would be no dollars to make the dividend payments. Number 1812 REPRESENTATIVE CROFT pointed out that if the stock market suffers a two-year flat run, then the PF will have blown the entire reserve. If there is a three-year flat run, depending on how much and what negative, then the PF goes broke. He acknowledged that the consequences of a flat stock market can be solved in a couple of ways. For instance, instead of using a five-year average the PF could use what it earns in the year, however that method has a high degree of volatility. He indicated that an endowment approach could be a possible solution, especially since most of the committee likes the stability that an endowment approach would bring. However, the idea of an endowment did not receive much discussion at all. Number 1872 REPRESENTATIVE CROFT asked if the committee was sure it wanted to constitutionalize the PF formula in view of the tax consequences of such action. He acknowledged that constitutionalization of the PF formula is advantageous when the stock market is riding high; however, is it the one that the legislature wants to set in stone? He noted that a five-year running average is normally figured by taking five years and dividing it into fifths and it comes out to about 20. He explained that half of the 20 goes to the dividend and then rules say that the Corporation shall calculate the amount to transfer for inflation proofing based on the United States CPI. [After hearing Representative Rokeberg's assessment of the current market,] Representative Croft envisioned that the current situation, the stock market figures and the CPI figures combined, is the worst possible scenario. He explained that the legislature by law, and now by constitution if HJR 49 passes, must deposit a large amount of money into the PF for inflation proofing. Furthermore, the legislature [would have] no money with which to pay for inflation proofing and would still have to pay a dividend based on four years back. If what happened this week [in the stock market] remains as is or happens again in the future, under this constitution, the PF really would be "train wrecked." REPRESENTATIVE ROKEBERG reiterated that the dividend would be gone. REPRESENTATIVE GREEN agreed. REPRESENTATIVE CROFT noted that the whole reserve account would be gone. Number 1930 REPRESENTATIVE JAMES explained that the dividend is calculated at 50 percent of the earnings or half of what is in the earnings reserve, [although statute] does not specify that is what happens. She commented that inflation proofing does not get done [if there is not enough money to cover it]. REPRESENTATIVE CROFT quoted from statutes Sec. 37.13.140. Income. as follows: Income available for distribution equals 21 percent of the net income of the fund for the last five fiscal years, including the fiscal year just ended, but may not exceed net income of the fund... plus the balance... In other words, "the running five is used unless it is on the bottom, in which case it is just everything that remains. It is figured on what the PF made this year and what is in the bank. If it is more than that then that is all that is available." He quoted "dividends shall be 50 percent of the income available for distribution as defined above." Number 1999 REPRESENTATIVE JAMES agreed and noted that the earnings reserve has shrunk if [the amount] was [not such that] the 21 percent could be done. She reiterated that [dividends are based on] half of what [is in the earnings reserve], which is the measure, and half [of that is] put into the dividend fund. Finally, what is left is used to inflation-proof. She remarked that any money after inflation proofing is either carried over to the next year or is used for PF management operations costs. REPRESENTATIVE CROFT reminded the committee that the merits of HJR 49 are under discussion. He recognized that Representative James was correct in her explanation that half of the earnings reserve goes to the dividend but the part that goes to inflation proofing does not talk about 50 percent of what is left or anything. REPRESENTATIVE JAMES agreed that inflation proofing has nothing to do with the 50 percent figure. REPRESENTATIVE CROFT noted that the CPI is spoken of in conjunction with inflation proofing. So he presented the following example: OK, we're down to the bottom of the barrel; we're taking half of the barrel but it is huge. I mean the inflation number is not related to the barrel anymore, it is related to an absolute. So you could say "give away half of some number and I'm paying you zero because I don't have any income this year." Take half of this small number and pay the dividends (you don't have anything to pay that) and take this huge inflation number out there and put that back in but, of course, back... Number 2110 REPRESENTATIVE ROKEBERG acknowledged that [the money] goes from the earnings reserve to the corpus so it is zeroing out the earnings reserve. REPRESENTATIVE JAMES agreed that it zeroes out the earnings. REPRESENTATIVE ROKEBERG remarked that inflation proofing is worse than the other because the PF can never catch up. He recognized that after dividends are paid out of the PF the amount available for spending has gone down and inflation proofing has to be added though it can be put off limits. He added that the PF ends up at basically net zero so the PF takes the next year's cash flow infusion and does it all over again. Therefore, the dividend is paid after the calculation and everything else keeps going into the corpus and thus the PF is always broke. REPRESENTATIVE GREEN remarked that some people call it a convolution. Number 2155 REPRESENTATIVE CROFT noted that the committee has been discussing the $400 or $800 million gap and [on top of that the legislature could] owe the PF $1 billion for inflation proofing. REPRESENTATIVE ROKEBERG agreed with Representative Croft. REPRESENTATIVE CROFT remarked that the legislature does not have a $400 million problem but rather a $1.4 million problems because by law and by constitution the legislature has to pay whatever for $8 billion in the PF. Furthermore, the legislature's $400 million gap would remain. REPRESENTATIVE ROKEBERG said that is the point he was making earlier. If the market is going up, the PF is earning more and the dividend goes up. He explained that the PF pays the dividend and then whatever residual values are left [pay for] inflation proofing for that year. However, if inflation goes down, the legislature has to go back to ten years before and fill the rest of it back into the corpus. Therefore, the PF is back to zero again; that is really what is broken. Number 2241 REPRESENTATIVE GREEN reminded the committee that with all of that there is also the possibility of getting hit with income tax, which would leave the legislature with only 55 or 60 percent of the PF. REPRESENTATIVE ROKEBERG explained that the IRS imposed income tax [would be on] what the earnings were, just like a corporation, then they double tax it to the dividend. Number 2267 REPRESENTATIVE OGAN pointed out that the state would not hemorrhage on income tax because of Section 3 of HJR 49. REPRESENTATIVE CROFT stated that he does not know that what Representative Ogan says is true, however this formula only works well in a great stock market with low inflation, which does not happen very often. Alaska has been very lucky over the last 15 years. He noted that people could say "We'll always have a great stock market and low inflation" but if either one of those two things stop happening problems surface under this [PF] formula. REPRESENTATIVE GREEN agreed and said that such knowledge was not understood by very many legislators let alone the people in the street who voted. Number 2338 REPRESENTATIVE ROKEBERG agreed. REPRESENTATIVE MURKOWSKI surmised that the point and purpose of the sponsor, in bringing HJR 49 forward, is to enshrine it to protect the dividend. If the legislature is going to protect the dividend through HJR 49, the public needs to understand that putting this language in the constitution, which says that the legislature will "guarantee the permanent fund dividend...," may in fact mean that the legislature will continue to pay out a dividend. However, that pay out may occur at the expense of all of the state's savings and at the expense of the corpus of the fund. She does not believe that is what the public really wants nor does she believe that the legislature can guarantee the dividend. Number 2449 REPRESENTATIVE GREEN agreed that the legislature cannot guarantee a PF dividend under any plan that may be presented. The only way the legislature could guarantee a PF dividend is, as long as there is a PF, by continuing to contribute to it. TAPE 00-62, SIDE A REPRESENTATIVE ROKEBERG added that it is absolutely dishonest [to provide a guarantee]. Number 0058 SHELTON GREEN, Staff to Senator Lyda Green, Alaska State Legislature, noted that if HJR 49 passes, the legislature will still control who receives the dividend, which is important to the question of imminent control that the legislature will have on the money [the dividend program]. He reminded the committee that the Morrison & Foerster report speaks about a gray area referred to as "beyond the reach of government." He pointed out that the legislature would still control, in statute, who would receive a dividend. The legislature is constitutionalizing only statutes concerning the dividend and inflation proofing rather than all of the earnings. The money that is left over every year is still going to be in statute. MR. GREEN referred to Representative Murkowski's comment regarding what the legislature is trying to get to in promising a dividend. He explained that the legislature [, beyond promising a dividend,] is also trying to promise people the right to vote on what would happen with their dividend. Furthermore, the legislature is trying to reach a place to allow the public to vote before the legislature spends money that would have gone to dividends. He commented that no one is opposed to using parts of the earnings reserve or unrefuted income for state spending [rather the interest is in accessing the money] in a gracious manner. Number 0160 REPRESENTATIVE GREEN inquired as to how the legislature maintains control for that which is covered by this constitutional amendment. MR. GREEN replied that the money which is left over every year after paying dividends and inflation proofing is not constitutionalized. He reiterated that the legislature would still maintain control. REPRESENTATIVE GREEN said that no one is talking about the left over money rather this committee is talking about the big chunk [of money] which does go into the constitution; the concern is that the big chunk will be taxed. MR. GREEN commented that he understood what Representative Green was saying. He restated Mr. Lorensen's earlier testimony that the PF money is all out of the reach of the government and there is a litmus test that must be passed before the PF loses its current status. Number 0230 REPRESENTATIVE ROKEBERG explained that the PF has become a political issue in this state already and with the disinformation, misunderstanding and ignorance of people surrounding this issue he would hope that this gets cleared up before the next election. REPRESENTATIVE CROFT mentioned that someone had said "use the rest" and that may be true but HJR 49, page 2, lines 1 and 2, says "All income from the permanent fund shall be distributed as provided for by statutory formula that existed on January 1, 2000 (AS 37.13.140 and 37.13.145)." He indicated that [AS 37.13].140 and [AS 37.13].145 talk about dividend and inflation proofing. Number 0373 MR. GREEN specified that [those statutes] give the legislature the means to calculate and that would be in the constitution. Although Mr. Green sympathized with Representative Rokeberg's concerns, he pointed out that the actual money (or numbers) available for distribution is still at the will of the legislature. REPRESENTATIVE CROFT asked if all income from the PF shall be distributed as provided. REPRESENTATIVE GREEN inquired if that was not the current plan. Number 0420 MR. GREEN replied that there was a piece of legislation in 1997, HJR 18, which [proposed] to take all the earnings and put them into the constitution. He added that the sponsor had spoken with the drafters in Legislative Legal in an effort to not repeat that [proposed] legislation because it was the purpose of the sponsor to leave out [of the constitution] money that was left over every year. REPRESENTATIVE CROFT recognized that Mr. Green had accomplished the desired result. Number 0454 CHAIRMAN KOTT indicated HJR 49 would be held over. CHAIRMAN KOTT called for a brief at-ease that lasted about one minute and then the meeting was called back to order.