HB 376-ESTABLISH THE ALASKA STATE BANK    4:20:42 PM CHAIR KITO announced that the final order of business would be HOUSE BILL NO. 376 "An Act establishing a state bank; relating to insurance, mortgage lending, securities, and permanent fund dividends; and providing for an effective date." CHARLES DUNCAN, Staff, Representative Chris Tuck, Alaska State Legislature, introduced HB 376 on behalf of Representative Tuck, prime sponsor. He paraphrased the sponsor statement [included in committee packet], which reads as follows [original punctuation provided] The Alaska State Bank is designed to create the legal ability to access Federal Reserve and United States Treasury monetary policy funds and use fractional reserve banking methods to promote a science, education and infrastructure recovery. As federal fiscal policy funding continues to decline for state governments and as Federal Reserve support for liquidity in the monetary base continues to be maintained at high historical levels, the opportunity is opened for state governments to create new legal mechanisms to access monetary policy. Fiscal policy is taxation and spending by government and monetary policy is control of the money supply and interest rates. In the traditions of Benjamin Franklin and the Reconstruction Finance Corporation, local decision- making is a requirement in guiding monetary policy and the best method to do that today is to create state development banks. The basic proposal is to use existing state development institutions to create packages of state, municipal, borough, port authority, and development finance authority bonds, grants and shares that are rediscounted through the Federal Reserve and combined with federal bonds and Treasury currency. The Alaska State Bank then leverages or transfers the packages back to the State of Alaska, municipalities, boroughs, port authorities, development finance authorities, local banks, credit unions, universities, corporations, small business and entrepreneurship. The Alaska State Bank will begin as an infrastructure bank that leverages loans with our local banks and then evolve into a full featured development bank in the future. The first goal will be to access Federal Reserve funds to provide reserve and capital requirements for the Alaska State Bank. Very low interest rates combined with the function of the grant and equity process will guarantee payment stability and long-term investments into jobs, science, technology, education and infrastructure. The Alaska Permanent Fund or other existing State of Alaska financial institutions will not be required by statute to dedicate reserve or capital requirements and there will not be mandatory state revenue deposits into the state bank. Maintaining existing financial agreements while using the self-interest of voluntary participation will be important keys for insuring long-term financial success. Self-interest will identify partnerships with our local banks in retailing some of the new funds. Local banks and credit unions will become more valuable assets for increasing transactions efficiency and helping to choose viable loan partners. Creating an infrastructure development bank with the legal ability to access federal and Federal Reserve monetary policy funds is a much better solution to Alaska's fiscal crises than increasing personal taxation or confiscating the Permanent Fund Dividend. Less than $5 billion per year in total transactions will make the Alaska State Bank the primary solution to Alaska's fiscal crisis. 4:25:27 PM REPRESENTATIVE CHRIS TUCK, Alaska State Legislature, introduced HB 376 as prime sponsor. He shared the Alaska State Bank project was modelled on the Bank of Japan and the Reconstruction Finance Corporation established after the U.S. Civil War. He said at one time the state had a foundation which contributed to science and technology. He mentioned the Committee for Measurable Objectives. He spoke to infrastructure needs of the state. He said the state could access federal funds using fractional reserve banking practices. 4:29:39 PM REPRESENTATIVE STUTES said [the aim of the proposal is] to facilitate access through the federal banking system. She asked whether the Alaska state bank could "handle any of the marijuana dollar." REPRESENTATIVE TUCK answered it is not the focus of the bank. He said it would be the "insulating institution between them and the federal government." He said the proposed bank could help with required reports. He described ways in which the proposed bank could help the industry. REPRESENTATIVE BIRCH said it seems like a terrible idea. He said he spends his time trying to restrain the growth of state government. He asked about the genesis of the proposal. REPRESENTATIVE TUCK answered that the proposal would be allowing money to be created in Alaska through the Federal Reserve. He stated it cannot be done with Alaska Industrial Development and Export Authority (AIDEA) or Alaska Housing Finance Corporation (AFHC) because those institutions cannot work with fractional reserve banking. REPRESENTATIVE BIRCH asked about liability. REPRESENTATIVE TUCK said that one way that money is being created is through the Federal Reserve buying up debt. He said the idea is to take advantage of that to expand the monetary supply in Alaska. MR. DUNCAN said the proposal would be asking for money from the Federal Reserve. He said there are three ways to access that money loan guarantees, capital purchase in which the Fed buys bonds, and credit stimulus. REPRESENTATIVE TUCK said it is called the capital stimulus method, but it is really a debt stimulus method. 4:38:18 PM CHAIR KITO asked whether there are any other financial entities that have access to the proposed type of financing. MR. DUNCAN answered that a bond-creating institution such as AIDEA can access two of the methods mentioned. He reiterated those institutions cannot act with fractional reserve bank. He explained that is what the proposal is. CHAIR KITO suggested the proposal would open access to reserves to which the state does not currently have access. MR. DUNCAN answered that is correct. 4:40:13 PM REPRESENTATIVE BIRCH stated he is not comfortable with using debt to acquire more debt. He asked how the proposal would produce new money. REPRESENTATIVE TUCK said the aim is to create money in Alaska. He said banks have a lot of surplus. He said the bank would be an infrastructure and development driver. He spoke to using the university system to enhance development. MR. DUNCAN answered the central issue in monetary policy is what the money is being increased for. He said the proposal is to subsidize science and technology rather than speculation. 4:44:14 PM REPRESENTATIVE STUTES asked for a simple explanation of the proposal and how it would access federal dollars. MR. DUNCAN answered that currently there is a debt-based monetary system. He said the state institutions create bonds. Those bonds are put into an account with the Alaska State Bank. The bank issues stock, and that package is put on account with the Federal Reserve. The account is considered the capital and reserve requirement for loaning new money. REPRESENTATIVE TUCK said that is where the confusion comes in. CHAIR KITO shared his understanding that the proposal is to create a revolving loan fund. The bonds on account with the Federal Reserve, which in turn gives credit on the bonds. The money is then lent out for other things. REPRESENTATIVE STUTES said it sounds like the state would then always owe someone money. CHAIR KITO said that with the proposed bank, the federal government would loan money based on the bonds on account with the state bank. REPRESENTATIVE STUTES suggested the bonds sold would then be sold to the Fed. MR. DUNCAN corrected that the bonds would be on account with the Fed, not sold to it. REPRESENTATIVE TUCK added that AIDEA could do the same thing but does not. He added the Fed prefers to have the bonds on account. CHAIR KITO asked whether it would be correct to say that the bonds would be used as collateral. REPRESENTATIVE TUCK answered in the affirmative. 4:49:20 PM REPRESENTATIVE SULLIVAN-LEONARD asked about a fiscal note. MR. DUNCAN said the fiscal note would be the next step in the process. He said the total cost would not be great. He explained there would be four boards for the bank. 4:50:42 PM CHAIR KITO opened public testimony on HB 376. CHAIR KITO held over HB 376.