HB 4008-PFD: 50/50 POMV SPLIT  10:06:00 AM CHAIR SPOHNHOLZ announced that the first order of business would be HOUSE BILL NO. 4008, "An Act relating to use of income of the Alaska permanent fund; relating to the amount of the permanent fund dividend; relating to the duties of the commissioner of revenue; and providing for an effective date." 10:06:27 AM REPRESENTATIVE LIZ SNYDER, Alaska State Legislature, as prime sponsor, presented HB 4008. She said the proposed legislation offers guidance regarding expenditures of earnings from the Alaska permanent fund. She named two goals: to overcome legislative gridlock and bring the state a comprehensive fiscal plan to benefit the state. She said the bill would: retain a 5 percent, percent of market value (POMV) draw; repeal conflicting statute; and add a revised permanent fund dividend (PFD) formula, called a 50/50 contingency plan. She said HB 4008 was designed to balance essential government services with growing the permanent fund and PFD. She advised that the strength of the 50/50 plan is that it can mitigate the impact of budget fluctuations on the PFD by using a five-year moving average in calculating the baseline budget. She said this would reduce the capacity for using the PFD as political leverage and provide budgetary stability. The bill would establish a spending cap and would encourage the seeking out of additional revenue. 10:09:01 AM ALLIANA SALANGUIT, Staff, Representative Liz Snyder, Alaska State Legislature, on behalf of Representative Snyder, prime sponsor, provided a sectional analysis of HB 4008 [hard copy included in the committee packet]. 10:11:09 AM REPRESENTATIVE SNYDER gave a PowerPoint presentation, [hard copy included in the committee packet]. She listed the considerations of HB 4008 [slide 2]: the 50/50 split; sustainable, reliable, and high-quality government services; constitutional obligations; the need to remedy conflicting statutory language; the need for fiscal plan; the need for flexibility in challenging budgetary climates; household and economic benefits of direct payments; and recommendations from the fiscal [policy] working group. Representative Snyder acknowledged that while she does not subscribe to some of the rationale behind the 50/50 split, she understands it as a compromise to existing statute. She named the components of HB 4008 [slide 3] as comprising: a 5 percent POMV draw; guidance on the distribution of the POMV draw between general fund and dividend fund; and conforming language. Representative Snyder drew attention to an illustration [slide 4] showing how the POMV can be adjusted to fill a budgetary gap in years when the 50/50 split does not flat fund the previous year's budget. 10:15:25 AM REPRESENTATIVE SNYDER brought up two scenarios. In Scenario 1 [slide 5], HB 4008 would be adopted, and there would be no new revenue or cuts, and there would be a flat fund. She covered the categories: appropriations less revenue; 5-year moving average adjusted for the consumer price index (CPI) and inflation, a baseline budget; the POMV of 50 percent, with baseline budget less 50 percent POMV, and showing amount left for PFD; and the dividend payout and percent of POMV for the PFD. The scenario shows these items from fiscal year 2023 (FY 23) through FY 30. She gave as example that under this scenario, the dividend payout in FY 23 would be $838, and the percent of POMV for the PFD would be 19 percent. By FY 30 there would be a 30/70 split. 10:18:18 AM CHAIR SPOHNHOLZ clarified for the record that "appropriations less revenue" is a flat budget minus known revenue that would be used in projections by the Legislative Finance Division. She added, "It's what we need to raise." REPRESENTATIVE SNYDER confirmed that is correct. She then moved on to Scenario 2 [slide 6], which would include adoption of HB 4008 and $7 million in new revenue, as well as continue flat funding. What would change over time is the size of the PFD and the proportion needed to cover "less revenue." Under this scenario, the trajectory of the evolution of the PFD percentage would be accelerated to approximately 50 percent by FY 30. REPRESENTATIVE SNYDER noted that HB 4008 would allow for increasing or decreasing the budget. She summarized the moderating effects. In decreasing the budget, it would not result in a decreased PFD in the same year; it would contribute to a reduction in the five-year average and to an increased PFD in subsequent years. Nothing in the proposed legislation would preclude the legislature from increasing the state's budget in future years, she said. An increase would increase the five- year average use in subsequent years, in effect increasing the budget and "increasing the proportion that we need to make sure that we cover utilizing the POMV draw." 10:21:58 AM REPRESENTATIVE STORY expressed concern that there were no interventions proposed in the bill. She said she believed investments in the future were necessary and that the proposed legislation did not account for that. REPRESENTATIVE SNYDER answered that the bill was focused on the PFD formula, but reiterated that nothing in the bill would limit the legislature from expanding the budget to meet new needs. REPRESENTATIVE STORY expressed concern that past experience was not being considered. She said appropriations have been made in the past that were vetoed. 10:26:12 AM CHAIR SPOHNHOLZ said the truth is that the budget had been cut for the past seven years, and initiatives with wide bipartisan support cannot be funded without the revenue to do so. She emphasized the importance of grounding these bills in a broader context. 10:27:11 AM REPRESENTATIVE SNYDER highlighted the flexibility which HB 4008 would allow. She said the bill did not prescribe a specific percentage split. She argued that the flexibility would allow for the legislature to address unexpected needs. 10:28:47 AM REPRESENTATIVE PRAX asked for confirmation that future legislators could not be held to the provisions of HB 4008. REPRESENTATIVE SNYDER answered that is correct; regardless of what is in statute, the legislature has the ability to make the decision on an appropriation, as decided under Wielechowski v. State of Alaska. Notwithstanding that, she said a common refrain from critics is to "follow the law." Many of the bills proposing statutory change and meant to provide guidance are valuable, particularly in removing current conflicting language. REPRESENTATIVE PRAX thanked the bill sponsor for being forthright. REPRESENTATIVE SNYDER replied that HB 4008 proscribes a 50/50 split as a target, which she called unique. CHAIR SPOHNHOLZ said the legislature had been appropriating a dividend without regard to historic formula, and HB 4008 would develop a new formula based on balancing the budget. She argued that while it is not a hard stop formula, it is a change to the way things are currently done. 10:31:40 AM REPRESENTATIVE PRAX said the bill would at least clarify that what the legislature does is pay for all state spending and then fund the PFD with whatever is left; however, he said he thinks [Alaskans] would be disappointed. He said, "I think we'd be better off ignoring it and moving on." 10:32:58 AM REPRESENTATIVE STORY argued that since many items funded by the legislature have been vetoed by the governor, the PFD is not funded by with leftover funds. 10:33:53 AM CHAIR SPOHNHOLZ announced that HB 4008 was held over.