HB 259-PERMANENT FUND DIVIDEND; 25/75 POMV SPLIT  12:27:25 PM CHAIR SPOHNHOLZ announced that the final order of business would be HOUSE BILL NO. 259, "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; relating to funding for state aid for school districts, the state boarding school, centralized correspondence study, and transportation of pupils; and providing for an effective date." 12:27:46 PM The committee took a brief at-ease. [During the at-ease, Chair Spohnholz passed the gavel to Representative Josephson.] 12:28:53 PM REPRESENTATIVE JOSEPHSON noted those who are available to answer questions. 12:29:32 PM CHAIR SPOHNHOLZ, as prime sponsor of HB 259, paraphrased the sponsor statement [included in committee packet], which read as follows [original punctuation provided]: For nearly a decade, Alaska has suffered structural budget deficits that have impacted every facet of the state. In 2018, the legislature achieved great progress through the passage of the percent of market value (POMV) draw on the permanent fund's earnings, which 1) resolved two thirds of our deficit, 2) provides stable and predictable revenues to the state, and 3) caps the amount spent from the Permanent Fund annually to 5% of the Permanent Fund's total value during the first five of the last six years. As a result, our state's revenue situation has dramatically improved. However, the uncertainty of one its largest annual expenditures, dividends from the Permanent Fund (PFDs) for Alaskans, continues to hinder the fiscal health of our state, strains the legislature's ability to meet its constitutional obligations, stands in the way of many other important policy efforts, and creates fiscal uncertainty for Alaskans. HB 259 proposes to solve this impasse by rewriting the formula for PFDs as a percentage of the POMV draw, which provides significant and growing PFDs, stable and growing funding for public education, (one of a few constitutionally mandated state funding items), and other essential government services. This legislation splits the annual POMV draw from the Permanent Fund as follows: • 25% to dividends, which would produce a $1,302 dividend in FY24 that would increase each year after that as the fund's value grows. • 75% available in unrestricted general funds for essential government services split as follows: o 50% to the public education foundation formula and pupil transportation, and; o 50% to general fund for funding other essential state services like public safety, road maintenance, the court system, state match for federal infrastructure funds, and more. This designated funding stream for public education is critical because when adjusted for inflation, in FY22 the state spends $500 less per child to educate Alaska's children than we did in FY2008. We are no longer doing more with less; we are simply doing less with less and our educational outcomes are starting to reflect that. In addition to providing predictable PFDs and stable funding for other essential state operations, the statutory split of the POMV draw proposed by this legislation ensures Alaskan schools a stable and growing fund source so we can invest our state's greatest natural resource our kids. 12:33:58 PM CHAIR SPOHNHOLZ began the PowerPoint presentation, titled "HB 259; Update Permanent Fund funding for Dividends, Education, and other Essential State Services" [hardcover included in committee packet]. She began on slide 2 and spoke to the headlines provided, which related to education funding. She advanced to slide 5 and pointed out that Article 7, Section 1 of the Alaska State Constitution outlines the state's obligation to public schools. She offered her understanding that the permanent fund is a stable source of income, and that oil and gas is a volatile source. She said the graph on the slide 6 depicts a history of the state's per-capita unrestricted general fund (UGF) revenue. She moved to slide 7 to detail the impact of dividend formulas to Alaska's budget past fiscal year 2023 (FY 23). She discussed which formulas would provide the state with a budget surplus 12:38:06 PM CHAIR SPOHNHOLZ moved to slide 8, which read as follows [original punctuation provided]: HB 259: Rewrites the Dividend Formula and Creates a Stable and Growing Dividend for Alaskans The 5% Percent of Market Draw from the Permanent Fund will be split as follows: 25% to dividends, producing a $1,301 dividend in FY24. 75% UGF available for essential government services 50%* to the public education fund for foundation formula and pupil transportation 50% to general fund CHAIR SPOHNHOLZ guided members through a diagram on slide 9 that details how HB 259 works. She moved to slide 10 to present a graph of what dividends would be under 259 past FY 24. She moved to slide 11, which showed UGF spending in the administration's proposed FY 23 budget. She explained that a statutory dividend would be more than what the state spends in UGF for operations. 12:42:11 PM CHAIR SPOHNHOLZ concluded the PowerPoint on slide 12, which featured a chart that outlined how HB 259 would create a stable, growing fund source for Alaska's public education. 12:43:48 PM MEGAN HOLLAND, Staff, Representative Ivy Spohnholz, Alaska State Legislature, presented a sectional analysis of HB 259 [included in the committee packet], on behalf of Representative Spohnholz, prime sponsor, which read as follows [original punctuation provided]: Section 1: Amends AS 14.17, if the amount appropriated under section six of the bill is not sufficient to satisfy foundation formula funding for K-12 education, the remaining need may be met via appropriation by the general fund. Section 2: Amends AS 37.13.140, to ensure the amount available for appropriation may not exceed the balance of the earnings reserve account. Repeals the old formula for calculating permanent fund dividends. Section 3: Creates a statutory split of the annual point of market value (POMV) draw as follows: 25% to the dividend fund for distribution for PFDs and 75% to the general fund. Of the 75% distributed to the general fund, no less than 50% may go to the public education fund for state aid to school districts to satisfy the foundation formula. Section 4: Amends AS 37.13.145(c), clarifying that an appropriation is required to move funds from the earnings reserve account to the principal of the permanent fund for purposes of inflation proofing. Section 5: Amends AS 37.13.145(d), relating to the Amerada Hess settlement funds, which are not included in the calculation of the POMV, to clarify that the POMV draw is appropriated, not transferred. Section 6: Adds a new subsection providing that at least half of the portion of the POMV draw distributed to the general fund (75%), may go to the public education fund for state aid to school districts to satisfy the foundation formula. In the case that this portion of the POMV for education exceeds the minimum amount required by the formula, the excess may be distributed directly to school districts according to the same formula. Section 7: Amends AS 37.13.300(c), relating to income from the mental health trust fund. This section is a conforming change referencing the calculation for the POMV under AS 37.13.140(b). Section 8: Amends AS 37.14.031(c) relating to the requirement that the Alaska Permanent Fund Corporation calculate the net income of the mental health trust fund annually on the last day of the fiscal year, excluding any unrealized gains or losses. This is a technical change removing the a [sic] reference to language that already exists under this section. Section 9: Amends AS 43.23.025(a), clarifying that funds must be appropriated to the dividend fund, rather than transferred as current statute provides. Section 10: Repeals AS 37.13.145(e) and (f). These sections prohibited appropriations from the earnings reserve account to the general fund that exceed funds available for appropriation. This language was moved to AS 37.13.140 under sections two and three of the bill by the legal drafter. Section 11: Effective date of July 1, 2023. 12:48:21 PM TOM KLAAMEYER, President, National Education Association of Alaska, began invited testimony. He said the pandemic exacerbated existing problems in Alaska's education system; annual risk of pink slips due to state budget fights; class sizes, and essential student services, such as counselors. He reported that, according to a Newsweek article, 55 percent of educators are considering leaving the profession sooner due to the effects of the pandemic. He said that, in Alaska, turnover is driven by several factors: the worst retirement in the country; annual risks of pink slips, flat funding, and rising class sizes. He stated that he is excited about the impact HB 259 would have on schools, as it seeks to resolve the state's fiscal crisis. He said recent analysis done by the Economic Policy Institute showed that, since the pandemic began, the state's public education workforce went down by 17.5 percent, and that, since 2008, the same workforce has fallen by 20 percent. 12:54:40 PM REPRESENTATIVE PRAX asked about teachers not in social security system, how that happened, and whether it can be undone. MR. KLAAMEYER answered that the decision was made in 1951 when retirement was considered adequate, and they felt they didn't need social security. He explained that a school board could authorize a vote to opt back in, or it could occur via statewide vote, which requires approval of the governor. He stated that there is no definitive answer currently. 12:56:53 PM LISA SKILES PARADY, PhD, Executive Director, Alaska Council of School Administrators, began invited testimony. She emphasized the state of crisis and the critical need to provide predictable reliable revenue for schools, per the proposed legislation. Early notification of funding is critical to allow districts to plan accordingly with more certainty. She concluded by referencing Dr. Weiss, who indicated that her district had the greatest education staff turnover and recruitment crisis in history. She indicated that the problem is worse in Alaska because of its reliance on recruitment from the Lower 48, which is also experiencing workforce shortage. Dr. Parady cited a study on increased education spending and the implications over 20 states. She said she is encouraged by the committee's consideration of HB 259. 1:05:24 PM REPRESENTATIVE PRAX agreed that everyone wants to see stability. He asked what the incentive is to consider new ideas, like incorporating the Internet, if the focus is on guaranteed funding. DR. PARADY said that the Internet is also an area of instability, as most outer reaching rural areas still lack Internet, and encouraged considering the equity involved. She said that no increase in the base student allocation (BSA) and the lack of inflation proofing put the state in a difficult position. 1:09:20 PM REPRESENTATIVE JOSEPHSON commented that adequate funding is not consistent with having new ideas. 1:09:57 PM The committee took an at-ease from 1:09 p.m. to 1:11 p.m. 1:11:12 PM LON GARRISON, Executive Director, Association of Alaska School Boards, read the written testimony from the Association of Alaska School Boards [included in committee packet], which read as follows: The Association of Alaska School Boards is in support of HB 259. AASB's Delegate Assembly has several long- standing resolutions supporting the elements of this legislation. These include: • Belief Statement #B.7 EDUCATIONAL PROGRAMS AND FUNDING AS TOP PRIORITY, • Resolution #2.1 SUSTAINED, RELIABLE AND ADEQUATE STATE FISCAL PLAN AND EDUCATIONAL FUNDING FOR ALASKA'S STUDENTS THROUGH A NON-VOLATILE FUNDING SOURCE • Resolution #2.2 URGING EARLY, ADEQUATE, EQUITABLE, AND PREDICTABLE FUNDING OF PUBLIC EDUCATION • Resolution #2.14 PUPIL TRANSPORTATION • Resolution #2.23 FUNDING FOR SCHOOLS BY ESTABLISHING THE BASE STUDENT ALLOCATION IN ADVANCE • Resolution #2.50 INFLATION-PROOFED BASE STUDENT ALLOCATION (BSA) INVESTMENTS Each year school board members and education advocates plead for education funding. And you routinely remind yourselves and the public of your constitutional responsibility contained in Alaska's constitution. Article 7, Section 1 requires your support and funding of a public school system. And you have never failed to fund education, however, the Base Student Allocation has not been increased from the current $5,930 since FY 17. Six years with no increase seems disingenuous to expect constant improvement in instruction and increasing standardized test scores. Utilities, supplies, transportation, fuel, salaries, maintenance, freight, food, instructional materials, communications, Internet, and a myriad of other supplies and services necessary for operating a school system have all increased. It seems as if the cost for everything has increased. About the only thing that hasn't increased is the BSA. The proposed new language in HB 259 has provisions that address those times when the formula draw does not meet the BSA and also when the formula draw goes beyond the BSA need. This seems to be a responsible solution. The proposed language in HB 259 would remove education from competition with all other appropriations and fulfill the responsibility of Article 7, Section 1 of Alaska's Constitution. The legislature could then concentrate on the remainder of other services that provide for Alaska's citizens and make our state such a wonderful place to live and raise families. HB 259 directly addresses several recommendations of the Legislative Fiscal Work Group. Creating a workable and reasonable solution to funding the PFD will remove that ongoing debate and allow the legislature to focus on public policy affecting all Alaskans. Additionally, it would provide that stable funding source for education and allow districts to concentrate on educational innovation to improve student outcomes rather than continually reducing programs due to erosion of the buying power of a flat funded Base Student Allocation. AASB encourages your support of HB 259 as a way of further support Alaska's public school system and Alaska's future through the education of its young people. REPRESENTATIVE JOSEPHSON announced that HB 259 was held over.