HB 90-PERMANENT FUND DIVIDEND; $1000 DIVIDEND  6:01:55 PM CHAIR CARPENTER announced that the first order of business would be HOUSE BILL NO. 90, "An Act relating to income of the Alaska permanent fund and the amount available for appropriation; relating to appropriations from the earnings reserve account; relating to the amount of the permanent fund dividend; and providing for an effective date." 6:02:17 PM REPRESENTATIVE ZACK FIELDS, Alaska State Legislature, as prime sponsor, presented HB 90. 6:02:41 PM The committee took an at-ease from 6:02 p.m. to 6:06 p.m. 6:06:38 PM REPRESENTATIVE FIELDS began a PowerPoint presentation [hard copy included in the committee packet] titled, "HB 90: $1000 Permanent fund Dividend," on slide 1. He explained that the impetus of HB 90 was made through conversations with his colleagues, who told him that the main issue is not the permanent fund dividend (PFD) amount, but rather its predictability. He informed members that the first PFD check in Alaska was $1,000 in 1982, and that is about what the state can afford in the future without raising new taxes. Further, he noted that $1,000 is similar than the historic average. He acknowledged conversations in the legislature around capping the PFD at $1,000, as some believe that the formula used in the 1982 distribution would become unaffordable. He said he wanted to offer HB 90 as a no-tax option, in that it would give the state a balanced budget and give Alaska residents PFD predictability. He moved to slides 2 and 3 to review the creation of the PFD program. In 1976, Alaska residents voted to establish the permanent fund, with the intent of making Alaskans feel vested in the program as stakeholders, and the fund would be protected and not squandered. He moved to slides 4 and 5 and noted that past oil volume was four times greater in 1982, and that the PFD distribution formula worked well up until about 2012. He further explained that at that time the state was experiencing declining revenue and oil prices. He stated that Alaska has not been able to afford the original formula in the last ten years, and that the state will not be able to afford it without new taxes. 6:10:22 PM EVAN ANDERSON, Staff, Representative Zack Fields, Alaska State Legislature, clarified that the data on slide 5 originates from the permanent fund corporation, and that the percent change is year over year. 6:10:42 PM REPRESENTATIVE FIELDS returned to the presentation on slide 6 to discuss legislative finance models. He reiterated that dividends distributed via the 1982 formula will not be affordable without new tax revenue. He said a 50/50 [percent of market value (POMV) split] dividend is not affordable without significant taxes, and that a 75/25 dividend split may be affordable, but is dependent upon optimistic assumptions to avoid taxes. He commented that the state would be able to afford the PFD program that uses the formula prescribed in HB 90, which he said will give residents predictability with the program, and the state would be able to maintain a low tax regime. He stated that, while his own constituents are comfortable with him voting for new taxes - if they are fair for working people - he opined that the legislature won't raise significant revenue, so HB 90 was presented. 6:12:14 PM REPRESENTATIVE FIELDS moved to slide 7 to present fiscal modeling done by the Legislative Finance Division, which he said shows that HB 90 would be affordable if the state were to not raise any new taxes. He moved to slide 8, which shows further division modeling, but on the question of what the price of oil would need to be in order to pay a $1,000 dividend. He said that it is reasonable to anticipate oil prices to be at the numbers show on the slide. On slide 9 he outlined the goals of HB 90 to provide PFD predictability for Alaskans, fund services consistent with constitutional intent, and to maintain low/zero tax burden. He reiterated his understanding that the legislature will not raise new taxes. He moved to slide 10 and commended last year's energy relief check to residents, and further, that the money is tax free. He moved to slide 11 and noted that proponents of last year's vote on whether to hold an Alaska constitutional convention had suggested putting the PFD into the document; residents ultimately voted no on holding a constitutional convention, which he said is an indication that what is in the Alaska Constitution is broadly supported. He stated that it is on the legislature to change PFD statute. 6:14:43 PM MR. ANDERSON gave the sectional analysis to HB 90 [included in the committee packet], which read as follows [original punctuation provided]: Section 1: This section amends AS 37.13.140, which defines net income of the Alaska Permanent Fund as income of the earnings reserve account. This section leaves unchanged the five percent Percent-Of-Market- Value draw for appropriations, and it limits the amount available for appropriation to no greater than the balance in the earnings reserve account described in AS 37.13.145. Section 2: This section amends AS 37.13.145(b) to authorize the legislature to appropriate funds from the earnings reserve account to the dividend fund each year and to pay out a dividend of up to $1,000 to each eligible individual per fiscal year. Section 3: This section amends AS 37.13.145(c) to give the legislature the ability to appropriate additional funds from the earnings reserve account to the principal of the Permanent Fund in order to offset the effect of inflation during that fiscal year. Section 4: This section amends AS 37.13.145(d) replacing the words "distribution" and "transfer" with "appropriation" to conform with previous sections. Section 5: This section amends AS 37.13.145(f), which gives the legislature the authority to appropriate funds from the earnings reserve account to the general fund. Section 6: This section amends AS 37.13.300(c), making conforming changes to the statute that disallows the legislature from including income from the mental health trust fund in the funds available for appropriation. Section 7: This section makes a conforming change to AS 43.23.025(a), which determines the value of the permanent fund dividend. Section 8: This section repeals AS 37.13.145(e), which mandated a 50% draw on the earnings reserve account for annual payments. Section 9: This section provides for an immediate effective date. 6:17:49 PM MR. ANDERSON explained that HB 90 has an indeterminate fiscal note. He said that setting one specific dollar amount in statue could lead to budget surpluses and deficits; therefore, a fiscal note [with a determined amount] could not be made. 6:18:35 PM REPRESENTATIVE GROH thanked Representative Fields for bringing HB 90 forward. He asked if the $1,000 figure was not inflation adjusted, and whether there were no inflation adjustment provisions. REPRESENTATIVE FIELDS answered yes. He explained that he sought to put forward the most fiscally conservative and predictable dividend that he believes the state could offer, which is why there are no inflation adjustment provisions. He shared that he has no strong feelings on whether to add such a provision, but he wanted a predictable figure, which he said is $1,000. He clarified that the figures shown in past slides are not inflation adjusted. REPRESENTATIVE GROH shared that $1,750 would be the historical average of the PFD, if using 2021 dollars. He asked for Representative Field's "school of thought" on who should pay the state's structural deficit. REPRESENTATIVE FIELDS answered that in 1996 voters put the permanent fund into the constitution and turned a non-renewable resource into a renewable resource with the explicit intent of funding services. He said that was a good idea, as too was when the legislature established in statue a PFD program with the intent of growing the fund. He said the data is clear that the PFD has a positive impact on ameliorating poverty. He said that, since Alaska has four times less oil coming through the pipeline, it can't afford a 1982 formula dividend. Unless there was higher oil revenue, oil taxes, or a substantial new form of revenue, the state has to balance services and dividends; but it should recognize that the most impacted would be the working poor. 6:23:27 PM CHAIR CARPENTER asked what would make the legislature follow a statute that prescribes a $1,000 PFD, and further, what kind of appropriation structure language is in HB 90. He inquired as to how such a law would get the state in a stable environment whether it still would be subject to appropriation. REPRESENTATIVE FIELDS answered that if HB 90 is passed, legislators can relay to their constituents that they are highly likely to get a $1,000 PFD. He said it is likely that oil prices will allow the state to afford the PFD, even if the price dips below the projected average. He said that HB 90 maintains the POMV spending cap law, which he supports. 6:24:50 PM REPRESENTATIVE MCCABE inquired about the use of "may", which he noted occurs on page 2, lines 12 and 19, and on page 3, line 16 of the proposed legislation. REPRESENTATIVE FIELDS deferred to Legislative Legal and Research Services. 6:25:46 PM EMILY NAUMAN, Director, Legislative Legal Services, Legislative Agencies and Offices, explained that HB 90 - as well as other bills to be presented tonight - are drafted as they are in order to be consistent with Wielechowski v. Alaska. She said the case held that appropriation for PFDs is not mandatory, and that the legislature is free to appropriate any amount for PFDs in any given year; therefore, changing the language from "shall" to "may" makes the language consistent with that holding. Further, even as the statutes are drafted now with the word "shall", the legislature is still free to appropriate any amount for the PFD. REPRESENTATIVE MCCABE asked, "Then why do we even need this?" Acknowledging that the legislature is free to appropriate however it likes, he asked whether inserting "shall" rather than "may" might make a future legislature less able to circumvent the language. MS. NAUMAN answered, "I don't believe so." She pointed out that the current language states "shall" and the legislature nonetheless has chosen to not appropriate the amount prescribed in statute. 6:27:44 PM REPRESENTATIVE FIELDS relayed that he is alright with using "shall" within the bill. 6:28:15 PM REPRESENTATIVE FIELDS, asked about slide 5 and his previous comments regarding the figures not being inflation adjusted, acknowledged that the data on slide 5 is a typo and the historic PFD average should be about $1,750. REPRESENTATIVE MCKAY said that if the PFD were to be "held flat," it would be eroded. He shared that this conversation reminds him of the 1994 vote, in that Alaska residents had voted not to use the permanent fund to balance the state budget. REPRESENTATIVE FIELDS commented that he would be in support of inflation indexing. 6:30:40 PM CHAIR CARPENTER said it would be helpful to see inflation data on past PFD payments. 6:30:59 PM REPRESENTATIVE GRAY commented that he likes the idea of doing energy rebate disbursements, namely because they are tax free. He asked how high the state can spend on energy rebate disbursements. REPRESENTATIVE FIELDS responded that while the argument could be made to disburse a $100 PFD and then disburse the rest of the revenue to residents as an energy rebate check, he is unsure as to whether the Internal Revenue Service (IRS) has provided guidance on such an action. 6:31:41 PM CHAIR CARPENTER suggested that the committee confer with the IRS in getting an answer to the last question. 6:31:54 PM REPRESENTATIVE MCCABE suggested the committee investigate "hold harmless" provisions. He offered the understanding that Alaska pays the federal government a certain amount of money based on the PFD for people that would normally have to pay tax on it but do not. He said if the state renamed the PFD for hold harmless portions, the savings would be $20 million. CHAIR CARPENTER added that both the energy rebate and hold harmless are going to have a tangential impact on the decisions the legislature makes around the PFD, so research on the topic will be done and shown to the committee. 6:33:01 PM REPRESENTATIVE GROH stressed that there are people that would lose money by receiving the PFD if there were no hold harmless provisions, under certain circumstances. REPRESENTATIVE FIELDS answered that he is aware of hold harmless but not that element of the legislative history. 6:33:49 PM CHAIR CARPENTER announced that HB 90 was held over.