HJR 7-CONST AM: PERMANENT FUND DIVIDEND  6:34:32 PM CHAIR CARPENTER announced that the next order of business would be HOUSE JOINT RESOLUTION NO. 7, "Proposing amendments to the Constitution of the State of Alaska requiring payment of a dividend to eligible state residents." 6:34:19 PM The committee took an at-ease from 6:34 p.m. to 6:35 p.m. 6:35:05 PM KENDRA BROUSSARD, Staff, Representative Ben Carpenter, Alaska State Legislature, presented HJR 7 on behalf of the House Special Committee on Ways and Means, sponsor, on which Representative Carpenter serves as chair. She read the sponsor statement [included in the committee packet], which read as follows [original punctuation provided]: For almost thirty years, Alaskans could count on their annual dividend checks as the state legislature followed the law that directed the dividend to be paid by a statutory formula. The trust between the government and the people of Alaska was broken in 2016 when Governor Walker vetoed a portion of the annual dividend and the Alaska Supreme Court ultimately determined that dividends were subject to the annual appropriations process. While the legislature could choose to follow the law and appropriate the dividend according to statute and separate it from the budget, they have not done so. Instead, the permanent fund dividend has been subjected to the budget process, where the dividend competes with government spending and often becomes the deficit reduction solution. HJR7 requires the state to pay the annual Permanent Fund dividend according to a formula in statute, rather than by the whims of the annual appropriations process. The amendments in HJR7 address the constitutional issues raised by the Supreme Court in its Wielechowski opinion that allowed the legislature to appropriate the annual dividend rather than pay it out by formula. Neglecting to constitutionalize the PFD would permit lawmakers to continue avoiding their obligation to address the shortcomings of Alaska's fiscal and economic planning, placing the Permanent Fund at risk. Constitutionally enshrining the Permanent Fund Dividend will provide for the maximum benefit of all Alaskans and ensure the prosperity of the Permanent Fund for generations of Alaskans to come. 6:37:20 PM MS. BROUSSARD proceeded to read the following sectional analysis [included in the committee packet], which read as follows [original punctuation provided]: Section 1 Article IX, section 7 of the Constitution of Alaska is amended to except the payment of Permanent Fund dividends from the prohibition of dedication of funds. Section 2 Article IX, section 13 of the Constitution of Alaska is amended to except the payment of Permanent Fund dividends from the requirement to appropriate all funds that are paid out of the state treasury. Section 4 Article IX, Section 15 of the Constitution of Alaska is amended to require the state to pay a permanent fund dividend according to a formula in law. Section 5 Article XV of the Constitution is amended to add a new transition section that would make the constitutional changes effective for fiscal year 2026. Section 6 Provides that this amendment to the Constitution be placed before voters at the next general election. 6:38:26 PM REPRESENTATIVE MCCABE turned attention to page 2, line 13, "Each fiscal year, without appropriation, the State shall pay a dividend". He asked about the use of the word "shall". 6:38:53 PM CHAIR CARPENTER asked Ms. Nauman what the effect of putting the word "shall" would have on the resolution. EMILY NAUMAN, Director, Legislative Legal Services, Legislative Agencies and Offices, explained that HJR 7 proposes a constitutional amendment, and that the Wielechowski v. Alaska decision was an interpretation of state constitution as it exists today; under that interpretation, appropriations for dividends must be made by the legislature and are subject to the legislative appropriation cycle annually. Since HJR 7 is seeking to change the constitution, the resolution itself does not need to abide by Wielechowski v. Alaska, so it is permissible to use the word "shall". CHAIR CARPENTER asked whether the justices recommended that a constitutional amendment would be necessary if the legislature wanted to dedicate money to the PFD. MS. NAUMAN responded that she does not recall the case saying anything about a constitutional [amendment]. 6:40:43 PM REPRESENTATIVE GROH sought confirmation that HJR 7 requires the payment of the PFD but does not prescribe a distribution formula. MS. BROUSSARD answered that's correct. 6:41:22 PM REPRESENTATIVE MCCABE shared that the Fiscal Policy Working Group held hours of conversation with Legislative Legal Services and the Legislative Finance Division about whether to put a distribution formula in the constitution. He said the group had settled on just putting language in the state constitution mandating that the state pay the PFD, while putting formula law into state statute. 6:41:57 PM CHAIR CARPENTER asked what the reasoning was behind seeking that the language be put in the constitution. REPRESENTATIVE MCCABE answered that it was because even if the bill language says "shall" the legislature could still violate the law. He relayed that his constituents wanted both the PFD and the formula in the constitution; however, having a formula in the constitution would not only be problematic but dangerous during a major economic downturn. He reiterated the working group's compromise: put the PFD in the constitution, because in the constitution, the word "shall" can be used, and the legislature must follow it. CHAIR CARPENTER asked Ms. Nauman how easily the legislature could ignore the statute to which HJR 7 would refer. 6:44:20 PM MS. NAUMAN answered that it's hard to predict how the Alaska Supreme Court is going to interpret constitution or statute, but if HJR 7 were to pass, the Alaska Supreme Court would require the legislature to appropriate money for dividends according to the formula in statue. She noted that one caveat is that the court does not have a mechanism to make such an appropriation happen; the legislature must make the appropriation ultimately. If the court orders the legislature to make an appropriation, it is unclear what would happen if the legislature did not do so, she stated. 6:45:43 PM REPRESENTATIVE GROH referenced page two, lines 13-15, "Each fiscal year, without appropriation, the State shall pay a dividend from the income of the permanent fund to eligible residents of the State, according to a formula set out in law." He shared that alternative language that focuses on the formula set out in law or statute rather than an appropriations bill or the budget, and he asked what the differences are between those two proposals. MS. NAUMAN answered that the language that orders the state to pay a dividend but states that it is not an appropriations bill is insurance, while an appropriations bill is law; therefore, stating that a dividend shall be paid according to state law would not be sufficient to ensure that the legislature would pay a dividend according to a set formula. In the case of HJR 7, the state pays a dividend according to formula, and it would not face the same issue. 6:47:51 PM REPRESENTATIVE GRAY surmised that if the legislature were to pass only HJR 7, and not accompanying statutory legislation, it would be ordering the legislature to do what it has already been doing, which is paying dividends. CHAIR CARPENTER rephrasing Representative Gray's remark into a question, asked whether, if HJR 7 were to pass, an additional piece of legislation would be required to make HJR 7 effective or current legislation would fit within the resolution. 6:48:55 PM MS. NAUMAN answered that current statute governing the amount paid in a PFD, based on a fiscal situation, could conflict. If HJR 7 were to pass, she advised, the legislature would need to clean up existing PFD statute. In response to Representative Gray's remark, she confirmed that HJR 7 would require the legislature to pay out a PFD into the future. REPRESENTATIVE GRAY asked for confirmation that if the legislature were to pass only HJR 7, it could change statute at any time but still would be required to pay a PFD. MS. NAUMAN confirmed that's correct, in that the legislature could pass an appropriations bill to pay a PFD, and then make a statutory change to the formula. 6:50:35 PM CHAIR CARPENTER recognized that HJR 7 tells the legislature that, without appropriation, the state shall pay a PFD from a statute that is established. He asked what the effect would be if the legislature attempted to pay a PFD through the appropriations process instead. Further, he asked if there would be conflict between the statute that is on the books and an appropriations bill that would pay an amount that differs from what statute orders. MS. NAUMAN corrected her previous answer after recollecting that HJR 7 does not require a PFD appropriation; it would be a mandatory transfer without appropriation. She said that the hope is that such a situation wouldn't happen, and that the legislative intent in making the appropriation would need to be clear whether the intention of the legislature was to appropriate for the transfer or to make an appropriation on top of the transfer. 6:52:03 PM REPRESENTATIVE GROH asked, regarding proposed constitutional amendments, what risk there is that any amendment that is being considered in committee might run afoul with the doctrine from the Alaska Supreme Court Case, Bess v. Ulmer, regarding revision versus amendment. He requested Ms. Nauman to talk about that doctrine and how it might affect the committee's consideration of constitutional amendments. MS. NAUMAN outlined that there are two ways to amend the state constitution, as prescribed within the document itself: first is the process happening right now, in that there is a legislative resolution followed by a vote of the people; second is via a constitutional convention. The Alaska Supreme Court conveyed that if the conditional changes are significant enough, it must go through a constitutional convention process. She said the court's analysis in Bess v. Ulmer looked at it in two ways: qualitative, the nature of changes; and quantitative, the number of changes required to rebalance government power. For constitutional amendments around the permanent fund, she said the driver of the determinations on whether the amendment would constitute a revision is how much the change impairs the legislature's already broad appropriation authority over all the money coming from the permanent fund. She said there is only one case on the issue, which is Bess v. Ulmer, which she pointed out does not provide much guidance on circumstances relating to the PFD. 6:55:09 PM CHAIR CARPENTER announced that HJR 7 was held over.