HJR 8-CONST AM: GUARANTEE PERM FUND DIVIDEND  6:55:22 PM CHAIR CARPENTER announced that the final order of business would be HOUSE JOINT RESOLUTION NO. 8, "Proposing amendments to the Constitution of the State of Alaska relating to the Alaska permanent fund and appropriations from the Alaska permanent fund." 6:55:35 PM MS. BROUSSARD, Staff, Representative Ben Carpenter, Alaska State Legislature, presented HJR 8 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. House Joint Resolution 8 aims to enshrine the PFD program in the Alaska Constitution to create stability for Alaskans who rely on their annual dividend, and to create stability for the long-term fiscal plan of the state. Without stability, those who receive state funding, through the dividend or from government programs, cannot plan for their businesses or their lives for a duration of more than a year. HJR8 adds protection against overspending of the Fund by moving the balance of the Earnings Reserve Account, which currently holds the Permanent Fund's investment earnings, into the Fund corpus, where all future earnings will be retained and thereby safeguarded from access. HJR8 then limits the permissible draw from the Fund to five percent (5%) of a five-year averaged market value of the Fund. The people would then be apportioned either fifty percent (50%) of the draw value or the amount of the historic calculation formulawhichever is greater. In this way, the people will always receive first call on the earnings of the Fund, ahead of government. Failing to constitutionalize the PFD would enable a disproportionate distribution of Alaska's oil wealth to growing government at the expense of Alaskan citizens. 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. 6:58:11 PM MS. BROUSSARD moved on to the sectional analysis [included in the committee packet], which read as follows [original punctuation provided]: Section 1. Eliminates the earnings reserve account of the Permanent fund. All income of the Permanent Fund that is not directed to the dividend payment or to the general fund shall be retained in the corpus of the Permanent Fund. Section 2. Article IX, Section 15 of the Constitution is amended to provide for a draw from the Permanent Fund of five percent of the market value (POMV) of the Fund. Section 2 then requires the state to pay a permanent fund dividend that is the greater of two calculations: the traditional PFD calculation or fifty percent of the five percent POMV. The remainder of a five percent POMV may be appropriated by the legislature for state government. Section 3. Article XV of the Constitution is amended to provide for transition timing of effective actions once voters approve this amendment to the Constitution. At the end of fiscal year 2023, the balance of the earnings reserve account would be transferred into the corpus of the Fund. The substantive provisions would be effective beginning fiscal year 2026. Section 4. Provides that this amendments to the Constitution be placed before voters at the next general election. 6:59:36 PM CHAIR CARPENTER said that HJR 8 differs in effect from HJR 7. 6:59:46 PM REPRESENTATIVE GROH thanked Chair Carpenter for introducing the two resolutions. He pointed out that HJR 8 would constitutionalize the POMV rules and create a single account structure - a change he supports. He noted that the constitutional amendment proposed in HJR 8 would set out alternative formulas as a way of figuring out what the PFD would be in future years. He said that HJR 8 does not address revenues; it is said that if there's a 50/50 POMV split per allocation between PFDs and general government, that creates a hole that the Senate Finance Committee estimated to be $800 million a year. He asked if the sponsor could address the policy question of why HJR 8 does not address revenues. CHAIR CARPENTER answered that the intent of HJR 8, as it is drafted, was not to address revenue options; the intent of the committee is to address revenues, if necessary, with other accompanying legislation, and model all of the propositions before the committee to see how they interact. He said it is premature to have a conversation based on what was presented to other committees, but HJR 8 was not meant to deal with new revenues, which he said was a recommendation of the Fiscal Policy Working Group. REPRESENTATIVE GROH commended members of the working group, whose recommendations included a variety of proposals. He advised members that if the 50/50 POMV formula is put in the constitution, there must be revenues for public services, ergo, why the working group recommended revenues of between $500 million to $775 million a year. CHAIR CARPENTER offered that another perspective would be that it adds economic growth in the state that would provide new revenue to the state. 7:04:06 PM REPRESENTATIVE MCCABE relayed that HJR 8 essentially limits the earnings reserve account (ERA). Speaking on revenues, he said there is no way - except perhaps a large income tax - that the revenue from the citizens of Alaska could make up the budget shortfall. He shared that the working group investigated an income tax structure for Alaska extensively, but "it just doesn't work with our tax base." 7:05:11 PM REPRESENTATIVE GROH recounted that the State House of Representatives had passed a bill to raise an income tax, which the Department of Revenue estimated to generate $700 million in revenues in 2017. He said he is supportive of development projects that raise revenues, but if PFDs and distribution formulas are inserted into the state constitution, there must be a way to ensure that there are revenues for public services. 7:06:34 PM REPRESENTATIVE GRAY asked why the sponsor chose to pair the elimination of the ERA with a fixed PFD formula. CHAIR CARPENTER relayed two recommendations from the working group: consolidate to a single fund source for the permanent fund and constitutionalize the permanent fund program. He stated that putting both of those items into one resolution is the way to carry them out. 7:07:43 PM REPRESENTATIVE ALLARD asked Representative Groh if he is suggesting that the state underspends on public services and takes money out of the PFD before it cuts the budget. REPRESENTATIVE GROH answered no, but said he is looking out for the views of those that make $20-$25 an hour, despite people advising him to look out for people making $2,000 an hour. He said that the people within his district are more likely to have a second job than a second home. He shared that he would like to see a balanced approach, like what the working group recommended in 2021. 7:09:29 PM CHAIR CARPENTER stated that the goal of today's meeting was to hear three separate and unique bills and said that the committee will get to Representative Allard's question when it sees the other proposals that come from components of the working group's work. 7:10:28 PM REPRESENTATIVE GRAY said that as a new legislator, he is trying to reconcile all the bills the committee has heard in the unlikely event that they all pass. In considering a 75/25 POMV split, a $1,000 PFD, and the two proposed constitutional amendments, the amendments would trump statutory related policy. He said all the bills cannot be reconciled together. He asked Chair Carpenter how he can see the whole legislature working together. CHAIR CARPENTER responded that one criticism of the working group's report was that it was just theoretical recommendation, not a bill or resolution to be taken up by the legislature. He said the group could have developed a recommendation towards a piece of legislation and submit it for consideration. He said that this committee is seeking to bring options so the conversations are no longer theoretical. He stated that he does not envision all the bills passing because some compete with each other through varying actions; what he hopes the House Special Committee on Ways and Means will do is pick something one which members agree. Further, the intent in weeks to come is to use a legislative finance tool to "plug" in the different proposals to see how each of them intersect. 7:13:24 PM CHAIR CARPENTER asked Senator Shelley Hughes to speak as a member of the working group, as well as a member of the previous PFD group. She was asked to share her thoughts now that the committee has the measures before them. 7:14:11 PM SENATOR SHELLEY HUGHES, Alaska State Legislature, Juneau, Alaska, shared that she was a member of a bicameral PFD working group, as well as the recent Fiscal Policy Working Group. She explained, in considering the varied legislation before the committee, that all the different pieces must come together, and that once one bill passes, another bill must pass in order to function. She advised that resolutions that propose constitutional amendments are more difficult to pass, but determine what is left over for the budget, which is what leads to the revenue and reduction questions being raised. She said that passing measures that settle the PFD and provide a spending cap provide a framework for which the other pieces of legislation can be carried out. She said that whatever is put forward has to appear fair to the people and receive their approval. She said this is the reason she likes the resolutions that offer what the PFD would be; however, if the sponsor can get the votes only within the state capitol, she feels more comfortable with that now than when fund drawing began in 2016. Further, for about eight years now there has been no bill passed aimed at changing the PFD formula, she said. She acknowledged the talks around workforce recruitment and retention of public employees, as well as school funding concerns. She stressed that fiscal certainty in the state should be addressed first. She shared that Milton Friedman was consulted as to what to do with the permanent fund and recommended that some of the funds should go out to the private sector. She said, "Anything that goes into the budget, whether operating or capital, ultimately is serving some special interest group." She further quoted Milton Friedman as stating that offering a permanent fund is moving away [from special interests] because everyone is treated equally by receiving the money, and "a dollar in the private sector economy has a higher multiplier than in the government sector." SENATOR HUGHES referred to a document authored in 2021 by herself and former Representative Johnathan Kriess-Thompkins, which addressed a larger PFD, and that in looking at HJR 8, the legislation calls for a larger PFD, so the document is applicable. She said that the data within the report suggests that a $3,000 PFD results in $2-$3 billion income to Alaska residents, positive impacts on employment, 10,000 to 17,000 jobs, and 36,000 to 45,000 residents out of poverty. She said that the Institute of Social and Economic Research (ISER) studies suggest that about $750 out of a $3,000 PFD would go to nondurable goods, like food, entertainment, and travel. She quoted segments of the ISER report that emphasize the relationship between policy uncertainty, the recession, and "significant negative effects on aggregate investment and on employment". She said economic policy uncertainty can explain up to 32 percent of the drop in corporate investment. She continued, "The decline in spending due to policy uncertainty would indicate that waiting is not a costless option, in fact, the losses due to uncertainty are important, and similar in magnitude to the ones the economy would experience due to attacks or due to further government cuts." She shared that the state's lack of having its fiscal house in order has cost the state half a billion dollars. SENATOR HUGHES said a sizeable PFD impacts the business sector. According to the University of Alaska Anchorage's Business Enterprise Institute, 64 percent of start-ups will go to families first for capital; therefore, if there is a sizable PFD, the state will see more start-ups, as well as other businesses, expand. She said that 23 percent of start-ups begin with $10,000 or less, and that for a family of four receiving PFDs, the total they accumulate would be $12,000. She stressed that if the legislature settles the PFD issue, it will increase Alaskans' income, reduce poverty, improve health, expand businesses, increase employment, increase jobs, and increase private investment. 7:26:16 PM SENATOR HUGHES asked whether HJR 8 is like legislation drafted by Senator Wielechowski. CHAIR CARPENTER indicated that HJR 8 mirrors SJR 1. SENATOR HUGHES stated that if the PFD issue were settled through the state constitution, then that would provide more certainty than if it were settled in statute. CHAIR CARPENTER asked if Senator Hughes could provide the documentation referred to in her presentation. SENATOR HUGHES agreed to share the information. 7:27:29 PM SENATOR HUGHES, in response to Representative Gray, indicated that ISER had conducted a study showing that a larger PFD resulted in the birth of larger babies. REPRESENTATIVE GRAY commented that he would like to see the study. 7:28:09 PM REPRESENTATIVE GROH said that, as someone who assisted in creating the PFD, he is happy to hear all the substantial benefits. He relayed that business leaders have impressed upon him the need of fiscal stability to help grow the economy. Further, such leaders stressed the need for amenities and basic services; such factors are important to them in deciding where to locate businesses and attract employees. He asked whether Senator Hughes had done the research on this. SENATOR HUGHES answered that she has, and that business leaders like HJR 8 because it is a comprehensive approach, since they too want to ensure there are good schools and roads so that the state doesn't apply heavy taxes on the businesses. 7:29:36 PM CHAIR CARPENTER asked whether it would take investment earnings or economic growth in the future to pay for good roads and services. He said the committee is figuring out what is the most stable system to create. 7:30:17 PM REPRESENTATIVE MCCABE pointed out that money in the private sector returns nine times the amount invested; conversely, government investment returns are at 1:2. He said the idea is that the jobs need to be created first, then the roads. He illustrated an example from Phoenix, Arizona, in which people came, moved in, built houses, and then everyone complained because there were no roads, despite having the tax base to build one. He said the "chicken or the egg" question will be a big part of the upcoming conversation. SENATOR HUGHES recounted a "crash" in Alaska in the 1980s which emptied homes. She said there must be an economy to support the services. 7:32:13 PM REPRESENTATIVE GRAY said he supports growing the economy, but that if the economy is not sending money to government to pay for services, then no matter how big it gets, it would not pay for services. CHAIR CARPENTER explained that the structure the state has now pays for services from its "one-trick pony" [oil], and that it may be years from now when the state finds a revenue alternative. He said the point is that if the state is known only for oil revenue, then the state is in a "pickle." He pointed out that the legislature has not been having the conversation on how to incentivize economic growth. He opined that if the state wishes to incentivize such growth, it shouldn't have high corporate taxes, and rather there should be a positive environment in which businesses are able to take risks. [HJR 8 was held over.]