SENATE BILL NO. 76 "An Act authorizing an advisory vote on whether appropriations of income from the permanent fund should be restricted; and providing for an effective date." This was the first hearing for this bill in the Senate Finance Committee. Co-Chair John Torgerson referred to a handout titled, Senate Finance Committee, before members and noted the same information would be shown on an overhead projector. [Copy on file.] Page 1, Cover sheet. Page 2, Senate Majority's Guiding Principles. Co-Chair John Torgerson stated that these were the principles any plan that comes before the Committee will be measured against. The guidelines state that an approved plan "preserves, protects, and grows the Alaska Permanent Fund" plus guarantees a healthy dividend. The guidelines also require that a plan "produces a balanced budget" by limiting government spending and prioritizing essential services. The guidelines call for "no income tax" and stipulate that "Alaskans decide" by a "vote of the people" any plan before it is implemented. Page 3, Today's Presentation. Co-Chair John Torgerson told members that they would hear both the "Do Nothing" plan and the "Balanced Budget" plan using assumptions and graphs. A summary was also scheduled to review and compare the two plans. Page 4, "Do Nothing" - Assumptions. Co-Chair John Torgerson said assumptions for this plan used figures from the Department of Revenue Spring 1999 forecast. The plan also used the Department of Revenue and the Department of Natural Resources May 12, 1999 Oil Revenue Forecast, which Co-Chair John Torgerson explained is future oil and gas production expected from wells not included in the Spring forecast, such as the National Petroleum Reserve-Alaska (NPRA), Foothills, Sourdough and others. Finally, the plan used information supplied from the Permanent Fund Division showing earnings of 7.75 percent total returns on investment Co-Chair John Torgerson continued explaining that the "do nothing" plan shows no government spending reductions beyond the Senate Majority adopted reductions for fiscal year 2000 (FY00). The plan assumes a 1.45 percent spending growth for education only. The plan also assumes an eligible population growth of 1.1 percent for permanent fund dividend recipients. PHIL OKESON, Fiscal Analyst, Division of Legislative Finance, told the Committee the intent to use graphs to show how any plan might hold all generations equal by protecting the purchasing power of the State's fiscal assets. Page 5, Do Nothing Plan - Projected Savings Account Balance vs. Inflation Adjusted Balance. This graph showed that currently fiscal assets representing the entire permanent fund and the Constitutional Budget Reserve (CBR) are about $28 billion. Adjusted for inflation using a three-percent inflation rate for capital market assumptions, as advised by Callan and Associates, the State would need about $52 billion by the year 2020 to stay even. Phil Okeson summarized that $28 billion today has the same purchasing power as $52 billion in twenty years. Phil Okeson pointed out the "inflation adjusted savings" and the "actual projected savings" lines on the chart. He emphasized that when the actual projected savings falls below the inflation adjusted savings, this practice is essentially stealing from your children and grandchildren. If the actual projected savings are above the inflation adjusted savings, there will be more for future generations. If the two amounts are the same, future generations will have the same as the current generation and neither generation fares better than the other. Phil Okeson then explained that under the "do nothing" plan, certain assumptions are made as to what happens to the savings account that show the actual projected savings diverging below the inflation adjusted savings almost immediately. As a result, he said assets are spent down, purchasing power is lost and future generations will not have the same benefits. By the year 2020 there will be a significant gap of approximately $9-10 billion. Phil Okeson surmised that gap will be difficult, if not impossible to make up at that time. Page 6, Do Nothing Plan - Alaska's Savings Account. This graph shows what happens with the State's individual savings accounts under the "do nothing" approach. Phil Okeson explained that after the CBR runs out, the legislature must decide whether to draw next from the Earnings Reserve, then from the Unrealized Gains. When those accounts are drained, there is no other fund source available, according to Phil Okeson, because the state constitution protects the corpus of the permanent fund. When asked if the state would really empty all its savings accounts, Phil Okeson suggested that is the traditional action taken by the state. Phil Okeson detailed the items on the graph. In the early years of oil production in the state, about $150 million in oil revenues was deposited into the permanent fund account each year. In addition, statutory inflation proofing is done to the account as required under the state constitution. Phil Okeson explained that is what caused the growth in the fund and that this amount never diminishes because it is constitutionally protected. Phil Okeson stated that under the "do nothing" plan, the state will spend the CBR down and by the year 2002 or 2003, the account will be gone. Phil Okeson then addressed the affect of the "do nothing" plan on the Earnings Reserve account. He said that initially, this fund actually grows because nothing is withdrawn from it until after the CBR is depleted. Once the withdrawals begin however, the balance will drop immediately and by the years 2007 or 2008, this fund will also be gone, according to Phil Okeson. At that point, he warned, the Legislature will need to consider using the permanent fund corpus to operate state government. Phil Okeson anticipated that, not only will the earnings reserve be affected but also the unrealized gains because the unrealized gains will need to be "realized." Once the state begins to realize and utilize those gains, the gains will be gone, he warned. By the years 2011 or 2012, there will be no more accounts that can be tapped. Phil Okeson stated that by that point, "things start to fall apart relatively quickly." Page 7, Do Nothing Plan - Permanent Fund Dividend per Capita. What does the above information mean for the dividend itself? Phil Okeson answered that for a couple years, the dividend amount will grow due to good years in the past and because of a bigger moving average. The plan assumes a 7.75 percent return until it levels off and then starts to dip, according to Phil Okeson. He reminded the Committee that during these years, in the "do nothing" plan, funds will be withdrawn from the CBR and then the Earnings Reserve. He then explained that by approximately 2008, the dividend begins to make an uphill climb, because more unrealized gains are realized, which in turn affects the dividend calculation. Phil Okeson explained the current permanent fund dividend is calculated on realized income instead of total income (realized and unrealized income.) When gains are realized with the sale of stocks or other investments, the dividend amount increases. He pointed out that just as the State is trying to save money because the savings accounts are dwindling, it is actually forced to spend more money on the dividend under the current calculation. Phil Okeson continued, saying that by the year 2011 when all the realized income is gone, the dividend crashes. This is because the model assumes that while the corpus of the permanent fund is still earning a couple billion dollars a year in interest, those earnings will be used entirely for inflation proofing and to address the deficit. All that would be left over to pay the dividend is a very small amount, about $100 per person, according to Phil Okeson. He questioned if at that time, a dividend would even be wanted due to the high percentage of administrative costs that might outweigh the actual dividend itself. Phil Okeson noted the other assumption of this plan is a very limited growth in government, only allowing education formula spending to grow. Any increases to government spending could cause the dividend to completely go away, he warned. Also, the dividend could go away in the case of a bad investment market during this timeframe. In addition, the state could be forced to carry a deficit even with the permanent fund still issuing dividends, according to Phil Okeson. Senator Randy Phillips asked what percentage of the public was aware of the permanent fund situation. He felt it was important to educate the public before a plan could be implemented. Co-Chair John Torgerson responded that this is the reason for today's meeting and the intent to have an advisory vote on the subject. Page 8, "Balanced Budget" Plan. (Cover sheet) Page 9, "Balanced Budget" Plan Assumptions. As with the "do nothing" plan, assumptions for this plan uses the Department of Revenue Spring 1999 Forecast, the Department of Revenue and Department of Natural Resources May 12, 1999 Oil Revenue Forecast and assumes a dividend qualifying population growth of 1.1 percent. The "balanced budget" plan differs from the "do nothing" plan in that it pressumes the Permanent Fund will earn 8.25 percent total return. Co-Chair John Torgerson explained the higher earning is based on changes proposed in HB 156, currently in the Senate Finance Committee. The "balanced budget" plan also assumes to protect the permanent fund by inflation proofing at three-percent. Page 10, "Balanced Budget" Plan Assumptions [part 2]. The plan calls for general fund sustainable spending reductions of $40 million in FY00, $30 million in FY01, and $10 million each year for FY02 through FY10. Co-Chair John Torgerson pointed out that in FY01 the Senate Majority Five-year plan to reduce the budget by $250 million will be complete. He explained the $10 million reductions for the years 2002 through 2010 will be primarily the result of savings from formula driven programs such as Longevity Bonus, Welfare Reform and others. He said that in some years, there will be a greater than $10 million saving. Page 11, "Balanced Budget" Plan Assumptions [part 3]. The plan limits government spending but still allows for a 1.45 percent growth for education, the university, public safety, transportation and maintenance. The plan assumes $35 million in new revenue in FY00, $100 million in FY01 and $100 million in FY10. An additional $50 million is added for capital projects beginning in FY02. Page 12, "Balanced Budget" Plan Assumptions [part 4 - assumptions on the dividend]. Co-Chair John Torgerson commented that it was important to review the historical dividend amounts over the past four years. In 1995, the dividend payment was $990 per person. In 1996 it was $1,131; 1997 was $1,296 and in 1998 the dividend payment was $1,541 per person. Co-Chair John Torgerson stated the intent is that the "balanced budget" plan will not change the formula on which the dividend is calculated for the 1999 and 2000 dividends. On approval of the advisory vote, after the year 2000 the dividend will be calculated at 2.75 percent of the market value of the fund. According to this model, the dividend for the year 2001 will be $1,258 per recipient. Page 13, Balanced Budget Plan - Projected Savings Account Balance vs. Inflation Adjusted Balance. Phil Okeson explained that this graph, like page 5 that addressed the "do nothing" plan, shows an intergenerational affect of the "balanced budget" plan. In this case, the actual projected savings are above the inflation adjusted savings. This plan will not take money from future generations and will actually be giving some to future generations, according to Phil Okeson. While this graph showed "a nice upwardly sloping climb", he cautioned that in reality, there would be fluctuation. However, over the long term, he expected the figures to follow the same upward trend. He termed this graph as the reflection of a healthy plan. Page 14, Balanced Budget Plan - Alaska's Savings Accounts. Under this plan, "the savings accounts work in an interesting fashion," according to Phil Okeson. The CBR immediately transfers into the Alaska Income Account. He stated that the earnings reserve account and the CBR will grow substantially and the unrealized gains will be maintained at approximately the same level, with a certain amount of turnover as with any portfolio. Phil Okeson emphasized that a particular benefit of this plan is that it follows Callan's advice to reduce the overall risk of market volatility by providing a cushion in bad years. In fact, after several years, the "balanced budget" plan builds a large cushion. (Note: Callan and Associates is the general financial consultant used by the Permanent Fund Corporation and the Department of Revenue's Treasury Division.) Page 15, Balanced Budget Plan - Permanent Fund Dividend per Capita. Phil Okeson explained that this plan maintains the dividend at the current level for two years. The dividend then declines for the next two years and then begins to grow again. Phil Okeson noted that the actual amounts will vary depending on financial markets, but provisions are provided to allow for stabilization. Therefore, over the long term, he expects the dividend amounts to grow fairly healthily. Senator Al Adams pointed out the models of the "balanced budget" plan show the growth of the permanent fund of at least 8.25 percent and the dividend calculation of 2.75 of the market value of the fund. He stated that, "the assumption is that the market is going to crash in the year 2006 or 2007" and he wanted to know what protection this plan had against a crash to buffer the dividend payments. Phil Okeson responded that a provision in the "balanced budget" plan calls a "five year smoothing average", allowed for a crash in the stock market. He also stated that switching the dividend calculation to "market value of assets" is a key way of taking the risk of volatility out of the dividend itself. He said that the current situation is based on realized earnings, which is an artificial number. He pointed out in 1994, the permanent fund earned approximately 1.94 percent, and the following year it earned double digits. That is a large amount of volatility, according to Phil Okeson. However, he stressed that by making the dividend a percent of market value of assets for the whole fund, the result is that even after a large market downturn, the percentage of the total assets would not change substantially. He detailed how a low rate of return in one year following a year of high return would still cause the market value of assets to grow even though the earnings went down. Phil Okeson qualified that market value would affect the dividend in the case of a severe market downturn, over a period of time, that amount would climb above the model average. He continued by saying that if the financial market behaved as it always did, the average would follow the model shown on the graph. Senator Pete Kelly referred to the 1.94 percent downturn and the presenter's anticipation that the assets of the permanent fund account would not be greatly affected. Senator Pete Kelly asked if the reason was because deposits were continuing to be made into the permanent fund or because of the financial market itself. Phil Okeson answered back to the same example, that when the previous year's earnings were ten percent, the average was not substantially affected even with the low 1.94 percent earnings. Therefore, even with that bad year, the fund still grew, according to Phil Okeson. There would have to be a fairly bad market for the fund to go down. He speculated that the worst return in any year would be a six percent loss on the total value of the fund which would reflect a significant market meltdown. He also stressed the importance of remembering that the permanent fund itself is a diversified portfolio; the return on stocks could go down but the bond portion of the portfolio would likely go up and offset the loss in stocks, according to Phil Okeson. Senator Al Adams asked if the balance didn't depend on the percentage of stocks versus bonds in the financial portfolio. Phil Okeson agreed that when portfolio has a greater investment in equalities, there is also greater volatility in the return. However, that risk increases by only one or two percentage points. He re-stated that six percent is the most the fund would lose. In his opinion, the fund has professional managers overseeing and advising the permanent fund trustees. Senator Sean Parnell thought Phil Okeson's point was well taken that under the current system there is more volatility because it is based on realized earnings as opposed to the market value of the total fund. Phil Okeson reiterated that the dividend calculation would benefit from switching to a market value of assets approach. He noted that many charitable trusts and 70-80 percent of universities already do this, because they had learned the hard way. Page 16, Balanced Budget Plan - Total GF and Dividend Spending. Phil Okeson explained that this graph shows what the total overall spending under the plan would be. He detailed the areas on the graph. Education, the university and other identified essential services is separated from a general government expenditure category and allowed to grow over time. General government expenditures are held flat. The dividend on average will grow in the "balanced budget" plan. Senator Al Adams asked if the future operating budget is reflected in the education, university and essential services line and the general government expenditures line. Phil Okeson affirmed that it is. Page 17, Balanced Budget Plan. Co-Chair John Torgerson explained that the plan preserves, protects and grows the permanent fund. It guarantees the dividend for all Alaskans, imposes no dividend cap and is a market driven dividend. Page 18, Balanced Budget Plan [part 2]. Co-Chair John Torgerson continued saying the plan produces a balanced budget by reducing spending and by imposing limits on government, includes no personal income tax and ensures economic stability and certainty for Alaskan businesses. He added that the plan also prioritizes education, public safety and transportation needs. Page 19, Balanced Budget Plan [part 3]. Co-Chair John Torgerson concluded by explaining that the bill before the Committee, SB 76 provides an opportunity for the public to vote on the plan in the Fall of 1999 and involves Alaskans in the process of implementing the plan. Page 20, Senate Majority's Guiding Principles. Co-Chair John Torgerson overviewed the principles to preserve, protect and grow the permanent fund and to guarantee a healthy dividend, produce a balanced budget by limiting government spending and by prioritizing essential services, impose no income tax and be decided by a vote of the people. Senator Loren Leman referred to the model that accounts for the state's assets, and asked about other assets such as the Alaska Housing Finance Corporation (AHFC), Alaska Industrial Development and Export Authority (AIDEA), etc. Are they accounted for in the model or are they an implied reserve for the future? Phil Okeson replied that in the model, these other assets are not included except for the annual dividends they provide and are considered an implied reserve. Senator Sean Parnell felt that by excluding AHFC, AIDEA and other assets from the model is one of the benefits of the "balanced budget" plan because "many tools were left on the table for future use." Senator Loren Leman did not notice any assumptions given for major projects in the next twenty years that could generate substantial revenue, such as a North Slope gas cap project or the development of the Arctic National Wildlife Reserve. Were those taken into account in the Department of Revenue and the Department of Natural Resources' projections? Co-Chair John Torgerson referred to another graph that was not in the distributed packet - but shown on the overhead projection that showed oil revenue projections not accounted for in the Spring 1999 forecast. He stated that the Department of Revenue, in a report titled Incremental Revenue High Case Scenario, released the numbers shown on the chart in a recent House Finance Committee meeting. The Department of Revenue predicted a high probability for the situations listed in the report. Co-Chair John Torgerson read the oil projects listed on the graph. He said the reason the projects are not included in the model is because of the desire to base the "balanced budget" plan on "defendable assumptions" and that the future projects not listed are not guaranteed to happen. He pointed out that to add the projected 700,000 barrels per day ANWAR project makes the "balanced budget" plan look very healthy. He added that if it were known that ANWAR would come on line, many of the other proposed steps would not be necessary. Co-Chair John Torgerson continued detailing the anticipated revenues the future oil projects would generate if they were realized. He said that the total revenue over twenty years would be $3.1 billion with a high of $316 million in the year 2019. Senator Al Adams commented that one of the things needed to make the "balanced budget" plan work is the new revenue in 2000-2001. He pointed out that the Committee heard about the projected $35 million in the year 2000, but had not heard details on the $100 million new revenue for the year 2001. Co-Chair John Torgerson replied that a large portion of those revenues will come from the provisions in SB 156 that has a fiscal note of $99 million. He said the plan assumes this bill will pass and become incorporated into the plan for future years. Senator Sean Parnell commented that Senator Randy Phillips brought up a valid point that many Alaskans don't understand that the general direction the financial situation is going if the status quo continues. Senator Sean Parnell's constituents tell him to just cut the budget to reduce spending. He noted the Legislature has been doing that more than ever. However, he asked Phil Okeson to draft a scenario showing a $500 million budget cut to see how the most drastic reductions would affect the state's financial situation. He stated that this cut would eliminate almost all state general funded personnel and personnel services, which amounts to approximately $700 million this year. He asked Phil Okeson share the results. Phil Okeson showed an another graph (not included in the packet) and explained how a $500 million cut would affect the overall status quo if no other changes were made to the budget process this year. Senator Randy Phillips interrupted wanting to make the scenario "real." He surmised that to simply state "$500 million" did not have the same meaning as "the elimination of every state job." Senator Sean Parnell restated that the cut would come from the elimination of virtually every state employee position. Phil Okeson gave another analysis comparing this scenario to budget reductions made in 1986 by Governor Bill Sheffield. A $500 million cut would be approximately two and one-half times the earlier cuts. Phil Okeson continued explaining the scenario. He said that after the $500 million cut, the financial situation is OK for awhile. However, he warned that other revenues would drop off over the years still resulting in a fairly sizable decrease. It would still be necessary to spend down state assets that would reduce purchasing power. He detailed this point using the graph. Senator Sean Parnell reiterated that even with a $500 million decrease, the permanent fund is still taken from future generations. That's not to say that the "balanced budget" plan does not have reductions because it does, he stressed. He commented that given the magnitude of the fiscal gap, the question before Legislators is what to do to protect the permanent fund and preserve the state's savings accounts for today and for future generations. Senator Gary Wilken requested a return to page 14 of the handout. He referred to the Alaska Income Account showing that the fund continues to grow under the "balanced budget" plan. He wondered if it would be wise to insert a provision into the plan stipulating that when the account reached a certain number, a deposit would be made from it into permanent fund account. Phil Okeson replied it was possible and suggested asking experts for advice. He pointed out that the question was how much of a cushion is needed. Further analysis would have to be done to establish the trigger amount for a transfer. Senator Gary Wilken asked how the plan would be affected if the dividends were calculated using a higher percentage than 2.75 percent. Phil Okeson reconfigured the spreadsheet on page 13, displaying the results as he spoke. He explained that he was inserting the percentage of assets going to the dividend, changing the amount from 2.75 percent to three percent. He showed that instead of reducing the dividend payment to $1100 per recipient, the three-percent calculation only reduced the dividend to $1300 and that the out-year payments would be slightly higher. He warned that the cost of this change is seen in that the space between the intergenerational line would be less. However, as long as the actual projected savings amount stays above the inflation adjusted savings amount, the plan still gives more to the future. Senator Gary Wilken wanted to know if the chart depicted on page 13 is the validity test and is agreed upon by others. Phil Okeson responded that it is a formula that he and many other groups look to for affirmation. Phil Okeson advised that the common belief is that the permanent fund was established to help future generations. This graph measures whether that goal is accomplished with any proposed plan. He stressed that the easiest approach would be to simply spend down the assets, but it would leave nothing for the future. He warned that approach "wastes a tremendous opportunity to take a nonrenewable resource - oil - and make it renewable for all future generations." However, he noted that not everyone believed that should be the goal. Co-Chair John Torgerson asked if there was a comparison to the Governor's plan showing the intergeneration line available for review. Phil Okeson said there was not because of recent changes made by the Administration to their budget proposal. Senator Lyda Green asked if there is a point in the model where the information becomes less accurate. Tape: SFC - 99 #136, Side B 10:00 AM Phil Okeson responded that for the first few years the data is very accurate and becomes less so in future years. He stressed the key is to look at the structure of the plan for any faults to determine if it is going to crash after several years. BREAK 10:02AM / 10:04AM Senator Sean Parnell understood it was the chair's intent to hold the bill since the committee substitute was just released this meeting. In drafting the advisory vote question Senator Sean Parnell came up with two major issues, format and wording. "How should the questions be posed to the voters? What provides them with the most meaningful choice?" he asked. Senator Sean Parnell said there are multiple options to address the format issue and he described four. One is to give the voters one option of yes or no on whether or not they like the plan. The second format suggestion is to give the voters the option of choosing either Plan A or Plan B. The third format was before the members in committee substitute 1-LS0490/M, and allows the voters to chose yes or no on both Plan A and Plan B. Senator Sean Parnell thought this would give voters the opportunity to vote in favor of both plans if they liked them both or to vote against both plans. The final format suggestion is to provide even more choices than the two plans, but was not recommended by Senator Sean Parnell. Senator Sean Parnell referred to page 1 line 4 of the committee substitute dictating the date of the election as September 14, 1999. He noted that the reason he chose that date is because it is the earliest possible date a special election could be held, according to the Division of Elections. Senator Sean Parnell suggested the election could be held instead on the first Tuesday in October when other statewide elections will be conducted. Senator Sean Parnell explained that the committee substitute contains a preamble to the ballot question that describes the current budget situation. Each of the two plans has a brief summary to describe that plan and more detail following each summary. Senator Sean Parnell stated that Plan A reflects the "balanced budget" plan. He read the summary into the record, "This plan assumes further spending reductions and assumes dividends will be guaranteed at a particular rate. This plan also assumes no income tax." Senator Sean Parnell then read the summary of Plan B into the record, "Plan B assumes no further state spending reductions, implementation of a personal income tax, and calculation of permanent fund dividends under the current statutory method." The ballot question in this committee substitute had yes or no options for both plans. Senator Loren Leman wanted to consider holding the election on October 5 rather than September to save money. He also wanted to insert "personal" before "income tax" where it appears in the committee substitute to clearly identify the tax. He noted the state already has a corporate income tax and he wanted to avoid a later challenge of the validity of the corporate tax based on the wording of this ballot question. Senator Randy Phillips wanted the Committee to first decide whether or not to have the election. After that decision is made, the time of the election and the format of the ballot question should be decided upon. He didn't like the format proposed in the committee substitute. He wanted the ballot to list Plan A and Plan B and language stating, "please check only one" giving the voters the option of choosing one plan or the other. He surmised if voters say no to both plans, the Legislature would be left with no plan. If both plans pass with yes votes, he anticipated chaos in the Legislature. Senator Randy Phillips wanted to shorten the preamble. He suggested the language read, "Alaska's declining oil production and erratic world oil prices constitutes an unsustainable state budget system. The legislature and the governor seek the public's input choosing a long-term budget plan. Please mark yes or no beside the one plan, which you believe the legislature and the governor should proceed." Senator Randy Phillips continued, suggesting the replacement of the word, "assumes" in the summary of Plan A, page two lines two through four of the committee substitute. The language would then state, "This plan will have further spending reductions and dividends will be guaranteed at a particular rate. This plan also has no income tax." In the first paragraph detailing Plan A, page two lines five through seven of the committee substitute, Senator Randy Phillips recommended the language read, "Spending Reductions/Spending Limit: Make state general fund spending reductions of at least $100,000,000 state GF over the next three fiscal years at $33.3 million each in FY01, FY02 and FY03." Senator Randy Phillips suggested deleting "Ensure" and inserting "Guarantee" on page two line eight of the committee substitute, changing the second paragraph describing Plan A to read, "Guarantee the Alaska permanent fund is inflation proofed to protect the value of the corpus for all Alaskans.." He also suggested replacing "corpus" with "principle", which he thought voters might understand better. Senator Randy Phillips knew voters would ask for the meaning of 2.7 percent of the market value of the Alaska permanent fund as the dividend rate, shown in the third descriptive paragraph of Plan A, page two line 13 of the committee substitute. He did not have any suggestions for clarifying the language at this time. In the fourth paragraph that described Plan A, page two line 16 of the committee substitute, Senator Randy Phillips recommended inserting "guaranteeing" before "inflation proofing the Alaska permanent fund and paying permanent fund dividends.". Senator Randy Phillips then had a philosophical question on the provision in paragraph four that stated excess funds would be used for education, public safety and transportation. He asked if other government functions should also be guaranteed or should at least have access to any excess funds. Senator Randy Phillips suggested the fifth and final paragraph describing Plan A, page two lines 22 and 23 of the committee substitute, should simply state, "No new taxes." Senator Randy Phillips assessed that the language describing Plan B needed work but noted that he had not had time to draft solutions. Senator Randy Phillips suggested clarification on page three line four of the committee substitute, the third paragraph that described Plan B, which dictated the transfer of $400,000,000 from the permanent fund earnings to the CBR. He surmised that, while the public understood the permanent fund, it did not fully understand the earnings account and the CBR. In the fourth paragraph that described Plan B, page three lines eight and nine of the committee substitute, Senator Randy Phillips suggested the language read, "The dividend will not be changed from the current formula and method of calculation." Senator Randy Phillips requested more time to work on changes to the committee substitute. Senator Al Adams appreciated the work of the co-chairs and the Division of Legislative Finance. He did not oppose the adoption of the working draft since it was an advisory vote. He asked that amendments be accepted this afternoon. He warned that under the current structure of the ballot question, two no votes would result in a "do nothing" plan and that warranted consideration from the Committee. Co-Chair John Torgerson noted there would be no cost savings in combining this special election with the scheduled October municipal elections. The state does not pay the costs of the municipal elections. Senator Randy Phillips commented that if it was decided to do an advisory vote, election pamphlets should be sent out at least 30 days before the election. He stressed that this would allow a public debate of all the facts. Co-Chair John Torgerson's understood there were statutory deadlines that had to be met and the September date was the earliest possible day the election could be held. He agreed that the advisory vote is an educational process that needed to be addressed. Senator Sean Parnell moved for adoption of CS SB 76 (FIN), 1-LS0490/M (no date listed), as a Workdraft. There was no objection and it was so ordered. Co-Chair John Torgerson said he would announce the upcoming Committee schedule during the Senate Floor Session. Co-Chair John Torgerson announced Senate Finance Committee photographs would be taken later in the day. ADJOURNED Senator Torgerson recessed the meeting to the call of the chair at 10:21 AM. SFC-99 (1) 5/13/99