HOUSE BILL NO. 287(brf sup maj fld) "An Act making appropriations for public education and transportation of students; and providing for an effective date." 2:38:02 PM Vice-Chair Bishop MOVED to ADOPT proposed committee substitute for HB 287, Work Draft 30-LS1229\R (Wallace, 3/23/18). Co-Chair MacKinnon OBJECTED for discussion. 2:38:33 PM AT EASE 2:40:06 PM RECONVENED Co-Chair MacKinnon relayed that the House had proposed early funding for education and transportation The Senate agreed that instability of educators, superintendents, and students that were trying to learn. The proposed Committee Substitute (CS) addressed that issue. Co-Chair Hoffman thanked the House for its work on the bill. He noted that the committee had not taken up the bill until it had received the operating budget. 2:41:33 PM PETE ECKLUND, STAFF, SENATOR LYMAN HOFFMAN, discussed the proposed CS. Mr. Ecklund looked at page 2, Section 1, which were elements of K-12 aid that were held in the other body's version of the bill. He stated that it was aid to different school districts, and to Mt. Edgecumbe. He announced that pages 3 and 4 were the funding sources contained in Section 1. He shared that page 5, Section 4 was the legislative intent. He paraphrased that the intent instructed the Department of Revenue (DOR) and the Permanent Fund Corporation to work together to utilize the constitutional budget reserve (CBR) borrowing language. The language was in the FY 18 budget, and would appear in the FY 19 budget. The language allowed the CBR to be used for cashflow purposes in anticipation of general fund revenue. The intent was for the permanent fund to make cash transfers to the general fund in the most prudent way possible throughout t the fiscal year. He looked at line 11, Section 5, which contained a 5.25 percent draw from the Earnings Reserve Account (ERA). He explained that it was an unstructured draw, because there was no current statute that would instruct the draw. He remarked that there was another bill, SB 26, which had a 5.25 percent draw. That bill would have taken effect in FY 18, so the language reflected the language in SB 26. He remarked that there was a $726 million dividend paid in the prior year, so the language took a 5.25 percent from the ERA, and subtracts the dividend payment. The remainder was $1.792 billion, which went to the general fund in FY 18. That money became FY 18 revenue. 2:45:22 PM Co-Chair MacKinnon asked if the budget from the House contained a percentage draw. Mr. Ecklund answered in the affirmative, and specified that that the effective rate was a 4.21 percent effective rate. Mr. Ecklund drew attention to Line 20 in Section 6, which was fund capitalization for K-12 Base Student Allocation (BSA) funding for FY 19. He stated that $1.89 billion was fully funding the BSA for FY 19. He looked at Section B, which was $78.1 million for transportation FY 19. He remarked that Section C was fully funding the BSA for FY 20. He shared that Section D was fully funding transportation for FY 20. He remarked that page 6, Section 7 was a standard lapse. He stated that Section 8 was contingency, which referred to Section 6 that held the FY 20 appropriations for K-12 education and people transportation. Those two sections would go into effect upon the enactment of SB 26. He shared that Sections 9, 10, and 11 were effective dates. Co-Chair MacKinnon WITHDREW her OBJECTION. There being NO further OBJECTION, the proposed committee substitute was ADOPTED. Co-Chair MacKinnon stated that Alaskans wanted assurance that there was protection for the corpus of the permanent fund. She asked for comments on the bill. ANGELA RODELL, EXECUTIVE DIRECTOR, ALASKA PERMANENT FUND CORPORATION, stated that the CS being considered would protect the corpus of the fund. She emphasized that the corpus of the fund was protected constitutionally, and the bill did not touch the corpus of the fund. She shared observations that generated questions for the Alaska Permanent Fund Corporation (APFC). She stressed that there needed to be a statutory framework. She remarked that the fund should not be placed in a political discussion, but rather provide a working framework to plan each year accordingly. She stated that work would be done with the treasury to plan the draws over the course of year. She encouraged the body to continue to work. She referenced the contingency language. Co-Chair Hoffman asked if it was fair to say that the corporation was concerned about potential unstructured draws that might compromise the earnings. Ms. Rodell answered in the affirmative. 2:51:33 PM MIKE BARNHILL, DEPUTY COMMISSIONER, DEPARTMENT OF REVENUE, thought it seemed as though the salient provisions of the bill were set out in Section 4, which called on the department to use the CBR as a backstop to the general fund. He stressed that there would be assistance to the permanent fund in maximizing its investment revenue. He stated that, presently, DOR worked internally to schedule transfers from the CBR into the GF periodically throughout the year. There was a model to predict when the daily balance of the GF would go below $400 million, and that was the moment to draw from the CBR. That model would be used at the end of FY 18 to assist in providing a schedule to the permanent fund appropriately to hopefully maximize investment revenue. 2:53:39 PM Co-Chair MacKinnon informed that she would be setting the bill aside and taking it up again the following day and the committee would be hearing public testimony. Co-Chair MacKinnon handed the gavel to Co-Chair Hoffman. 2:54:10 PM AT EASE 2:58:23 PM RECONVENED Co-Chair MacKinnon discussed forward-funding of education. The house had provided a separate bill for funding education. The bill was being considered separately at the House's request. HB 287 was HEARD and HELD in committee for further consideration.