SENATE BILL NO. 107 "An Act relating to the Alaska permanent fund; relating to income of the Alaska permanent fund; relating to the amount available for appropriation and appropriations from the earnings reserve account; relating to the permanent fund dividend; and providing for an effective date." 9:57:41 AM Co-Chair Olson relayed that the committee would consider a Committee Substitute (cs). Co-Chair Hoffman MOVED to ADOPT proposed committee substitute for SB 107, Work Draft 33-LS0349\Y (Nauman, 3/27/23). Co-Chair Stedman OBJECTED for discussion. 9:58:36 AM TIM GRUSSENDORF, STAFF, SENATOR LYMAN HOFFMAN, announced that the initial legislation contained a solid foundation for the committee to build upon, maintaining the belief that the 75/25 POMV split was a split that would pencil out and hold up over time with the current assumptions. He explained that the new CS offered a 50/50 POMV split if certain revenue conditions were met. He noted that the first change in the bill was found on Page 2, new Section 3, which allowed for the 50/50 split. The second change was located on Page 4, new Section 9(a), which offered a conditional effect; If $900 million in new revenue was achieved, Section 3 would take effect. He furthered that new Section 9(b) set the date for Section 9(a) trigger of December 1, 2026. He said that Section 10 clarified that the new revenue had to be in the bank and not an estimation. Section 11 set the effective date for FY25. He said that the bill did not set the dividend for FY24. He stated that 75/25 would be in effect for FY 25 and FY 26 and a 50/50 could be possible in FY 27if the conditions were met. He relayed that there was an update revenue forecast to draw assumptions from. He noted the issue of increased funding for the base student allocation (BSA) and the future effects of inflation on the POMV draw. 10:02:25 AM Mr. Grussendorf spoke to a document entitled "Review of Committee Modeling Assumptions," (copy on file). He turned to page 3, which showed the model Senate Finance baseline budget with 25 percent POMV to the permanent fund dividend (PFD). Mr. Grussendorf advanced to slide 4, which showed a model with the assumption of the $900 million being achieved for FY27, with no other new revenue coming in between FY24 and FY26. He noted that in FY27 the Constitutional Budget Reserve (CBR) draw was reined in, but earlier on the CBR would grow at a modest rate. He shared that there would be some surplus in the first three years. 10:03:55 AM Mr. Grussendorf showed slide 5, which portrayed a slow new revenue build up to the $900 million mark by FY27. 10:05:11 AM Senator Merrick asked if the CS essentially raised revenue to pay a larger PFD. Mr. Grussendorf replied in the negative. 10:05:43 AM AT EASE 10:06:01 AM RECONVENED Co-Chair Stedman WITHDREW his OBJECTION. There being NO OBJECTION, it was so ordered. Co-Chair Hoffman commented that the intent was for the committee to review the legislation and take public comment. He thought the bill would set in place the 75/25 split for the foreseeable future and if adopted the conversation would continue about how the state could get to a 50/50 split. He believed that oil tax structure legislation currently in play could bring in revenue as well as some legislation related to carbon capture. He added that there was legislation in the building that would raise between $50 and $80 million through an internet fee. He thought all the bills could bring in additional revenue. 10:09:51 AM Senator Wilson had questions about the bills at play meant to increase revenue and whether the new fields or wells would count as new revenue and if the modification of the slider in statue would be considered new revenue. Co-Chair Hoffman thought the bill proposed a change in law that allowed for an increase in revenue, which he would consider new revenue. Senator Wilson reiterated his question about whether new fields being brought online would be considered new revenue to the state. Co-Chair Hoffman thought the matter needed to be researched. 10:11:07 AM Co-Chair Stedman thought the committee needed to discuss the CBR balance and the current minimum balance. He noted that the CBR was at $2 billion and that the Legislative Finance Division (LFD) recommended a balance of $3.5 billion. He considered some fiscal projections and thought it looked as though putting the 50/50 in place, and meeting the minimum threshold of $900 million, by FY30 the POMV draw could limit the growth of the CBR. He believed that the minimum balance of $3.5 billion should be strongly considered. He did not think that the state was in a strong financial position with only $2 billion in the CBR. He believed that the $900 million figure looked a little light and could be reconsidered. He considered the long duration of the projected timeline and stressed the need for further discussion. 10:14:12 AM Co-Chair Olson asked whether Co-Chair Hoffman wanted to comment on Co-Chair Stedman's remarks. He asked specifically about the recently approved Willow Project, which was projected to generate revenue for the state in the next decade. Co-Chair Hoffman referenced Senator Wilson's question about what should be considered new revenue. To Co-Chair Stedman's point, he thought the CBR balance was important, but not as important as coming up with a solution surrounding the PFD. He thought there would be a lot of debate about what the dividend should be in the current fiscal year. He cited that the other body had already proposed a 50/50 split in the operating budget. He thought the 50/50 split would cripple the state financially within 3 years and jeopardize other programs. He feared that not having the necessary revenue to meet whatever number split was decided upon would lead future legislatures to ignore the law, as was the current practice with the current statute governing the 5 percent POMV draw. He considered that it had not been the intention of the legislature to ignore the statute but that that was what had happened. He strongly believed that the PFD should be addressed within the fiscal year and noted that all spending discussions within the legislature eventually came down to the question of what the payout of the dividend should be. He argued for a long-term solution to the issue of the dividend split and an end to the reoccurring arguments on the matter. 10:18:53 AM Co-Chair Stedman referenced the concern about the minimum CBR balance. He argued that a fiscal package that included the 50/50 split would gain nothing for the state and would leave the state on precarious fiscal footing. He stressed that it was only a matter of time before oil prices dropped and the state was unable to meet its financial obligations. 10:19:48 AM AT EASE 10:20:16 AM RECONVENED Senator Bishop wanted to discuss the capital budget. 10:20:50 AM Senator Bishop referenced a document entitled "Capital Budget Estimate," (copy on file). He spoke of the shock he felt when he first began work in the Palin Administration and was told of a $1.2 billion deferred maintenance schedule. He referenced United States Senator Lisa Murkowskis most recent state-of-the-state as well as a speech by the late Senator Stevens that warned that the days of earmarked funds on the federal level were numbered. He mentioned the IIJA but noted that those funds had a limited lifetime. Senator Bishop considered figures on the capital budget estimate document. 10:24:08 AM Senator Bishop read from the prepared document: Capital Budget estimate  200$ State Match for federal funds Most likely will increase as more IIJA grants are put forth. 125$ Department-wide Capital Rebuild/replace dilapidated buildings/equipment. Based on GOV current budget of $303m minus the match, rounded up 75$ Department-wide Initiatives, New Builds, New Equipment For NEW GOV initiatives, i.e. Statehood defense, DPS initiatives, F&G research. 155$ 2% Deferred Maintenance 2-4% rule to avoid accruing new Deferred Maintenance, the 2% figure would halt the backlog from growing, but not address the $2.2B Backlog (4% would be $310m) 50$ AEA Bulk Fuel Deferred Maintenance backlog of $800m per AEA in 2021 Annual Report 100$ University DM Priority list typically is $50-75m. Current Backlog is over $1.5B. Following the 2-4% rule would be $98-196m per year. 50$ School Major Maintenance Current FY24 list is $413.5m. List is recurring yearly. 50$ School Construction Current FY24 list is $195.6m. List is recurring yearly. 20$ Legislative Adds Estimated based on $1m per Senate District. Potentially a low estimate, for example last year the State put match forward for Port of Nome, Army Corps projects. 825$ million - total *Gov proposed Cap budget of $303m does not include: University DM School Major Maintenance School Construction Harbor Matching Grants State supported match for Muni's who received federal BUILD grants, or the like Co-Chair Bishop thought the Capital Budget items should be part of the conversation. 10:26:25 AM Co-Chair Stedman asked whether the request for discussion was about increasing the $400 million for the Capital Budget in the LFD modeling in the presentation. Senator Bishop responded that his intention was to highlight that the $400 million was not going to cover many of the estimated Capital Budget projects. 10:27:27 AM Senator Kiehl appreciated Senator Bishop's additional information regarding capital needs. He thought additional modelling including a BSA increase would be helpful. He thought it was reasonable to model with additional education spending in the Operating Budget. He agreed with Co-Chair Hoffman that SB 107 stabilized both state revenue and state spending. 10:29:36 AM Co-Chair Hoffman noted that there was $400 million included in the modelling and wondered whether that number was adequate. He suggested that the committee needed to discuss various ways of looking at the problem. 10:30:53 AM Co-Chair Hoffman commented that the legislation did not limit the committee from exploring other revenue measures. He commended Senator Bishop for coming up with an alternate revenue measuring with the Education Raffle and the Fuel Tax Measure. He stressed that not all new revenue measures had to be in the form of taxes. He felt that it was important that the other body have adequate time to consider the legislation before the end of the legislative session. 10:33:07 AM SB 107 was HEARD and HELD in committee for further consideration. Co-Chair Olson discussed housekeeping.