SB 122-AMERADA HESS INCOME; CAPITAL INCOME ACCT.    CHAIR THERRIAULT announced SB 122 to be up for consideration. He said he understood that the House version of the bill was under reconsideration. He asked Ms. Frasca if modifications had been made that the committee should consider. 3:40:43 PM CHERYL FRASCA, Director, Office of Management & Budget, replied the House amended the companion to SB 122 [HB 187] and Mr. Barnhill would provide an explanation. MIKE BARNHILL, Assistant Attorney General, Department of Law (DOL), explained that both the House bill and SB 122 create a fund within the earnings reserve of the Alaska Permanent Fund. The House took the fund out of the earnings reserve of the Permanent Fund and put it in the General Fund. It also changed the name from Capital Income Account to Capital Income Fund. The earnings that flow from the segregated Amerada Hess principal would go into the new fund within the General Fund and be available for appropriation. The House didn't adopt the idea of using those earnings to finance a bond issue as Governor Murkowski originally proposed. Another change the House made related to inflation proofing. It ensured that the money that was segregated within the principal of the Alaska Permanent Fund would continue to be inflation proofed. He noted that at the previous hearing Senator Therriault asked why it was accounted for within the "picket fence." Under the House version, all the inflation proofing will happen outside the "picket fence." The nominal amount would stay the same, but the entire principal of the Permanent fund would continue to be inflation proofed. 3:43:34 PM SENATOR KIM ELTON asked for verification that Amerada Hess would not be inflation proofed. The inflation proofing that would have covered it would be in the corpus of the Permanent Fund. MR. BARNHILL responded yes. SENATOR ELTON said if you assume it is being inflation proofed now it would be slightly more than inflation proofed then. MR. BARNHILL offered the opinion that it's a stretch to say that any one part of the principal of the Permanent Fund is inflation proofed. The Permanent Fund Corporation has been accounting for the inflation proofing separately, but that's just book accounting. The bill the House passed clarifies that the inflation proofing would be accounted for outside the segregated principal of Amerada Hess. SENATOR ELTON said in that event the Amerada Hess sub-account would diminish over time due to inflationary erosion. CHAIR THERRIAULT clarified that the purchasing power would erode but when forced to say were it occurs, the inflation proofing is on the outside of the "picket fence." SENATOR WAGONER remarked that doesn't keep the legislature from putting money back in to inflation proof the principal. MR. BARNHILL opined the legislature could direct the Permanent Fund Corporation to book the inflation proofing within the Amerada Hess "picket fence." The earnings from the Amerada Hess segregated fund would continue to flow out under the House bill and into the General Fund. SENATOR WAGONER said total earnings. MR. BARNHILL responded the total earnings on $424 million. That figure would stay the same throughout time. SENATOR WAGONER said he didn't agree. CHAIR THERRIAULT remarked it's apparent there are a variety of ideas. Nonetheless, the question before the committee is whether it wants to incorporate the House ideas as a CS or just move the bill with its companion piece. SENATOR ELTON stated his preference is to move the bill as is. He and Senator Davis accede to the finance co-chairs' request to move the bill. CHAIR THERRIAULT asked if he would like to make the motion. SENATOR ELTON motioned to report SB 122 and attached zero fiscal note from committee with individual recommendations. CHAIR THERRIAULT announced that without objection, SB 122 would move to the Finance Committee.