SJR 1-CONST AM: GUARANTEE PERM FUND DIVIDEND  10:01:19 AM CHAIR STOLTZE announced the consideration of SJR 1. 10:01:34 AM SENATOR BILL WIELECHOWSKI, sponsor of SJR 1, introduced the resolution. He called SJR 1 a historic debate. He said Alaskans have always been wary about what the government does with their money. He revisited the reasons the Permanent Fund was set up in the first place, which was to provide future generations a share in Alaska's wealth and to protect it. He stated that the dividend is critically important to Alaskans and they want to continue to receive it. 10:03:32 AM He specified what SJR 1 does. It would put the earnings reserve calculation of the dividend directly into the constitution. The House and Senate would have to vote, it would have to pass by a 2/3 majority, and then the people would vote on it for it to become law. He noted that a significant number of public testimonies have said not to touch the PFD. Those who want to use the earnings reserve also recognize the importance of the PFD; very few Alaskans are in favor of getting rid of it. 10:05:05 AM SENATOR WIELECHOWSKI said SJR 1 proposes to use current PFD calculations to enshrine it in the constitution; however, he stated that the rate of return is negotiable. He said historic returns have been 8.9 percent. He provided rough numbers for calculating the rate of return, noting that the resolution does not mean that the earnings reserve is unavailable. 10:07:25 AM He discussed market rates and maintained that there is a self- correcting mode available regarding PFDs. He emphasized that SJR 1 is a means of gaining the trust of Alaskans. He compared impacts to the state from cutting dividends as similar to taxes on mining or fishing. He stated that cutting dividends would take between $700 million and $1 billion out of Alaska's economy. 10:10:29 AM THOMAS PRESLEY, Staff, Senator Wielechowski, Alaska State Legislature, presented the sectional analysis of SJR 1 on behalf of the sponsor. He said that SJR 1 puts a question to the people of Alaska asking them whether or not the PFD program should be put into the constitution. He explained that Section 1 establishes the Earnings Reserve Account (ERA) in the constitution in order to keep the current transfer of money the same as it is now. He related that Section 2 (b) transfers monies from the ERA to the dividend account and calculates a 5-year average. Subsection (c)establishes the calculation for dividing up the amount available for dividends He said Section 3 replaces the current statutory ERA with the constitutional ERA, and Section 4 places the resolution before the voters in the next general election. 10:12:06 AM He highlighted Permanent Fund returns. He noted, as of February 19, 2016, the principle of fund was about $50 billion. Over the 31.5 years of the life of the fund, there has been an annualized return of about 8.9 percent. He showed the annual dividend payouts from 1982 to 2015. He explained the steps required to calculate the PFD for FY14 and the total amount available. He said the balance in the ERA, as of December 31, 2015, is about $6.7 billion. Even if SJR 1 was approved by voters, the legislature would still have access to other income in the ERA above the necessary amount for the PFD. 10:13:58 AM MR. PRESLEY addressed the great economic impacts of the PFD, which is uniquely Alaskan. He emphasized that the PFD is well spent by Alaska residents, largely within the state. Dr. Goldsmith 2010 study of the PFD found that the purchasing power of the PFD equated to about 10,000 additional jobs, 15,000 to 20,000 additional residents, and $1.5 billion in personal income. He related that a more recent report by Gunnar Knapp found that reducing the deficit by $100 million and reallocating the PFD accordingly would lead to a loss of about 728 jobs. 10:15:21 AM He shared that Dr. Goldsmith's study reinforced previous findings, including the ways in which the PFD was spent and the impacts on the economy when spent by residents and not the government. He credited much of the 80s boom to the spending power of the PFD. He found out that the 2009 dividend added about $900 million in purchasing power to the economy, roughly equivalent to the total wages of state government or the retail trade sector. He listed the effects of the dividend: it created a constituency to watch over government expenditures of the fund, allowed for individual Alaskans to invest their oil wealth any way they choose, though often back into the Alaskan economy, and reduced the gap between income levels in Alaska. It has had a tremendous impact on rural communities. 10:16:59 AM He concluded that SJR 1 is only a resolution to put the question before the people of whether the current dividend program should be enshrined in the constitution. It does not bar the legislature from appropriating excess income from the fund for other purposes. It has become a significant economic force in Alaska. If approved by the voters, it would be a promise to every Alaskan that their constitutionally protected mineral rights will be protected from government in perpetuity. SENATOR MCGUIRE asked if Senator Wielechowski was open to including stabilization of government at certain trigger points, such as with a POMV approach. SENATOR WIELECHOWSKI specified that SJR 1 is a constitutional amendment and it would be challenging to include spending. He was open to the idea. 10:18:59 AM SENATOR MCGUIRE suggested guaranteeing a dividend and allowing for a percentage going to the government. SENATOR WIELECHOWSKI thought there was a great deal of concern among people about losing their dividends and enshrining something in the constitution will go a long way toward easing their concerns. 10:20:09 AM CHAIR STOLTZE noted reluctance by the administration to discuss programs that are funded by the dividend. He appreciated the discussion about the dividend's impacts on Alaska's economy. SENATOR COGHILL agreed it was an appropriate conversation. He opined that the ability of the government to use the ERA becomes more difficult if the PFD is enshrined. It also brings up taxing concerns. 10:23:14 AM SENATOR WIELECHOWSKI recalled that in the past, Senator Green proposed a similar resolution. He said he would confer with legislative legal about the tax ramifications. He noted that legal determined that the ERA could be accessed for government purposes under this resolution. He believed the ERA would have the same impact on dividends as it does currently. SENATOR MCGUIRE concurred, but specified that the legislature has declined to access the ERA. She asked if enshrining the payment of the PFD out of the ERA would change the flexibility of the government to use ERA funds. 10:24:59 AM SENATOR WIELECHOWSKI deferred to his staff to comment. MR. PRESLEY explained that legal found that the nature of changing the ERA to more of a general account was not an issue in SJR 1, and paying out the PFD, constitutionally, out of the ERA does not change the nature of the account. SENATOR WIELECHOWSKI concluded that it is a policy call. CHAIR STOLTZE noted the state's dependency on the PFD. He wished to have more discussion on the impacts of the PFD on the private sector. 10:28:01 AM SENATOR MCGUIRE noted similar principles at stake in both SJR 1 and SB 114. She commented on the importance of allowing Alaskans a part in determining how their share of wealth will be used. She pointed out that the question is what should the size and cost of government, which also contribute to Alaskan's lives, be. CHAIR STOLTZE said Hammond's noble experiment has worked effectively. He noted there are pros and cons of a constitutional approach. He was looking forward to public testimony on the issue. 10:30:42 AM SENATOR HUGGINS commented on bills that are attempting to take money out of the pockets of Alaskans. He feels that the proposed state budget is too large and he is opposed to picking Alaskan's pockets. 10:32:49 AM CHAIR STOLTZE held SJR 1 in committee.