HOUSE FINANCE COMMITTEE January 14, 2003 1:43 PM TAPE HFC 04 -03, Side A CALL TO ORDER Co-Chair Harris called the House Finance Committee meeting to order at 1:43 PM MEMBERS PRESENT Representative John Harris, Co-Chair Representative Bill Williams, Co-Chair Representative Kevin Meyer, Vice-Chair Representative Mike Chenault Representative Eric Croft Representative Hugh Fate Representative Richard Foster Representative Mike Hawker Representative Reggie Joule Representative Carl Moses Representative Bill Stoltze MEMBERS ABSENT None ALSO PRESENT Representative David Guttenberg; Representative Dan Ogg; Representative Harry Crawford; Representative Beverly Masek; Representative Ralph Samuels PRESENT VIA TELECONFERENCE None GENERAL SUBJECT(S): OVERVIEW: PERCENT OF MARKET VALUE SUBCOMMITTEE   HOUSE SPECIAL COMMITTEE ON WAYS AND MEANS  The following overview was taken in log note format. Tapes and handouts will be on file with the House Finance Committee through the 23rd Legislative Session, contact 465- 2156. After the 23rd Legislative Session they will be available through the Legislative Library at 465-3808. LOG SPEAKER DISCUSSION  TAPE HFC 04 -03  SIDE A  000 Co-Chair Harris Convened the House Finance Committee meeting at 1:43 p.m.  158 Vice-Chair Meyer Explained that Co-Chair Williams asked him to head up the Percent of Market Value Subcommittee (POMV), at the end of the last session, to discuss the concept in different places around the state. The Senate also has a POMV subcommittee chaired by Senator Ralph Seekins, which met in other communities. Representative Hawker chairs the House Special Committee on Ways & Means, which also met in various towns. Vice-Chair Meyer introduced the members of the POMV committee and explained that Representative Hawker replaced Representative Whittaker.  439 Vice-Chair Meyer explained that the meetings were informational presentations with the Permanent Fund Board and were not an attempt to gain public support. The public was invited and encouraged to testify. He observed that Kenai testifiers expressed concern that if there were more money, state spending would increase.  531 Vice-Chair Meyer Encouraged consideration of Representative Stoltze's bill, to require a spending cap.  613 Vice-Chair Meyer Elaborated on the concerns and perceived disadvantages of the POMV concept including whether it is necessary, the pressure to use some of the money as state revenues become tighter, and whether it will limit the legislature's flexibility once it's in the state Constitution.  737 Vice-Chair Meyer Maintained that the Permanent Fund Board is comfortable with a 5% payout based on an 8% return with 3% to protect the Fund. Observed that concern has been expressed that the principal would have to be used for the 5% payout. Some years the Fund will earn up to 12%; Vice-Chair Meyer asserted he's in agreement with a 5% payout and asserted that the Fund would achieve 8% over the long term.  847 Vice-Chair Meyer Encouraged the Subcommittee to move HJR 26 [POMV legislation] when it's heard January 20;  947 Vice-Chair Meyer In summary, he stated that HJR 26 helps ensure a good dividend, protects the Fund and lets all Alaskans vote. There are  minor differences between the House and Senate versions.  1150 Representative Expressed that it's a subject the "grass Chenault roots" citizens need to look at rather than assembly or chamber of commerce people whom he feels may have underlying reasons for voting for the POMV. The legislature needs to get the information out so people can make an informed decision. He concluded that the Percent of Market Value Board came out with solid information.  1457 Representative Joule Pointed out that this process has been on-going for several years with efforts to move a measure from the House, and expressed his support of the process and noted that the discussion is being expanded outside the legislature.  1705 Co-Chair Harris Thanked Vice-Chair Meyer and referred to Governor Murkowski's State of the State Address that opened up the arena of management of the Permanent Fund. He observed that if the public doesn't want to use the Permanent Fund to fund state government, then Alaska's choice is limited to taxation and natural resource development. Co-Chair Harris stressed the extreme importance of this issue.  1958 Representative Croft Noted that currently there is absolute protection of the Fund's principal with spending of its accumulated earnings. Although he agreed there is cause to move toward POMV, he stressed that the current formulation is a safe one because the state can't spend what it hasn't earned: the danger of POMV lies in spending what hasn't actually been earned and even invading the principal of the Fund, which has never been allowed. The trade-off or benefit is automatic inflation-proofing.  2140 Representative Croft Continued to discuss rates of return and average inflation.  2248 Representative Croft Emphasized the risk is asking Alaskans to make permanent changes and stressed being clear and honest with the people. He questioned how to divide the earnings.  2421 Representative Croft Percent of Market Value can't be innocuous and affect dividends and at the same time, be the cornerstone of a fiscal plan diverting that money to state government. Representative Croft rejected the idea that it is a choice between taking a substantial portion of the  people's dividend or facing financial collapse when, in fact, Alaska contains North America's largest deposit of natural gas.  2632 Representative Croft Asserted there are significant alternatives that involve resource development rather than taxation.  2710 Co-Chair Williams Noted there will be more time to debate this issue later this session.  2811 Representative Acknowledged that Representative Croft Hawker raised legitimate concerns and his debate was well framed.  2912 Vice-Chair Meyer Said the [PF] Board will answer the concerns voiced by Representative Croft.  3015 Representative Framing the discussion in broader Hawker perspective, Representative Hawker discussed the evolution of the House Special Committee on Ways and Means (HSCWM) membership and its targets and objectives. HSCWM started with the widest possible breadth of fiscal philosophy with legitimate divergence of opinion among the members.  3413 Representative Discussed the five components of the Hawker committee's Comprehensive Fiscal Plan provided in a handout (copy on file.) These are not new points and have been brought before the body in previous years.  3714 Representative Observed the interim was spent Hawker researching the background of the Permanent Fund and meeting with elected officials and school boards in communities including Unalaska, Fairbanks, Nome, Anchorage, Kenai, Soldotna, Palmer and Wasilla.  3918 Representative Continued that all meetings were open and Hawker the meeting format included explanation of HR 6 and the three missions of the Committee.  4033 Representative Stated he discovered a lot of Hawker misunderstanding even among elected officials about the budget deficit and budget situation.  4234 Representative Referred to "Alaska's Fiscal Toolbox" in Hawker the handout.  4319 Representative Explained the town meetings addressed Hawker cutting the budget to deal with the $650 million deficit but said it would involve deleting essential state services that comprise 65% of the budget [see handout, Budget Cuts in Perspective].  4514 Representative Referred to the graph provided by the Hawker Legislative Finance Division. He argued that today, on an inflation-adjusted per capita basis, we have cut the budget to pre-Pipeline levels. He asserted that fiscal discipline comes with consequences.  4625 Representative Stated that because less than one-third Hawker of audiences at the community meetings had lived in Alaska when the Permanent Fund was created in 1976, the meetings needed to address the Fund's intent.  TAPE HFC 04 -03  SIDE B 4447 Representative Representative Hawker read excerpts from Hawker the Permanent Fund "Statement in Favor of Proposition No. 2" and concluded that we need to ask where the state funds will originate when the resources of oil and gas are depleted. The Permanent Fund will not replace the people's collective responsibility.  4358 Representative Discussed the 5% POMV payout concept, Hawker with a 50-50 split to dividends and public services.  4227 Representative Quoted from the handout, Alaska's Hawker Dilemma: we only need to tax ourselves to the extent we are unwilling to use part of the Permanent Fund's earnings. Briefly discussed points in Governor Murkowski's State of the State Address including frugality, adopting a constitutional spending limit, the gas pipeline project, adopting endowment management for the Fund, the POMV, and structuring general revenue system components.   4044 Representative Referred to a fiscal policy letter to Hawker Representative Hawker, dated October 29, 2003 and signed by numerous employers, nonprofits and other business representatives (copy on file.)  3957 Representative Indicated articles appearing in Hawker newspapers across the state show emerging public consensus is in favor of these proposals.  3821 Representative Asserted that the people voiced a lack of Hawker support for taxes.  3532 Representative Stressed that Alaskans called for Hawker legislative leadership and solutions during the HSCWM committee meetings.  3357 Representative Expressed hope of bridging these Hawker legitimate issues in the Administration  and with the Minority.  3236 Vice-Chair Meyer Asked Representative Hawker if there were "a central theme" people supported, such as sales or income tax, or use of the Permanent Fund earnings.  3143 Representative The meetings skipped over taxes but he Hawker has concluded that a geographic difference exists with small, rural communities located off the Railbelt adamantly opposed to sales taxes and those on the Railbelt in favor of them. The public appears accepting of taxes as long as the budget is reduced to the "right level," with divergent opinion on what that might be.  2932 Vice-Chair Meyer Concluded by stating that support or opposition for sales versus income tax depends on where you live.  2817 ADJOURNMENT The meeting was adjourned at 2:51 PM