LONG-RANGE FINANCIAL PLANNING COMMISSION December 8, 1995 9:03 a.m. Anchorage, Alaska TAPE 1, SIDE A CHAIRMAN BRIAN ROGERS: I'll call the work session to order. It will be a work session until we get a quorum. We're expecting a bare quorum of eight members of the commission. And to assist in the transcribing of this, I'd like each person to a state their name and say a few words so that the people doing the transcribing will hear enough of your voice that later when they hear the voice they know who's going to be speaking. So, maybe, I can start. I'm Brian Rogers and chairing the commission and this is my voice. MARY NORDALE: I'm Mary Nordale, a member of the commission and when we get to the resolution on the permanent fund amendments to the constitution I'd like to address some of the issues that are raised there. CHAIRMAN ROGERS: O.K., Judy. JUDY BRADY: I'm Judy Brady. I'm a member of the commission and this is my voice. CHAIRMAN ROGERS: Annalee. Do you want to say a few.... ANNALEE MCCONNELL: Annalee McConnell, I'm, I'm Annalee McConnell in Juneau representing the Administration on the commission and trying to keep awake after all the work we've been doing on the budget lately. BRAD PIERCE: I'm Brad Pierce. Staff. MELISSA FOUSE: Melissa Fouse. Staff. UNIDENTIFIED SPEAKERS (Male and Female): (Entire conversation indisc.--neglected to speak directly into mike. TAMARA COOK: Tamara Cook. I'm an observer. MS. FOUSE: Good morning Tam. MS. COOK: Hello Melissa. UNIDENTIFIED SPEAKERS (Male and Female): (Entire conversation indisc.--neglected to speak directly into mike). CHAIRMAN ROGERS: Couple of items on the agenda. We had originally scheduled the permanent fund presentation for 9:00 a.m.. Due to air plane schedules, that's going to be at 11:30 and where I had hoped to do the permanent fund constitutional amendment first, I'm going to wait, I want to wait until we've had the opportunity to hear from Michael O'Leary, the permanent fund's Asset Allocation Advisor and the person who we had on the line during our work. Pat do you want to say a few words so that the people doing the transcription understand who's talking when you talk? PAT POURCHOT: This is Pat Pourchot. Can you, can you hear us here? CHAIRMAN ROGERS: Yes. The a, what we'll do then is begin working through the legislation and come back around to do the permanent fund issues. We may have some information concerning state revenues as well. Annalee is, do you know what time that might be available for discussion? MS. MCCONNELL: How about maybe right after lunch? CHAIRMAN ROGERS: O.K. MS. MCCONNELL: Or right after permanent fund? CHAIRMAN ROGERS: O.K., that sounds good. Let's start then looking through the bill packet and I'd like to take them sort of in the order that we've always discussed them beginning with the Tobacco Tax. We have a bill draft, with a bill analysis and a Department of Revenue commentary. The bill draft is, "an act relating to taxes on cigarette and tobacco products." The first section of the bill increases the excise tax per cigarette from 12 mills to 62 mills. The second section increases the excise tax on wholesale price of tobacco products from 25 to 100 percent and the third section provides for the indexing of this amount, every two years, based on the CPI (Consumer Price Index.) The memo from Legislative Counsel indi..., just shows the, describes how they've gone about this. The current version puts a portion into the school tax fund and the rest into the general fund. This bill keeps the same amount in the school tax fund and the additional dollar a pack all goes into the general fund. Does anyone have any comments on this, whether this one meets what our intent was? Questions? MS. NORDALE: Mr. Chairman. CHAIRMAN ROGERS: Mary. MS. NORDALE: The attachment, Bartholomew's memo to Brad suggests that we look at the comments regarding the CPI adjustment that are attached to the motor fuel tax. It appears that both the Department of Labor and the Department of Public Safety want to be out of the firing line with respect to raises in the taxes and they also call some attention to some complications with respect to references to whatever CPI it is, that is to be used. One of the things that I found of interest also was that the Department of Public Safety says they need six months in order to do whatever it is that they need to do administratively to incorporate the raises in the, in the lic... in the fees. So, I think that what we need to do is make sure that if we're going to do this CPI adjustment, that we conform all of the bills to a particular standard so that nobody - - and we clarify how the procedure is to work so that all of the adjustment is based on the same set of parameters. MR ROGERS: I would, I would agree with that and, and would, would propose that we consider that the CPI adjustments take effect on July first of each year based on the CPI as of the previous October first, which gives nine months after the CPI comes out to make the adjustments with the exception of when we get to the motor vehicle license fees, which are done on an annual calendar year basis rather than on a fiscal year basis, but that the taxes be done on a fiscal year July one increase each year. MS. NORDALE: Well if I understand it correctly Mr. Chairman, the, apparently the Department of Public Safety is saying that they need six months, they need lead time to make adjustments for fee increases which would be the same lead, I am assuming would be the same lead time every time the CPI adjustment was made. So, if they need six months and we're to make that adjustment, if the adjustment is made as of October first when the CPI comes out then they would need six months, which would take it into the middle of a calendar year. So I'm wondering if it shouldn't be the following January one if they want a calendar year and I think that's appropriate under the circumstances, if they want a calendar year. CHAIRMAN ROGERS: Well, I think that doesn't apply to the cigarette and tobacco, but when we, I think when we get to the motor vehicle license we're going to have to have a separate discussion on how it will work for those, but for those that are tax increases, if they know on October first there should no impleme... no problem implementing on July first. MS. NORDALE: Right. CHAIRMAN ROGERS: Pat, did you have your hand up? MR. POURCHOT: No, I'm just chewing on my pen Mr. Chairman. CHAIRMAN ROGERS: Oh, O.K. MS. MCCONNELL: He's trying not to get addicted to tobacco. CHAIRMAN ROGERS: Good. MS. MCCONNELL: Somehow I missed the public safety memo. Mary, where's the public safety memo? MS. NORDALE: It's a memo that's attached to.... CHAIRMAN ROGERS: Motor vehicle license. MS. NORDALE: ...motor vehicle registration fees and it's a memo from Ann Carpeneti to Debra Behr. MS. MCCONNELL: Oh, I'm sorry. MS. NORDALE: It's on the second page under, well first and second.... MS. MCCONNELL: I see it. MS. NORDALE: O.K. MS. MCCONNELL: Number eight. MS. NORDALE: Right. MS. MCCONNELL: Yeah, I'm sorry, I missed that. CHAIRMAN ROGERS: Judy. MS. BRADY: I'm assuming, maybe I'm assuming wrongly so I'm assuming that what we, that kind of our job is to see that the bill is, does what we intend it to do in terms of taxes and things, but like Mary, I'm concerned about, you know, timing and all those issues. Mary just knows a whole lot more about it than I do. I just know enough to be concerned. But, I, I was kind of assuming that the legislature, in their hearing process would fine tune that kind of thing and that the information from the bill attachments that we have would also go to the legislature so they could see and in those instances where we know what we've been told, you know, we make the adjustments that we can here. But because we only have three of four hours to do this, that we essentially pay attention to, is this something that fits - that does what we - is a piece of the plan that we had voted for. MS. NORDALE: Mr. Chair, Yeah, but, Judy I think we need to ensure that when we're doing, doing CPI adjustments that we use the same standards... MS. BRADY: ...yes I will agree with that.... MS. NORDALE: ...because I think that as a bill goes through the legislature we could get tweaks that are going to be a mess. MS. BRADY: Yes, absolutely. MS. NORDALE: O.K. CHAIRMAN ROGERS: I suggest based on the implementation time that we consider an effective date on the tobacco tax bill. I don't know how quickly a tobacco tax can go into effect and there didn't seem to be any discussion from Revenue. As the bill stands here, the tax would go up 90 days after it was signed by the Governor and it may be that a fixed date would be more useful and I don't know perhaps someone from the Administration would know how much time we want to have a lapse prior to this coming into effect. MR. POURCHOT: Mr. Chairman, this is Pat. I don't know what the exact time is, but I had a conversation just in general with Revenue several months back. They reminded me that I'd forgotten that we do currently of course have a cigarette tax, we have an alcohol tax, we have motor fuel tax. They, they didn't act like it was, you know, a very hard chore to change the rate of that tax. The mechanisms for charging it and collecting it of course are already in place. MS. NORDALE: Mr. Chairman. CHAIRMAN ROGERS: Mary. MS. NORDALE: One of the things we have to take into account is that private industry really is our tax collector on this and there are an awful lot of vending machines and that kind of thing that are going to have to be adjusted. So I think that it would be extremely helpful to private industry to give them a fixed date on which the tax would go into effect. So they would know what their deadline is and give them perhaps a little more than the 90 days that would normally be available without another effective date. CHAIRMAN ROGERS: Does anyone want to propose a date on the tobacco tax? MS. NORDALE: I would propose January one. It doesn't really matter if it goes into effect at a mid-year.... MS. MCCONNELL: For ease of a, just, we're trying as much as possible to get things in sync of where, where it doesn't disrupt the public to get things in sync with the fiscal year. It just makes our projections and so on cleaner and our budget stuff cleaner. I don't have so much a problem with, with an effective date that doesn't start on July first for this year if we need lead time, but one thing that would be helpful is if we say, even if it takes some initial lead time for the first go-around, by that time the public is on notice that the increases in succeeding years would happen on July first. That would help from our end. CHAIRMAN ROGERS: Yeah, I think, I think I heard no objection to July first for all of the CPI adjustments. Is there objection to January first, '97 as the effective date? On this one.... MR. POURCHOT: Mr. Chairman. CHAIRMAN ROGERS: Pat. MR. POURCHOT: Just in terms of, just in terms of the commission's calculations on our spreadsheets knowing that, you know, there's lots of problems with the numbers as far as, you know, plus and minus there. I'm not, I don't think that the commission's spreadsheet calculated only a half a year of revenue, did they? CHAIRMAN ROGERS: We calculated a full year revenue on the tobacco tax and I think that for us to put a later effective date because we think it makes more sense administratively, while it would have a minor change on the revenues I think that would be acceptable. I wonder if maybe October first might work better for this just because we already have a tax in place. MS. MCCONNELL: I would go for that. CHAIRMAN ROGERS: Other thoughts. MS. BRADY: That's fine. MS. NORDALE: I just think January one is a better deal because there are going to be so many problems that industry is going to encounter with this. CHAIRMAN ROGERS: Mike, do you have preference? MR. O'CONNER: No. CHAIRMAN ROGERS: O.K., we have in Anchorage, we have two October first, one January first and one no preference. What about in Juneau? MS. MCCONNELL: Two for October first. Pat had to leave the room for just a moment. CHAIRMAN ROGERS: O.K., so, where we are on this one will be adding an effective date of October first, '96 and.... MS. MCCONNELL: '97 or '96? CHAIRMAN ROGERS: '96 for the first one and then the future, the future changes would be effective on July first of every odd numbered year based on the percentage change in the CPI. MR. POURCHOT: (Indisc.) are we going to change even numbered year to odd numbered then? CHAIRMAN ROGERS: Let's see, if we're coming in '96, no it should be even numbered year, that's right. The amounts would change on July first of each even numbered year. MR. POURCHOT: O.K. MS. NORDALE: So instead of October one, it would be July one. CHAIRMAN ROGERS: Yes. MS. NORDALE: So the next change then would be 10/98. CHAIRMAN ROGERS: Correct. Now did we also on the cigarette tax have an inc... have a tri-annual increase of 25 cents? MS. NORDALE: I thought we did. B. PIERCE: Yes we did. CHAIRMAN ROGERS: Do we want to put that tri-annual increase into this bill or leave that to the future legislatures? My preference would be to leave it to future legislatures so that we don't have in section one here a section that says it's 62 mills that's effective on October first, '96 and then a repealer of that and a reenactment to say, 75 mills that's effective on another date, etcetera. I guess I, my preference would be not to try to do all of the step-ups in this bill, but I'd be open to other thoughts on that. MR. O'CONNER: (Indisc.) if you don't do it now, it won't get done. MS. NORDALE: Well isn't that taken into account in section two of the bill where it steps up the excise tax from 25 to 100? CHAIRMAN ROGERS: That works on the to, the non-cigarette tobacco products. MS. NORDALE: Oh, O.K. CHAIRMAN ROGERS: So the non-cigarette products will go up with wholesale price increases, but they don't go up further, nor does the cigarette tax go up further and according to our - we had '99, 2002 and 2005, if I remember right, 25 cent increases. MS. NORDALE: O.K. CHAIRMAN ROGERS: Judy. MS. BRADY: I guess, I guess I agree with Mike on this that the Legislature can always take it out, but if we don't put it in, it will not happen again. It's too hard, it's too hard to do incremental increases like that and so I think we should put it in as part of our budget plan and... MR. O'CONNER: (Indisc.--spoke too softly.) MS. NORDALE: Well it's going to be a bad scramble with a lot of lobbying on this bill anyway and they might just as well get it all over with in one session instead of postponing the agony. MS. BRADY: Yeah, right, I agree. MS. NORDALE: I'd like to see it all done at once. MR. O'CONNER: We heard that from other people right? CHAIRMAN ROGERS: O.K. so that the, the proposals I'm hearing majority on is that we would say that it's 62 mills from October one, '96, it goes to 75 mills on July one '99, it goes to 87 mills on July one 2002 and it goes to 100 mills on July one 2005, plus CPI adjustors. Is that....? MS. NORDALE: That's what everyone voted on. I think it's dumb. MS. BRADY: Why don't we do a, why don't we just do a, up to three dollars and cap it at that? (Indisc.--spoke too softly.) CHAIRMAN ROGERS: Well one, one... MS. MCCONNELL: It seems to me... CHAIRMAN ROGERS: Annalee. MS. MCCONNELL: Sorry. It seems to me that this case is a little bit different than some of the other fee things that we've talked about where we thought indexing was important because in the case of the motor fuel we were talking about trying to keep pace with inflation and what we've suggested in our plan of going from a dollar, dollar fifty, etcetera is something that is not related to inflation. So it seems to me that it could be appropriate in this case, and we weren't, we didn't bank on it - I don't - in our calculations to substitute a specific dollar increase for the CPI increase. I think that if we load the two we begin to sound preposterous. CHAIRMAN ROGERS: So should we then just take out the indexing, the CPI indexing and go with an increase of 12 mills every three years? MS. NORDALE: Well Mr. Chairman I, my recollection is that the commission was very favorable to Kay Brown's bill which included indexing. And when I asked the question about it's creating some administrative problems, everyone just dismissed it. So my understanding is that it was both indexing and these incremental increases that the commission endorsed. CHAIRMAN ROGERS: Judy. MS. BRADY: Well, I think, I think essentially what the commission endorsed was, you know, this added money that we were to get from cigarette tax and we were moving pretty fast then. So, I think, I think the essential thing is whatever we want to do (indisc.-- background noise) or (indisc.--background noise) bill or something and just go. I mean it's going to get worked over, you know, the legislature is.... MS. NORDALE: I'd rather see just the incremental increases than those CPI adjustments because I think ultimately you wind up with more money. MS. BRADY: Let's just vote for that then. CHAIRMAN ROGERS: O.K., the proposal from Mary is that we just go with the 12 mills every three years increase in the cigarette tax. Is there opposition? So this is more than inflation, more than CPI on the cigarette tax. MR. POURCHOT: So are we dumping section three? UNIDENTIFIED SPEAKER (Female): Right. CHAIRMAN ROGERS: We're dumping section three and replacing it with an artfully drafted increase of 12 mills every three years. MS. MCCONNELL: You know what we might want to consider, is saying that once we get to that final stage that from then on it should be indexed, so that if a point is to get it to a certain level for policy reasons then for that level to remain an effective level over, over time you would want to index it. CHAIRMAN ROGERS: I guess Annalee, I would prefer to just let it keep increasing at 12 mills every three years, which, which gets it -- I mean we get from, from '96 at, at the dollar up to 2005 a dollar seventy five, I think there was a lot of sentiment on the commission that we could keep going after that and, you know, so we're effectively every 12 years adding a dollar. MS. MCCONNELL: Yeah that's good. MS. NORDALE: Let the future take care of itself. I mean ours is suppose to be a ten year plan. For god sake. MS. BRADY: I refuse to worry past 2050. CHAIRMAN ROGERS: O.K., so, so what's, what's the, the - are we doing three, three increases over nine years or are we doing increases every three years until the legislature changes it? MS. NORDALE: Why don't we just do, you know, every three years. MS. BRADY: Yeah. MS. NORDALE: You know, if.... CHAIRMAN ROGERS: When it gets too high they can stop. MS. NORDALE: That's right and also it may very well be a revenue loser instead of a revenue gainer at that point (indisc.-- background noise.) CHAIRMAN ROGERS: O.K. so the amendments to this bill will be an effective date of October first, '96 and then on July first, '99 and every three years thereafter a 12 mill increase in the excise tax on cigarettes. MS. NORDALE: Right. CHAIRMAN ROGERS: Are there any objections? If not, we'll, that completes the work on the tobacco tax. Let's go to alcohol taxes. UNIDENTIFIED SPEAKERS (Both female): (Indisc. conversation--spoke too softly.) CHAIRMAN ROGERS: Oh, yeah, let me just interrupt for a second and ask Tam Cook. Tam, if you have any questions as we go along feel free to raise them, since you and your staff get the wonderful job of taking our broad concepts and putting them into real words. MS. COOK: Well, with that invitation, can I go back to this excise tax portion of the bill that we just completed... CHAIRMAN ROGERS: Yes. MS. COOK: ...and ask you to point out that they haven't gotten rid of the tax adjustment in section three, you no longer are adjusting the excise tax at all. CHAIRMAN ROGERS: And, and that would mean that for other tobacco products other than cigarettes it would remain at a 100 percent of the wholesale price, is that correct? MS. COOK: Well, it, the motion as I understood it was to eliminate section three. Perhaps the motion should have been to eliminate only the reference to 43.51.98 out of section 3, in which case you're keeping your tax adjustment for the excise portion. I don't know, it's just a question I raise. CHAIRMAN ROGERS: I think that's our intent. I think you're right. Thank you. One down. Alcoholic beverages. I have a question on this one. One of the issues we discussed on the excise taxes on alcoholic beverages was trying to get rough equivalency on a per drink basis between beer, wine and hard liquor and I'm not sure exactly how you, how you get that except to maybe look at what the effect of the per drink price is here. If we take a, beer is 12 -- we've got 128 ounces in a gallon is that correct? Does anybody know that off -- that's the number I remember. So that would say that there are ten cans of beer in a gallon so, under this proposal we're looking at about ten cents per drink on malt beverages. The average wine is a five ounce and so there are 25 drinks per gallon on wine, so if we take two dollars and 15 cents divided by 25 we're at eight point six cents per drink on wine and how many ounces in the average mixed drink? MS. NORDALE: Well, some are a 150 milliliters is -- what the average... UNIDENTIFIED SPEAKERS (Male and female): (Indisc. comments--too many people speaking at once). CHAIRMAN ROGERS: One and half ounces? So if we say 128 ounces in a gallon divided by 1.5, there are 85 drinks per -- and we're at 15 cents per drink on hard liquor as this bill stands. And I had hoped we'd try to, we'd get the three, three... UNIDENTIFIED SPEAKER (Female): Yeah, let's do that. CHAIRMAN ROGERS: ...three into line roughly. If we were aiming for about.... MS. NORDALE: Run through your numbers again for beer, it was what? CHAIRMAN ROGERS: O.K., well what, what, what I was using was that a beer is, there are 12 ounces in a can of beer, five ounces in a glass of wine and one and a half ounces in a mixed drink. MS. NORDALE: Right, but what did your, what did your little numbers come up with? CHAIRMAN ROGERS: So that came out, that if there are, so in a gallon there are ten bottles of beer, there are 26 glasses of wine, and there are 85 mixed drinks, so we come up with ten cents a can, eight and a half cents for a glass of wine and 15 cents for a mixed drink. MS. BRADY: So drop the mixed drink then? CHAIRMAN ROGERS: Or raise, raise them all to be, to come out at about 11 cents perhaps? MS. NORDALE: Why not ten cents, it's easier. CHAIRMAN ROGERS: O.K., if we did ten cents then, then we stay with a dollar five for beer, we go with two dollars and 50 cents for a gallon of wine and eight dollars and 50 cents for a, a gallon for other beverages. MS. BRADY: I think that meets what we set out to do. CHAIRMAN ROGERS: I think so. MS. NORDALE: I think that's equity among drinkers. Consumers I fancy. MS. BRADY: Drinking consumers. CHAIRMAN ROGERS: O.K., so at a dollar five, two fifty and eight fifty, then we have a tax adjustment and again we're, we'd be looking at every even numbered year indexing the tax effective July first of each even numbered year. MS. MCCONNELL: (Indisc.) we need to change the date of notification maybe from June thirtieth to March first. CHAIRMAN ROGERS: Yes. And we change the effective date here again, also to October first '96. Now if I remember right, on the alcohol tax we also had increases above the inflation rate. MS. NORDALE: Oh, I don't think so. CHAIRMAN ROGERS: Look at our spreadsheets here. The alcohol tax increased tri-annually, so we have them indexed and then they went up every three years, by about three -- looking at the report in today's dollars it was steady for three years at 19 million and then it jumped to 22 million for three years and then it jumped to 25 million. Since inflation is taken out, we had indexing plus an additional boost. Tam is there - if, if we wanted to do another increase of about - if we wanted to do another increase every three years in addition to the indexing is there an easy way to write that? MS. COOK: Yeah, it would look like a stair-stepping sort of a situation, you just have to, you just have to build it into the statute what year's increase occurs. I don't know if there's an easy way to calculate the tax adjustment with the increase also, I mean there might be administrative work, but.... MS. NORDALE: Couldn't you start with, say the numbers we have here, let's say a dollar five for beer and assign a fixed number of the increment so that the CPI does not affect that raise, in other words, in three years it goes up to a dollar ten for beer and a comparable adjustment for the other types of alcohol. CHAIRMAN ROGERS: What we'd be looking for is that in addition to the indexing on July first '99 and every three years thereafter, the alcohol -- the beer tax would go up by 25 cents, the wine tax by 65 cents and the other beverages taxed by two dollars and ten cents per gallon. If I've calculated this correctly. That would, that would, that 25 cents, 65 cents and two dollars and ten cents keeps the relative per drink price would go up by two and a half cents every three years on top of inflation. MR. NORDALE: Mr. Chairman CHAIRMAN ROGERS: Mary. MS. NORDALE: Tam, while you're thinking about that let me ask you another question. The sub (d) as in Denver, of section two of the bill talks about promulgation of regulations and it talks about every June 30 a change in regulation which would take effect then on July one, which is a day. Is there a way of crafting the legislation in such a way that we don't have to go through regulation, but, the, there could be some kind of an announcement. If we can schedule enough in the bill so that we can avoid regulation, can we just do a notice provision so that the wholesalers and retailers are noticed of the rise in the tax? MS. COOK: There's no reason why that couldn't be done that I'm aware of. MS. NORDALE: Well I would like to see us give it, that an experiment because the regulatory process itself is expensive and there's no reason to eat into potential revenues by screwing around with regulations. CHAIRMAN ROGERS: What, what you really need then is... MS. MCCONNELL: ...I... CHAIRMAN ROGERS: ... a single, a single regulation which provides for that notice process. MS. NORDALE: Well, I think the statute needs to provide for the notice process... CHAIRMAN ROGERS: O.K. MS. NORDALE: ...and then you don't even have to do the regulation. MS. MCCONNELL: Mary I think that's an excellent suggestion. MR. POURCHOT: (Indisc.) consistent between the two bills. CHAIRMAN ROGERS: Yes. MS. NORDALE: All of them that has this CPI thing. MS. MCCONNELL: You know from a practical stand point, since the CPI is announced on October first, it would be our intention - I think it only makes sense - to include these, the new numbers as part of both the fall forecast each year and also as part of the budget document, so in a practically speaking, we would be including these things in the budget that's presented on December 15, you could maybe have an, you know, an announcement at the same that the budget is put out. MS. NORDALE: Yeah, do you need any changes to 37, title 37 or anything like this that would make that a statutory component? Do you need it? Because if you do... MS. MCCONNELL: I don't know that - yeah - I don't know that we would need it, but maybe if - put it in the overall indexing provision we specify that the method by which all the fees that are indexed would be published in a list or you know, whatever - published as part of the budget document and then - could that work Tam? And then it could be, you know, just one of the charts within the budget document that would say, here are the fees that would be commencing on the, on the fiscal year. MS. NORDALE: You might want to a... MS. COOK: (Indisc.--spoke too softly.) MS. NORDALE: What did you say Tam? MS. COOK: I was going to say, I don't think you need to address that all, in the statute, all you need to do in the statute is to direct the department to give an adequate notice (indisc.) amounts and let them figure out, what's, how to (indisc.). If they want to put it in budget documents, if they want to put on the front page of the paper, if they want to write letters to every citizen in the state, leave it up to them. As long as we've given them a directive to make this information available to the public that's really all we need to do as far as a statute goes I should say. MS. NORDALE: And to avoid writing regulations. MS. COOK: Right. MS. NORDALE: Yeah, O.K. CHAIRMAN ROGERS: Anything else on the alcohol tax? Let's go to motor fuel. And we have a new draft that has both marine and.... MS. NORDALE: Yes we do....(indisc.--spoke too softly.) MS. MCCONNELL: Tam, a question of clarification (indisc.) before we move on... CHAIRMAN ROGERS: Go ahead. MS. MCCONNELL: ...on the, how long we want to have this tri-annual increase go on, perpetuity by three times... CHAIRMAN ROGERS: I think this one also is until the legislature changes it, that tri-annual increase goes in, stays in effect. There will be a point at which tax revenues will begin to decline and we don't know what that point is and I think the legislature will want at that point to repeal the change. CHAIRMAN ROGERS: O.K. the next one is a bill relating to the tax on transfers or consumption of motor fuel. This one increases from eight to 21.9 cents, motor fuel, and from five to eight cents, the water craft. It provides that the off-road goes from six to 15.9 cents and it provides for the indexing. Again, we'll want to change the indexing date to July first of each even numbered year. We'll want an effective date for the bill of October first, '96. I have a question on this one that was raised in the discussion from the Department of Revenue, from Bob Bartholomew. He notes that we have a gasohol exemption which costs us $13 million dollars in lost revenue. Is there any -- the national legislation exempting gasohol was done to encourage production of non-petroleum based fuels. Can anybody think of a policy reason why Alaska would want to exempt gasohol? MS. MCCONNELL: I can't, but since I know so little about it, I don't think the fact that I don't know of what counts for anything. If you'd like, we could make a quick call over to DOT (Department of Transportation) and see if there's any information they could provide on that. MS. NORDALE: Do we have any idea how much gasohol is sold in Alaska? My guess is very little. CHAIRMAN ROGERS: Well, according to this 60 million gallons. MS. NORDALE: Well that's not very much. How much is the total sold? CHAIRMAN ROGERS: I don't know, but that's 13, 60 million gallons at 21 cents a gallon is 13 million dollars. MS. BRADY: Yeah, but isn't there something that they talk to companies, you know, they have to talk to companies about what they're doing? CHAIRMAN ROGERS: We've got Sam Kito... MS. NORDALE: ...that was... CHAIRMAN ROGERS: ...here from the Department of Transportation. Maybe you can help us on this. MR. KITO: O.K. The total gallonage sold for gasohol or (indisc.) gasohol is approximately 60 million. We sell in the neighborhood of.... MS. MCCONNELL: Can you come a little closer to the mike? I got everything but the dollar amount that you said Sam. MR. KITO: It was 60 million gallons. At present, last year the exemption cost the state approximately 2.4 million dollars. The exemption was only -- actually the sales of gasohol in the large market, Anchorage area, only took place over two months. This year it will be the whole season, so we're expecting that amount to double to 4.8 million. A potential loss of 13 million if we increase the tax to 21.9 cents. CHAIRMAN ROGERS: Is there any policy reason to exempt gasohol from the Department's stand point? MR. KITO: Not a full exemption. If you look at pretty much nationwide, in the western states there is no exemption for gasohol. Some of the mid-west states, they have smaller exemptions of between one and three cents per gallon for gasohol. CHAIRMAN ROGERS: Judy. MS. BRADY: Is this the one - I'm fuzzy on this - is this the one though that like Anchorage voted that they had - because of air quality - is this the kind of thing that they had to have and the companies - I mean nobody wanted to do it and they said you have to do it? Here it is... MR. KITO: Right, the... MS. BRADY: ...and so that's why that the, that's why they exempted the tax because they already hit them with, you know, you have to have to have different tanks, you have to do all this other stuff. And so they went ahead - because they told them they had to - and they went ahead and made the investment and part of the deal was that they would say, O.K. if you do this we'll let - you know, (indisc.) we'll do this much... MR. KITO: (Indisc.) the exemption... MS. BRADY: ...they hated that... MR. KITO: ... was already in place prior to that. MS. BRADY: O.K., but that was part of the deal, but nobody wanted to do this. This was the kind of thing where they said, O.K. for clean air you have to do it, even though they argued no one else in the country has to do it, but us. So. MS. NORDALE: Mr. Chairman, we talk about 60 million gallons of gasohol, but what are we talking about regular gasoline? MR. KITO: Total sales of gasoline including the gasohol gallons is in the neighborhood of 419 million gallons, which includes gasoline and diesel. MS. NORDALE: So we're talking roughly ten percent of the market. Ten to 15 percent of the market... MR. KITO: Yeah. MS. NORDALE: ...is gasohol and.... UNIDENTIFIED SPEAKER (Female): (Indisc.--spoke too softly.) MR. KITO: Mr. Chairman. CHAIRMAN ROGERS: Go ahead (indisc.) MR. KITO: You only have to sell the gasohol in the winter...(end of tape.) TAPE 1, SIDE B MR. KITO: ...the comments that was made by Department of Revenue was they feel that they might actually extend the gasohol selling season because they're already producing the product. MS. BRADY: Well on this one I'd rather wait until - let the leg - make a note to have the legislature look at it because we don't know enough, but, but I know that they didn't want to do it to begin with and were told, you have to. And you have to do it for this season, and so, you know, that's a little different than coming in and.... CHAIRMAN ROGERS: I guess my concern in not, not having a tax on gasohol is that to the extent that we've already put in production facilities for gasohol. To the extent that what we have is a lower tax on gasohol - no tax on gasohol versus 22 cents on gasoline, we maybe tending to push consumers towards the tax-free product and that that, we end up promoting gasohol to an even greater extent and accelerate our revenue losses. Recognizing we don't know a lot about this, I guess I'd rather remove the gasohol exemption and then in the letter say, we removed it because we think taxes, that people who drive vehicles with gas, with gasohol still tear up our roads and we need that money for the road maintenance and if that - - we think the legislature ought to look at it further and if some exemption similar say the off-road exemption or something like that is required that the legislature could back off. But, I'd rather, I think it's going to be hard for the legislature to add a tax. It may be easier for them to delete the tax. MS. BRADY: The only thing I think, that if you tell somebody you want them to do it, you know, we're doing the cigarettes and the alcohol for social reasons, if we said socially we want to, we have to do this because it's good for the air even though every study has, you know, you have to do it anyway and then to say, O.K. we're going to add - you only have to do it in the winter because that's when you get the most pollution. I mean the thing that's screwed up to begin with in terms of... MR. KITO: That's true. Mr. Chairman, kind of as a side note and I'm not a hundred percent clear on this, but my impression was that the gasohol requirement in Anchorage was similar to the oxy-fuel requirement because of a non-compliance of an EPA requirement that urban areas meet certain air quality standards. MS. BRADY: But, still the only place in the country where the... MR. KITO: Yes. MS. BRADY: ...the assembly actually said you have to - I'm mean it's done differently every place else. So, I just think... MS. NORDALE: Yeah, but Mr. Chairman that's the Anchorage assembly and I think that, you know, we need to, the whole impetus behind this dramatic rise in the gas tax was because of the recognition that our roads are in critical condition and we're not allocating a sufficient sum of money to maintenance and I agree with Brian that a car driven by gasohol is just as likely to tear up the roads as one that's driven by gasoline or any other petroleum product. I'd like to see it all uniformly taxed and if the legislature wants to get an incentive then let them. CHAIRMAN ROGERS: Mike, any thoughts on this? MR. O'CONNER: Same as Mary's. CHAIRMAN ROGERS: Pat, gasohol exempted or not exempted? MR. POURCHOT: Not exempted, I think that the original committee - this was mentioned earlier - but, I think that the original purpose was as, you know, obviously alternative fuel incentive. Now we know that it doesn't cost anything more to make it and it's readily available. CHAIRMAN ROGERS: I sense that there's a majority to remove the gasohol exemption -- taxing gasohol at the same rate as other motor fuels. If we want to do something for social engineering on this, I'd like to propose a ten dollar a gallon tax on fuel containing MBTE. (??) MS. BRADY: Go ahead. MS. NORDALE: Go ahead. Double dare you. MR. POURCHOT: I don't believe that there's been any scientific evidence on that whole thing. I think you guys in Fairbanks just suffer from more psychological and physical problems. MS. BRADY: (Female) I think - how about mental? CHAIRMAN ROGERS: I think we need a tax on people who make negative comments about Fairbanks. UNIDENTIFIED SPEAKERS (Both female): (Indisc.--cross talking.) MR. MALLOTT: It would be a big revenue generator here in Anchorage, I know that. MS. FOUSE: Apparently in Juneau too. CHAIRMAN ROGERS: O.K., so on the motor fuel, our changes are to add a section that deletes the oxy...the gasohol exemption and to change the date to July one for the indexing, to have the effective date October one of '96. Any other changes? MR. POURCHOT: Brian, Annalee asked me to bring up one idea here whether we needed this to be 21.9 cents and 15.9, whether it couldn't be just 22 and 16? CHAIRMAN ROGERS: We've been using 22 in all of our public presentations. 22 and 15. MS. FOUSE: 15 or... CHAIRMAN ROGERS: ...16. MS. FOUSE: 16. CHAIRMAN ROGERS: O.K. that takes care of motor fuel tax. Motor vehicle registration fees, I believe, is our next one. And on this one we had some questions raised by the Department of Law. We've got the bill, as it's currently drafted, has Department of Labor adjusting the fees. They don't want to do it. They want Public Safety to. Public Safety thinks that Labor should publicize the fees. My sense, I believe that Public Safety as a department responsible for collecting the fees is the one that ought to be responsible for publicizing it and that Pubic Safety is the appropriate, is the appropriate agency. I agree with the Public Safety position that they, the fees should go up January one, '97. The other suggestions from the Department of Law - maybe we ought to go through them one by one - and go through and see where the sense of the commission is. The, the section one of the bill which amends 108 (b) says that we should repeal this rather than amend it, since the original staggering of registration follows 28.10.108 (c). Does anyone understand what this means? MS. NORDALE: Yeah the, I think that what they, they used to have all of the licenses expire at one time and now they rotate them on a monthly basis. So, I think that what Mike did on, on this draft is look at one section and not realizing it... CHAIRMAN ROGERS: O.K. MS. NORDALE: ...practiced and moved on. CHAIRMAN ROGERS: Tam, do have any problem with the suggestion in section one? I mean in num... comment number one in Ann Carpeneti's memo? MS. COOK: I don't think I understand it, but someone will. CHAIRMAN ROGERS: O.K., the intent of the commission is that whoever's right on this is the way it goes, it that about it? UNIDENTIFIED SPEAKERS (All female): (Indisc.--cross talking.) CHAIRMAN ROGERS: O.K., sec... section, number two, section four of the bill repeals the exemption for disabled vets, other handicapped persons conforming amendments required in 181 (d). I assume that's O.K. with everyone? And the same in section three. We need a conforming amendment in 181 (e). Section four repeals the registration fee exemption. They still have distinctive plates and it doesn't refer to the charges for the plates. I guess my assumption on this one, or my proposal on this one would be that we use the same ten dollar, one time fee that's used on a historic vehicle. Does anyone have a proposal for a different number on that? MR. POURCHOT: Yeah, Mr. Chairman. Why did you choose that as opposed to National Guard or vet's licenses' fees? CHAIRMAN ROGERS: The reason for that is if you look at the bottom of page three, the existing language on the amateur mobile radio station vehicle - excuse me on the top of page four, basically what they're - the existing law recognizes that amateur radio provides a service to the public in a time of emergency and so I picked the lowest level recognizing that on-going service to the public provided by the vehicle that carries the mobile amateur radio station, but I could go with any, I mean I just picked the number to get the discussion started. MR. POURCHOT: O.K. UNIDENTIFIED SPEAKER (Male): How many are there? UNIDENTIFIED SPEAKER (Female): Lots. CHAIRMAN ROGERS: Now these people would pay, under this they'd pay a one time ten dollar fee, plus they'd pay whatever the registration fee is for the vehicle. We're not saying -- it's only that one time fee for the license plate of ten dollars. MS. BRADY: Well, you know, everybody in an emergency who can help, helps. MS. NORDALE: Well these people do perform some services, especially in, in the non-urban areas Judy, that you wouldn't get otherwise. There aren't a lot of cops on the road. There's no Triple A's. MS. BRADY: Yeah but, everybody's got now, everybody's got C.B.'s and they... MS. NORDALE: I refuse to have one in my car. MS. BRADY: I know, everybody but you has one. (Indisc.)...they help each other and call for help and, you know, people help each other. CHAIRMAN ROGERS: Judy raises a good point. There's been a technological change here that, many of the vehicles I see driving around Anchorage and Fairbanks have cellular telephones and people are calling in accidents on their cell phones. When this was originally enacted we didn't have cellular phone service. Is this an out-moded section of the statute? MS. MCCONNELL: Sounds like it to me. MS. NORDALE: Well then why don't we... MS. MCCONNELL (Female): Do they get special plates? CHAIRMAN ROGERS: Yes, they get special plates that have their call letters. MR. POURCHOT: Mr. Chairman I would, I would put them in the same fee schedule as, on page three, section four (d)(2). CHAIRMAN ROGERS: Is there any objection? MS. NORDALE: No, but Mr. Chairman all of (d)(1) and (2) it seems to me ought to have the same fees. The historic vehicles are toys, there's no reason to give them a preferred... MS. BRADY: I agree. MS. NORDALE: ...rate as opposed to people who are, who have handicapped plates or anything, you know, why (indisc.). So I'd just say we set them all at 30 bucks and let them get them. CHAIRMAN ROGERS: The proposal is that all... MR. POURCHOT: Mr. Chairman. CHAIRMAN ROGERS: Yes Pat. MR. POURCHOT: Yeah, I don't, I think there's a different rationale there. I don't think it was any kind of special recognition for car, those car owners. I think it's a recognition that they don't use the roads. You know, they rarely use the roads. MS. MCCONNELL: You mean they're only out for parades basically? MR. POURCHOT: Yeah. MS. NORDALE: They're in Fairbanks all the time, all summer long. People drive their old cars because it's fun and they're using the roads. I think that... UNIDENTIFIED SPEAKER (Male): One time. Once. MS. NORDALE: ...it's a pleasure craft. You know, you have to pay the same license fee for boats. You only use them in the summertime. CHAIRMAN ROGERS: What this says, now, I'm re-reading this under section four. The special registration fees are imposed annually - - the historic vehicle is a one time only ten dollars. Under two, Alaska National Guard personnel pay 30 dollars annually and I guess that's in lieu of the regular vehicle fee on all of these. Is that right? UNIDENTIFIED SPEAKER (Female): No. CHAIRMAN ROGERS: That's in addition to the, so, oh that's right because they were all exempted from the regular fees. MS. BRADY: Why don't we just not exempt anybody and just go for it. MS. NORDALE: And offer them special plates if they want them. MS. BRADY: If they want to pay for them. UNIDENTIFIED SPEAKER (Female): Extra. MS. BRADY: Extra. CHAIRMAN ROGERS: Well there are a couple of these that, that are, like the dealer plates. So we have annual fees on all the vehicles under sections two and three and then section four, some of these are annual, some of these are one time only, some of these are never and some of these, are these fees, plus the regular fees. That would be the special request, university plates. MS. BRADY: You know I just think this whole thing has turned into a junkyard of, of a, stuff, and you know, you go to the State of Washington and pay three hundred eighty-five dollars for a (indisc.) every year and here we pay thirty-five. I mean, I just think we should just say everybody pays the same. Everybody uses the roads. Everybody pays for the roads. And let's not turn this into a, anything other than everyone pays and that's the end of it. CHAIRMAN ROGERS: So, one way of drafting that would be to take the schedule we have in section two. We would need to add snow machines, move snow machines and farm machines into that section with their annual fees doubling from the current five dollars for snow machines to ten and 35 for, to 70 and then say, that any, that that's it for all vehicles is that annual schedule and that at the time of registration for any special license plate you pay another, an additional 30 dollars one time only to get the special plate. If you take the plate, the next plate in line you don't pay the extra 30 dollars. If you have a special request plate regardless of what it's for, it's 30 dollars. One time only, in addition to the... MS. NORDALE: O.K. what happens to... MS. MCCONNELL: And I assume that by... CHAIRMAN ROGERS: Annalee. MS. MCCONNELL: Sorry Mary, go ahead. MS. NORDALE: (Indisc.--cross talking). MS. MCCONNELL: Well, I assume that by one time only means that if we change over all of our plates and they have an opportunity to get a new fancy plate, then they pay again. But, as long as it's just the annual sticker going on the license plate they're not paying again, right? CHAIRMAN ROGERS: Correct. They're just paying the annual fee based on the size, regular registration fee based on the size of the vehicle. And... MS. MCCONNELL: You would just specify, you know, if there's a (indisc.) over the plates altogether then they would pay again to get a special one? CHAIRMAN ROGERS: Correct. And Mary, you were asking about the special request university plates. MS. NORDALE: Right. Right. CHAIRMAN ROGERS: That's a one, currently a one time fee of 50 dollars that theoretically was collected and given to the university. It was collected, but never given to the university. Most of those are out, so, this section that was suppose to help the university never did. MR. POURCHOT: Mr. Chairman. Mr. Chairman. CHAIRMAN ROGERS: Pat. MR. POURCHOT: I would just note that, I would note that some of these that came later like the veteran's plates. Those special plate fees actually make money - that they were - those are not subsidized if you will. Those are actually, they, we get more money than we actually pay in the cost of the plates. CHAIRMAN ROGERS: And that's my assumption that it's setting this 30 dollar fee, one time only. It makes us that money. MR. POURCHOT: Yeah. CHAIRMAN ROGERS: Tam, does that give you enough direction to give to Mike Ford on re-drafting this. MS. COOK: I'm not sure it does, but I, but Melissa can probably clear it up. I'm confused about what the relationship between (d) and (indisc.) I guess. CHAIRMAN ROGERS: O.K. MS. COOK: Are they going to be paying - - are these registration fees in lieu of the normal ones that are going to be on top of them, or what? CHAIRMAN ROGERS: What, what we're suggesting is that, is that under section (d) we would have one time special registration fees upon initial registration for each special request plate for a historical vehicle, for National Guard veterans, purple heart, custom collectors, special requests, university, etcetera, of 30 dollars to get the special request plate and everyone pays the same amount for all of their vehicles. We would, we would move the snow machine section out of (d) into (c), we'd move the farmer section out of (d) and into (c), we'd move the dealer registration plates out of (d) and into (c). MS. NORDALE: Mr. Chairman. CHAIRMAN ROGERS: Yes. MS. NORDALE: If I could state this a little differently. Tam, what we're talking about is having annual registration fees set in the statute and then a separate section which allows people to buy vanity plates and special types of plates which are an add on and they can buy them at any time. And every time they buy a new plate they pay 30 bucks for it, in addition to their annual registration fee. So, that's really all we're talking about is the schedule of annual fees, plus special plates. MS. MCCONNELL: I have a question on passenger vehicles versus pickup trucks or vans. We have a distinction in the statute now. Does that really, does that really make sense? Would it, would we both simplify things, but also maybe make people feel a little better if we've got a same fee for a pickup truck, a van, a passenger vehicle. It's especially odd because, I mean, a motor home is certainly a whole lot bigger and heavier than a pickup truck or a van and yet it's a cheaper rate and the pickup truck and van, which many people own as their regular, personal vehicles. Should we just make them all the same? MS. BRADY: I'd go for that. MS. NORDALE: Well, one of the reasons why the distinction is there is because it was thought that commercial vehicles imposed a greater burden on the highway system, or street system than passenger vehicles, even if they are pickups. So, you may want to make... MS. MCCONNELL: These are - it says non-commercial. CHAIRMAN ROGERS: These are only the non-commercial. MS. NORDALE: Right, but, but the, but the weight of pickups and of course there are a lot of little ones now, but in any event the weight and utility of the vehicles was determined to be enough for an additional charge. I don't know that it is, all I'm saying is that when we do make the change we ought to know a bit about the rationale for what it was. MS. MCCONNELL: But it seems like the commercial stuff is covered by weight, which I agree makes a lot of sense because that affects the road usage. That's covered in section three - different weights - the heavier you are the more you pay for commercial. It seems like for personal vehicles... MS. NORDALE: Yeah, but... MS. MCCONNELL: ...you might as well make motor homes the same. MS. NORDALE: Right, but what about... UNIDENTIFIED SPEAKER (Male): I disagree. MS. NORDALE: Domino's pizza that runs around with a little tiny pickup... CHAIRMAN ROGERS: They're paying based... MS. NORDALE: ...oh, that's a commercial... CHAIRMAN ROGERS: They're paying based on weight on the lower part of the page for commercial. MS. NORDALE: O.K., alright, O.K., alright. CHAIRMAN ROGERS: So, the proposal... MS. NORDALE: I'll shut my mouth. CHAIRMAN ROGERS: Annalee, what you'd do is combined one and two at 75 dollars? MS. MCCONNELL: Yeah, I probably would. I mean I don't care that much between 70 - from a fiscal standpoint obviously - 75 would be better, but if people think that, that just gets more flak, I wouldn't mind doing them all at 70. CHAIRMAN ROGERS: I figure half of them are at 70 and half at 80 and combine the two. MS. MCCONNELL: Probably (indisc.). Sounds O.K. to me. CHAIRMAN ROGERS: O.K. one more change. We're combining one and two, simplifying so that you don't have to decide whether a vehicle's a light truck, whether a mini-van is a van or a passenger vehicle. O.K., anything else on motor vehicle license plates? Now by moving - we've removed the exemption for a vehicle owned by the state. UNIDENTIFIED SPEAKER (Female): (Indisc.--spoke too softly.) CHAIRMAN ROGERS: Yeah, but we're removing all sec... section (d) - we're saying one time.... It's not worth collecting from one pocket to put into another pocket. Do we want to keep the state exemption? UNIDENTIFIED SPEAKERS (Male and female): (Indisc.--spoke too softly.) CHAIRMAN ROGERS: ...collecting from one agency to give to another agency.... MR. POURCHOT: Annalee had to step out of the room. Normally we don't find that particularly helpful. It just sets up more accounting system - all our agencies charge, you know, we go through this big highway working capital fund and the state equipment fleet. It just, it typically creates more problems than solves them. I, I think we would argue to keep the exemption for state vehicles. CHAIRMAN ROGERS: Any objections? O.K., that takes care of motor vehicle license plates. Now on this one, we're not it July first, we're doing it January first at the request of the Department. Is that correct? MS. NORDALE: Right. CHAIRMAN ROGERS: O.K., let's go to automatic adjustments in fees and charges. This one does not apply to taxes which are set by statute, but for fees and charges collected by state agencies. And in the analysis by Sarah Felix, Assistant Attorney General, she had a concern about Northern Lights Motel vs. Sweeny. And, I'd like to highlight at the bottom of page two - she says, "Another way to achieve the goal would be to leave the statute as it is and adopt an administrative order directing agencies to adopt regulations amending their fees to reflect increases in CPI." MS. BRADY: What were we trying to accomplish here? What, what does this have to do with our index? CHAIRMAN ROGERS: This was just, this was the, trying to get the three million dollars a year more in revenues from other fees that were out there and.... MS. BRADY: But, I thought that was more like.... CHAIRMAN ROGERS: ...indexing of all of those other fees that are out there. MS. BRADY: But, I thought that, I thought maybe we were aimed at was adding fees where there wasn't any. CHAIRMAN ROGERS: Oh, O.K., I had interpreted that to be adding fees that existed. MS. BRADY: Because lots of, lots of - the problem is that some agencies, some groups of users are paying no fees and other groups of users are paying like, big time fees. And the state needs to take a look at that and so just increasing the fees of those people that are already paying (indisc.) fees may not be the entire answer. So, so I guess I would, you know, kind of look at the administrative order rather than the bill because I really don't.... CHAIRMAN ROGERS: I, I person... MR. POURCHOT: Ah, Mr. Chairman? CHAIRMAN ROGERS: ...go Pat. MR. POURCHOT: Yeah, I, I may have forgotten some of our discussions last summer, but I thought that three million dollars didn't necessarily require legislation and I agree with Judy that we - in fact, we're preparing legislation now - we'll probably have some kind of omnibus fee bill and it's, I mean it's a real hodge podge - there. Some state services are being very rigorously charged for, some are not so rigorously charged for relative to cost and some are not charged at all and an across the board attempt - I'm not sure we'd get it - additionally, some fees typically are, you know, they catch up at periodic intervals and they're not just based on CPI considerations, so I'm not sure it lends itself to a, a fairly arbitrary CPI based standard. I thought when we were talking that we were really geared towards the tax side of it, which is really a revenue. When you get to the fees, the theory is at least, you're doing a relationship between costs of a service to, to, to the reimbursement for those services so that it's, it's not just a pure revenue source if you will. And I think that the direction - the commission - in terms of it's plan, would be, I mean the charge to the administration at least and to the legislature relative to new fee authority would be that we would continue to look for new authorities for fees that should be charged that are not for services, that where the authority exists, agencies would be continuing to re-evaluate periodically whether or not there was sufficient return for the cost of services, but there's a whole - as everybody knows - a whole regulatory scheme to analyze, seek public input and make decisions for each of those fee increases and, you know, it has lots of wrinkles to it, but it does afford periodic, you know, public input and some base, some rational approach to fee increases as opposed to just annual or bi-annual arbitrary increases. CHAIRMAN ROGERS: Does anyone on the commission object to pulling this bill from the package and instead requesting the administration to, by administrative order where possible, to deal with our fee increase? MS. NORDALE: I don't, except that the recommendation that, for the administrative order says to the agencies adopt regulations and I have some concerns that every time we turn around, we're directing agencies to adopt regulations. It's a slow, torturous, expensive process and I think that what we need to do is, more in line with what Pat was saying, set a goal and see what we can do about minimizing the requirement for regulations. CHAIRMAN ROGERS: Any objection to that thought? Hearing none... MR. LOESCHER: Mr. Chairman I object. CHAIRMAN ROGERS: Oh, O.K. MR. LOESCHER: Mr. Chairman. CHAIRMAN ROGERS: Hey Bob, how are you? MR. LOESCHER: Mr. Chairman. Yeah, I was sitting here keeping track of Mary. There is a problem in this. There is a need for regulatory oversight of some of this stuff that Pat is talking about, for instance, this year we were doing business with solid waste regulations and they were trying to develop a fee schedule for that and we had to comment a couple of times to the Commissioner of DEC (Department of Environmental Conservation) and it's nothing that you can unilaterally set a fee on. In a forum like this or in the legislature there's, there's much more technicalities involved, whether you're dealing with a municipality, controlled solid waste deal or private, private property thing. And, you know, I really would urge you to be careful in this area. I think, I agree, I'm not a fan of the regulatory process, especially the way the Attorney General's office does it. You've got one person there who keeps track of regulations and we need get them cranked loose, but the point of it is, is that this is nothing that you can unilaterally just wave a wand at and put a fee on and I would urge you to be a little cautious in this area because there are many, many, many more examples of where the state really needs to charge a fee, but it's going to have to be done through a thoughtful process, otherwise industry and the public is going to react negatively to this idea of paying for the service of the state, which we vitally need to get fees charged for, but I urge you to be careful in this area in, in, in and hopefully Mary you'll understand a little bit more, you know, that we really do want to see a fee schedule developed, but we need more time. MS. NORDALE: Mr. Chairman, I agree with you Bob, but what I was objecting to was just this rather blithe direction of the Attorney General's office is to just tell the agencies to go forth and start adopting regulations. I agree, I, I think that when you're talking about a regulatory scheme like DEC has in place you obviously have to have a very comprehensive regulatory process in order to arrive at fairness, let alone adequacy, but when we're talking about, you know, modest little fees for documents, that kind of thing, I just don't see this elaborate regulatory process having to be engaged in every time the CPI changes. CHAIRMAN ROGERS: If I could try to, to, Pat I guess this is really instructions to you and the administration in terms of dealing with this fee issue and I guess the sense of the commission is that the administration should look for opportunities to increase fees, should try to keep the process for adopting as simple as possible while preserving the public right of input on the process and that, that maybe done by regulation in certain areas or by administrative action in other areas depending on the nature and I, I guess with the target out there the administration can determine which things are done by regulation, which things you have to come in with statutory changes such as your omnibus bill, which ones can be done through a simplified process. You comfortable with that? MR. POURCHOT: Yeah. CHAIRMAN ROGERS: O.K., so that's not part of our package. Let's move on to senior citizen property tax exemption. The concern raised by the Assistant Attorney General has to do - Margie VanDor - has to do with the financial need and whether we allow municipalities to each adopt their own determination of qualifying standards for financial need, whether this presents an equal protection problem and otherwise, I would say that, that this received enthusiastic support of the Alaska Municipal League when I spoke there. Judy. MS. BRADY: I think that, I think that's something legislature could decide in the hearings. I know some communities do things that right now, that if this is a problem, then we've got a problem. And so, you know, this is, you know, I think let, let the legislature worry... CHAIRMAN ROGERS: Mary. MS. NORDALE: I think that, I don't agree with this, the thrust of this VanDor memorandum. I've never heard of the states' being able to establish a needs base for property tax for god's sake and... MS. BRADY: Yeah, I agree with that. MS. NORDALE: I think that, the fact that varying municipalities can have different rates of sales tax suggests that within a particular area tax rates can be adjusted and that's really all we're talking about is tax rates, so I agree, I think we ought to eliminate the mandatory, allow them to do whatever they want to do on a voluntary basis and if we want to have, to make a recommen... I'm not even pleased with the recommendation.... MS. BRADY: I'm not either. MS. NORDALE: ...in terms of what the values should be. I think we ought to just eliminate the mandatory. MS. BRADY: I agree and don't say anything else. MS. NORDALE: Right. MS. BRADY: Let, let the communities do what they want to do. MS. NORDALE: Right, right, exactly. CHAIRMAN ROGERS: So, in order to eliminate the mandatory... MR. NORDALE: We still have to give the municipalities.... CHAIRMAN ROGERS: ...we have to give them the authority to do it though. MS. BRADY: Why? MS. NORDALE: We can repeal the mandatory. CHAIRMAN ROGERS: Yes. MS. NORDALE: There is an, I think there, there is language in the optional that is O.K., but in any event, if we ask for legislation that repeals the mandatory and simply grants boroughs and municipalities the option of accepting certain values, you know, depending on what they want. CHAIRMAN ROGERS: It looks to me that section two keeps a mandatory of 75 thousand, doesn't it? MS. NORDALE: Well yeah. That's the thing, that's one of the things I object to on this. CHAIRMAN ROGERS: We didn't, we didn't intend that so.... MS. NORDALE: No. CHAIRMAN ROGERS: ...it's, its, I think one thing, what we have here is a mark up based on, on an existing bill and we need to get a new, a new bill.... MS. NORDALE: Right. CHAIRMAN ROGERS: ...by rules, by request of the commission and the intent of this is to remove completely any mandatory state, any state mandated exemption from local property taxation and to allow local option for.... MS. NORDALE: Certain class, defined classes of people... CHAIRMAN ROGERS: For the.... MS. NORDALE: ...like veterans.... CHAIRMAN ROGERS: ...for the.... MS. NORDALE: ...(indisc.--cross talking.) CHAIRMAN ROGERS: ....for the same, same three classes - 65 permanent - real property owned by an individual and occupied by that individual who is 65 years of age or older, a disabled veteran, or at least 60 years old and a widow or a widower, or a person who qualified for the exemption under one or two. We didn't intend to make any changes in who was eligible, but just that they, a municipality may exempt up to 150 thousand dollars worth of property from those individuals. MS. BRADY: But, why do we have to do, why do we even have to say which class because the whole point is that (indisc.--background noise) if the municipality does it, they pick up, they take the loss. CHAIRMAN ROGERS: Because unless we allow them - under the uniform taxation - unless we specifically allow them to do that exemption they can't. MS. NORDALE: Right. MS. BRADY: But, they may exempt any class of people if they're going to take.... CHAIRMAN ROGERS: No.... MS. NORDALE: No, no, no, no, no.... CHAIRMAN ROGERS: ...no, they can't.... MS. NORDALE: ...no, not - no. MS. BRADY: I mean we give them, we give them the ability to do anything they want as long as they take the hit. What do we care who they, what does the state care who people exempt? CHAIRMAN ROGERS: The, I 'll tell you what the state cares is that you could have a circumstance where there, the local government could accept, exempt all property owners except of housing and leave only, say the oil properties in a borough paying a tax so that no owner of property -- they could exempt every personal, every individual from paying a tax on his or her home then collect all the revenues from one industry. That, I think that's the reason that the state has tried to say limit, specifically limit the exemptions. There's a homestead exemption of what 10,000 dollars or something like that, that they knock off any residence and then these are the only two currently allowed. MS. BRADY: Well, I'm sold. MS. NORDALE: It's a, it really is a constitutional.... MR. POURCHOT: Mr. Chairman. MS. NORDALE: ...issue. CHAIRMAN ROGERS: Pat. MR. POURCHOT: My, I have a question first that, I assume that the attorney's comments here only relate to this page two, line 20 in case of hardship. That's the current existing law right? She's not commenting on anything that we've done or recommended is that right? MS. NORDALE: Right. CHAIRMAN ROGERS: Right. And I.... MR. POURCHOT: So.... CHAIRMAN ROGERS: ...and I think... MR. POURCHOT: ...it seems. CHAIRMAN ROGERS: Go ahead. MR. POURCHOT: Go ahead. Well, I was going to say and I know this is what you were getting at Brian. It seems like the simplest, cleanest way to do this, is you delete entire (e) (indisc.), you just delete all, everything there, you pick up back up on section three (i) and you, you leave in that language, but you, but it, so it reads a municipality by ordinance may, or may by ordinance exempt from taxation the assessed value of real property and then delete, delete all that, that it exceeds the limits, blah, blah, blah, property and then scratch all that and then you leave in the current stuff that's deleted here. All you're saying is, the state is saying, municipalities, it is permissible to grant some kind of real property taxation exemption if you're 65, if you're a disabled vet or a widower. CHAIRMAN ROGERS: O.K., so, this, I would read, I would read something like, a municipality may by ordinance exempt from taxation the assessed value of real property if the real property is owned by an individual and occupied by the, as a permanent place of abode by that individual who is 65 years of age or older, disabled veteran at least 60 years old. MS. NORDALE: I think we ought to.... MS. COOK: May I (indisc.) CHAIRMAN ROGERS: Tam. MS. COOK: May I, may I point out one thing, that if you, if you write it that way unless you say that the municipality may by ordinance exempt all or part of the value, you've given them a choice of either accepting the entire value of that, you don't give them a chance to say we're only going to exempt the first 150 thousand. CHAIRMAN ROGERS: O.K., so I think we want to say all or part. UNIDENTIFIED SPEAKERS (Male and female): (Indisc.--spoke too softly.) MS. COOK: And the other, the other thing I want to point out is that I believe that the renter's rebate program is still on the books. I don't know if you guys want to address it in this bill, but this would be a vehicle to consider it. I'm not sure that it's been funded in the last few years. The renter's rebate program went, it kind of went along with this one in theory and that it was going to provide some aid to people in these same categories who were renters and not property owners and it's currently funded, or it's supposedly funded by the state so that the renters who fit in the same category, being elderly or disabled or so forth have the ability to go forward and actually get a check from the state, or the state money used for it. If we're going to eliminate the mandatory, the mandatory nature of the tax provision that, that helps this category, perhaps some thought ought to be given to eliminating or maybe eliminating the renter's rebate portion. It seems like an anomaly to have the renter's rebate there as a mandatory thing and the, if you're going to eliminate the optional tax benefit. CHAIRMAN ROGERS: Would there be any objection to the commission, on the commission if we also allowed a municipality separately by ordinance, to provide a renter's rebate program that provides equivalent benefits? MS. NORDALE: Well as long as.... CHAIRMAN ROGERS: And to remove the mandate. MR. NORDALE: As long as it's the municipality's money and not the state's money that would be fine with me. CHAIRMAN ROGERS: Yeah. MR. POURCHOT: That, that is an important distinction because the programs are run differently now. There continues to be, up until last year at least about 3 or 4, 350 thousand, I believe, dollars appropriated separately for the renter's rebate program. That program I believe is actually paid through the state, through DCRA that people apply, you know, the difference is the municipality looses money, it doesn't collect money from tax, but they do not have a line item in the municipality budget to pay renter's rebate, that's, that's been a state program, so.... MS. COOK: The municipalities have never paid them this rebate. It's always come out of the state's pocket. MR. POURCHOT: ...the little different budgetary dynamic there. MS. COOK: It was intended to benefit the same class of people. MS. NORDALE: Yeah, but I don't think it's the state's responsibility to deal with local tax exemptions. You know, if we say it's permissible to grant tax relief, then if they want to strike a bargain inequity with another class, let them, but as long as it's not the state's money. (END OF TAPE) TAPE 2, SIDE A MS. COOK: ...the municipalities to establish such a program. I'm inclined to think that if you're going to make it optional on part of the municipalities then the terms of uses of the existing renters rebate program don't make a lot of sense because they're rigid. They're a set amount and it's based on -- maybe you should just think about repealing the renters rebate program since it's a state funded program. If you would like we can certainly put authority from municipality to adopt a renters rebate program to benefit whatever class of citizens they want or to benefit a narrow class and -- and open the program up. I guess myself I think that it muddles the waters and I don't see a lot of municipalities doing this. Because the renters rebate program requires a positive giving away of municipal revenues in this case it would be municipal rather than foregoing collective something and there aren't many municipalities who would be in a position to do that so. I guess I kind of wonder whether it wouldn't be clear to repeal the program and see if we at least want it. They can come and ask for it. But to put something on the books that's never utilized, that gives people the impression that there might be something in the future coming to them I -- I question just as a public policy point of view. CHAIRMAN ROGERS: Mary. MS. NORDALE: I'd like to ask a question, Tam. If the renters rebate program were repealed, does Title 29 give municipalities the authority to adopt such a program if they want one? In other words when the powers in the municipal code are set out, are they broad enough to deal with that issue without a specific legislative authorization? And, I'd like to have that question answered before we --- I mean I'd like to see the renters rebate program repealed. But to address the second segment of that thing before endorsing legislation that would incorporate it. You know grant new authority to local government if we just eliminate it. Do they have the authority to do it if they want to? MS. COOK: Commissioner, my guess is that most municipalities probably do because Title 29 -- the limitations on powers of municipalities have been so eroded over time now that most of them have kind of general authority to do just about anything we can figure out to be in the public interest, except there are restrictions on municipalities as to the area that they can operate. For example, it may be that a borough could implement a renters rebate program but it wouldn't be able to do so within the area of cities in the borough. Because some boroughs only have (endows.) powers outside of cities. Other boroughs depending on their class have powers that include cities and so forth. So there's some variations in there. Some municipalities their powers are restricted by the terms of their incorporation. That they can only exercise the powers that the people have approved upon incorporation and they have to go through a process of acquiring additional powers. Can they go through the process? Yes. There's a system there for all the munis that currently lack that authority to go through a process together. The voters would have to approve the grant of such a power if they wanted it. For that reason you see Title 29 occasionally include with specific provisions granting all municipalities regardless of class powers such as the Port Authority Act which fairly recent that was included because of questions about which municipalities might have to go through what to acquire that type of power. But, I suppose the short answer is, yes. Probably every muni that we can think of either has the power or could acquire it, although they might have to go through some procedural loops to get there. CHAIRMAN ROGERS: Judy. MS. BRADY: Well, with that question answered. I think we just -- you know -- suggest they repeal it on the same basis to make things clear. CHAIRMAN ROGERS: Is there objection to repealing renter equivalency? Hearing none, then we'd want the repealer of renter - - renter equivalency in this bill. Certainly the effective date of this act will need to be changed to January 1, 97 in commission draft. Does anyone have further issues on this draft? MS. COOK: I would point out just for the benefit of anyone who might not be aware of it that the legislation that is now going to be proposed by this commission has been proposed in exactly this form off-and-on during the past ten years. CHAIRMAN ROGERS: That's the case with several of our issues, I think. MS. COOK: Right. UNIDENTIFIED SPEAKER (Male): Yeah. Yes. CHAIRMAN ROGERS: ....O.K. that that finishes this.... MS. MCCONNELL: (Indisc.) CHAIRMAN ROGERS: Annalee. MS. MCCONNELL: Just a question about the effective date. If we make -- if the legislature does not fund the program this year, the effective date of that in a sense would be July 1. CHAIRMAN ROGERS: Municipal taxation is on a calendar year basis. MS. MCCONNELL: Brian, (indisc.) I am thinking aloud though about how we want to handle -- I just want to be sure that we've got it clear in terms of the if the legislature doesn't fund it July 1 that that's that that's O.K.. CHAIRMAN ROGERS: I think that's O.K., but.... MS. COOK: (Indisc.) portion.... MS. MCCONNELL: I meant through the whole thing. MS. COOK: It's only the renters rebate portion that would be affected I think because that's funded with state money, currently. And the level of appropriations has always been subject to the power of the legislature there. I don't think they've ever fully funded it, I may be wrong. MS. NORDALE: Well, they are funding a little bit aren't they on the on the tax exemptions? CHAIRMAN ROGERS: Yeah, there is a part -- a million -- 1.5 million on (indisc.) MS. NORDALE: But, I don't think.... MS. MCCONNELL: That's six cents on the dollar. MS. NORDALE: I don't think any -- that's going to bust anybody's budget and generally by the time they set the mill rate and fix their budgets even though the tax goes back to January 1, they know what their anticipated revenues are so I don't think it's going to make a gap in there, Annalee. CHAIRMAN ROGERS: I don't think it will be a problem either and I think the municipalities so want this repealer that if they got zero funded for half a year for the fiscal year that would be a reasonable price to pay to get this bill. MS. MCCONNELL: O.K. CHAIRMAN ROGERS: The next bill isn't in our packets due to a -- it fell through the cracks and we talked to Tam yesterday. I just want to report to the commission there is one additional bill relating to taxation. This has to do with the oil and gas properties, tax, and the draft we've requested would provide that the maximum that a municipality may levy on oil and gas property which is first placed into service after July 1, 1996 would be 10 mills. If you remember the discussion -- just a second let me finish -- the discussion of the commission was that was really the intent of the original law, but there was a an exemption made for debt service. And, our intent was to, the intent of the commission is that of the 20 mill tax no more than 10 mills can be taken by a local government and there are going to be some drafting problems with this so let me turn to Tam and have her ask the questions that from the commission and maybe we can help make this a little bit simpler from a drafting and a enforcement standpoint. MS. COOK: Yeah, I've looked at the statutes I took some time yesterday Mr. Chairman to take a look at this and there's a couple of things that occur to me. One, that the approach of which I suspected, I think that limiting 10 mills only to what you call new property, property that's just brought on line, is probably going to have no real (indisc.) effect because what really controls municipal taxing level is the formulas set out. The 225, whatever. What will happen is that if they have new property they'll be under the 10 mill cap and they just raised the tax level on the old property. The main property that we are talking about right now is probably that pipe line and they'll just push it up there until they hit the limit that exists right now so, one I question whether you've done anything.... CHAIRMAN ROGERS: Good point. MS. COOK: ....And, I think you might be better off going into the formula and changing that 225 to 220 or 200 or something like that and having it apply to all oil and gas property. Or, else take your 10 mill run it and apply it to all oil and gas property. I don't know what that will do as far as particular dollar impact on certain boroughs but, that will remain nameless, but. What I suspected just in taking a 10 mill limit and putting it and placing it as an additional restraint as to a very small oil and gas property isn't going to change anything for most boroughs. They are not going to be effected by it. They will just absorb it at the other end of their formula. So you might not see any decrease at all in amount of municipal taxes that they acquire. The other question that I have is -- is -- the very question of what to do with that bonding provision? Melissa Fouse when she finally called in and confirmed that we have a drafting request. Request did not specifically include any change to the exception for taxes imposed to pay bonds. I can give you one suggestion on that. If you're afraid to mess with that provision too much we can at least clarify to say that it applies only as an exemption to taxes imposed to payout general obligation bonds. Right now it is drafted so that it looks like it even might possibly apply to revenue bonds. I have no (indisc.) we can crack it down to that extent. CHAIRMAN ROGERS: Our concern really is -- is with that bonding exemption. That's been used to drive the effective tax rate up and so.... MS. COOK: Right. CHAIRMAN ROGERS: ....and so what we really want is a is a limit of 10 mills including bonding for new property and no increases in the mill in the effective rate for the old property. And I don't know what the best way is of saying that in a way the doesn't -- won't create problems in the bond community. But, that's what we want to do. MS. COOK: (Indisc.) Right now municipalities aren't limited in the number of mills they can pose on old properties. What limits them is are the two formulas based on the population and the total taxable property that's in their jurisdiction. And unless you go in there and tighten down those requirements, I don't think that you possibly have changed anything. And, with respect to just changing the bonding provision and saying "yes" but we're only going to let you touch 10 mills and get a bonding exemption for that first 10 mills of new property I think will have an affect of simply causing them to raise taxes on old property. CHAIRMAN ROGERS: Well, perhaps another way.... MS. COOK: (Indisc.).... CHAIRMAN ROGERS: ....perhaps another way of doing it would be to say that add a new cap that says "notwithstanding the provisions under the formula or under the bond limit that the aggregate tax rate may not exceed the greater of 10 mills for new property or the rate in effect for calendar 95 for old property." MS. COOK: So you basically freeze munis at a point in time that they might happen to have their tax --- well no what you're doing is telling them all to run out and raise their taxes quick before the bill takes effect. CHAIRMAN ROGERS: No, I said calendar 95's. Because they've already set their taxes for calendar 95. MS. COOK: What you're doing -- what you're doing is punishing those communities that happen to have a lower tax on that date. CHAIRMAN ROGERS: No, you're allowing them to go up.... MS. COOK: (Indisc.).... CHAIRMAN ROGERS: ....you're allowing them to go up to 10 mills. I said, "the cap is the greater of 10 mills, or the existing rate." And, I believe there are only two municipalities that exceed the 10 mills that being the city of Valdez and the Fairbanks --- the --the North Slope Borough. The Fairbanks North Star Borough is below 10 mills. MS. COOK: O.K., so that the cap the 10 mills then would apply to "all" oil and gas property not just "new" property. CHAIRMAN ROGERS: Correct. Judy. MS. BRADY: I was just... For the information of the commission, I received a call from the North Slope Borough and they are having a meeting with Fairbanks Borough and Valdez on the 12th and would like somebody from the commission to come and talk to them about this issue. UNIDENTIFIED SPEAKER (Female): Where are they meeting? MS. BRADY: In Anchorage. I think "talk" was probably not the operative word. MS. MCCONNELL: Brian? CHAIRMAN ROGERS: Yes, Annalee. MS. MCCONNELL: I'm not sure I'm -- I've tracked here why it is we couldn't -- we can't make the distinction with any property that comes on to the tax any oil and gas property that comes onto the tax rolls after July 1 or whatever date we pick. And, I don't know how the current statutes are written that allows debt service to be subtracted before the splits but -- but can't we just say that oil and gas property coming after July 1 that initial deduction for bond debt doesn't count? I am somehow I am not grasping what the problem is here. MS. COOK: Yeah, I'm sorry. I might not have been very articulate. The problem is that if you do any limit that you oppose on only new property unless you make somehow rather solidly what they have to do with respect to old property will only have the result of allowing them to increase the taxes on the older property in-order- to make up the differences they choose to. MS. MCCONNELL: But, I thought that tax rate had to be the same for all property. An old house and a new house cannot have different tax rate. The mill rate has to be the same for both. That's where I am confused. MS. COOK: Well, then what good does a statue do that says that also the 10 mill limit applies only to new property. You've already created two kinds ...... UNIDENTIFIED SPEAKER (Male): That's not a tax rate. That that's just the allowance in terms of the state cut of that. That's not the tax rate itself. MS. MCCONNELL: Well, maybe another way to approach it would be -- I think our general objective was to grandfather in the bond debt the bonds that were sold on the premise that state aid would come at a certain rate. The (indisc.) share would be a certain rate. So, we didn't want to throw all of those bonds that those communities currently have outstanding that was based on this old system into jeopardy. So, what we were trying to say was well let those go ahead as planned but as new things come on when communities figure out what their debt capacity is and so on. They can't assume that they get all the money for the debt service on anything they want to sell and then they give the state the left- overs. So, maybe we could draft it from a different direction. Maybe we just need to say -- to say something about --- it will be a 10 mill/10 mill split from now on. Except that any bonds could have already --- maybe there some way to do it for any bonds that have already been issued. And, I don't know how the mechanics would work on that, but...... MS. NORDALE: Mr. Chairman. CHAIRMAN ROGERS: Mary. MS. NORDALE: I think that what's happening here is were seeing a confusion between revenue requirement and tax rate. The tax rate for oil and gas properties is set at 20 mills and what we're talking about is splitting the revenue derived 50/50. But what Tam is saying is that when you're talking about a revenue requirement that is based on the existing formulas, if you require more revenue to meet the obligation of your debts and you're only able to get 10 mills of the revenue then you've got to crank up the rates on the non-exempt properties or the old properties in-order-to generate the revenue to meet your debt service requirements. So, while it wouldn't affect the rates -- I mean the rates would be uniform just the ability to collect on the new property would be limited. So, you could see an escalation of rate even though you wouldn't notice the escalation of rate on the new property because the state would be guaranteed 50 percent of the revenue. MS. BRADY: But what Annalee is saying is that we say O.K. what is -- is -- And -- but in the future the split you're not going to be able to use bonded indebtedness as a reason for hike for taking a percentage of the state's share. Go ahead finish off your bond payments based on what you're doing now on your old property. But on new property -- in-other-words it's like phasing something -- it's phasing a practice out. MS. NORDALE: Well, you're not necessarily phasing it out. You may very well have a significant escalation of rates to finance bonds it's just that it's coming out of the old bond rate. MS. MCCONNELL: No. No. MR. POURCHOT: New bonds go with new... MS. NORDALE: Up to.... MS. MCCONNELL: It will make a decision about new bonds. MS. BRADY: That's right. MS. MCCONNELL: It might well affect our decision of what they can afford to bond in the future. But it will not in any way harm their ability to pay off the existing bonds. Because what we're going to say is...You're deriving your bond payment your debt service for the bonds you've already sold. You're taking that directly from the oil property tax. You're going to continue to do that for the life of the bond. But in issuing any new bonds, you're not going to be allowed to do that so the new bonds have to come through your own local government budget process that does not give you free money for debt service. So, it should not affect -- it will affect the decisions they make in the future about what bonds to sell but it won't require them to jack-up the rates to pay-off existing debt service. CHAIRMAN ROGERS: Another way of.... MS. MCCONNELL: That already will be taken care of. CHAIRMAN ROGERS: One way to address that is -- is looking at the language in the bond exemption right now which is in AS 29.45.100 which reads, "no limitations on taxes to pay bonds. The limitations provided for under the formula don't apply to taxes levied or pledged to pay or secure payment of principal interest on bonds. Taxes to pay or secure payment of principal and interest on bonds may be levied without limitation as to rate or amount." And perhaps what we want to do is have that on bonds issued prior to January 1, 1996. MS. COOK: (Indisc.) that would be a very easy bill to draft if that's if that's all that's needed. CHAIRMAN ROGERS: I think we have two pieces there. One that having that limitation only apply to existing bonds and second to say that regardless of the tax levied by municipality the tax level no more than 10 mills can be gained from oil and gas properties first placed into service after July 1, 96. And, what that means is that a municipality that levies 8-1/2 mills as their property tax would get 8-1/2 mills on oil and gas properties. A municipality that has a 12 mill levy would get 12 mills on old oil and gas properties and 10 mills on new oil and gas properties. That was what I understood our real intent to be. MS. COOK: What date do you want to use on the drop dead date on the issuance of bonds? January 1, 1996? MS. BRADY: Yes. CHAIRMAN ROGERS: Yes. So there isn't a rush to new bonds. MS. MCCONNELL: I think because this one is pretty convoluted I think this is one where we should probably do one of those 24 hours sleep on it test and maybe run it by some other folks to think about whether we've got the implications of this the way we had hoped we did. CHAIRMAN ROGERS: What I'd like to do is... I agree with that. Let's get it drafted, circulate it to the members of the commission and the three affected municipalities and the Department of Revenue and then we can -- if we need a further meeting on it we can have a follow up on that issue. MS. BRADY: It might also be a good idea as part of that to talk about the kinds of what this means in revenue to the state that would be shared with all those municipalities who don't have oil and gas -- the pipeline running through their backyard. MS. FOUSE: Or those that do and don't tax it. CHAIRMAN ROGERS: O.K., I believe that completes the revenue measures. Lets take a ten minute break and then before we deal with the permanent fund issues, I'd like us to talk briefly about the whether we want to do anything on the spending side in terms of endorsing legislation that's already in or pulling together some bills. So we'll take a break for ten minutes. CHAIRMAN ROGERS: Are we ready -- are we ready to start up again now? Juneau, are you ready to start up? MS. COOK: (Indisc.) CHAIRMAN ROGERS: Juneau, are you ready to start up? MS. COOK: (Indisc.) CHAIRMAN ROGERS: Hello Juneau. We're ready to start as soon as you are. O.K.? Can you hear us? BRAD PIERCE: Yeah, we're here. CHAIRMAN ROGERS: O.K., on the spending side we had a series of recommendations and the question is whether we want to do anything with legislation on those recommendations. The first one on the salaries dealt with salaries and benefits, the adoption of a retirement incentive program and a tier three retirement system. There is legislation already in to that effect. That was also the case on some of our revenue measures. We have not drafted bills on any of our other issues. The question is whether we should. And, I'd be interested in the views of the members of the commission on these issues. Judy. MS. BRADY: On the RIP program. If there's already bill in. There's been a lot of discussion on RIP programs over the years and we've tried a couple and sometimes it ends up saving you money and sometimes it ends up costing you money. Historically, the city and state did a big study a couple of years ago. Because that was you know.... And what normally happens is it saves you money depending on how you put it together but then they back filled all the positions again so it ends up not saving money. So, you know we've made that recommendation and I hope the legislature takes a look at it but I don't know enough myself actually to have any idea what a bill would say. How you'd do it. CHAIRMAN ROGERS: I know legislative auditing went through and audited the last retirement incentive program and found that it saved money in some areas and it didn't save money in others. SENATOR RIEGER: Yeah, that's true. If I may add... My understanding is that the auditor was instructed to only look at the short term saving in benefits and I think a longer term life cycle analysis of a position that has been subjected to the RIP program. It's almost impossible to have savings unless it's coupled with a tier three that which is lower in cost. The Senate's position was to only allow a RIP if it was linked to a tier three. CHAIRMAN ROGERS: And I believe our the commissions was adopt both of them and ideally that would be in a single bill because that's the way you guarantee you get them both. SENATOR RIEGER: But you know we did pass a tier three with RIP and it's kind of bogged down in the House. The -- so it the committee wants to recommend another tier three. I don't think. I wouldn't object. I think it would be great. As you know we kind of compromised with the administration and allowed a modified defined benefit plan, but there's a number of us who would still much prefer a defined contribution plan. CHAIRMAN ROGERS: Are there any pieces any other pieces of programmatic legislation people would like to see laid out? Judy. MS. BRADY: Well, let's follow this suit for a minute. On those recommendations if there's already legislation there on those recommendations that we agreed on and made, as part of our package can we recommend that the bill, legislation doing those two things be passed? CHAIRMAN ROGERS: I think our report already does that. But we're not --- I am a little concerned we're being very specific on all of our tax bills but we don't have a comparable series of programmatic bills. MR. O'CONNER: But, I think there is a reason we did because the 15 of us couldn't agree and the 60 of them are going to have to figure it out. Isn't that where we ended up? MS. BRADY: Well, we agreed on outcome we just we don't have time to work through the bills is one of the problems. MR. O'CONNER: Well, we agreed on outcome from a dollar standpoint. We didn't agree on an outcome from where the money comes from. I mean if we had two decisions we stopped. Right? MS. MCCONNELL: Brian, I think.... CHAIRMAN ROGERS: Annalee. MS. MCCONNELL: Brian, I think there is -- there is one distinction between the revenue and the expenditure side that does make it defensible but we have more detail on the revenue then the other which is that, taxes and revenues of that sort all require a statute whereas many -- many expenditure reductions do not require statute. They're actions that can be taken administratively through the regular budget process. Now granted there are some that would require changes, changes to entitlement programs for instance but it is not quite parallel in the sense that you know all of these other sorts of revenues can only be done through legislation. MR. LOESCHER: Mr. Chairman? CHAIRMAN ROGERS: Yes, Bob. MR. LOESCHER: Yes, I was wondering if we're going to have a general resolution that advances the plan and thereby by having the general resolution we set the goals and objectives and the reporting and all that as we have laid out in our plan as the approach that we're going to use. Is that idea gone by the way, or how is this plan going to be introduced in the legislature? CHAIRMAN ROGERS: There's been some discussion on how to do such a resolution and I'm not sure anyone is quite figured out what the resolution ought to say. MS. MCCONNELL: Maybe what we could do today would be to outline how we think that might look and then take an assignment of drafting it for all of us to review. But if we could at least agree on a general approach I think that would be helpful. I agree with Bob, I would really like to see something like that -- that we could submit. CHAIRMAN ROGERS: O.K. I'll schedule. MS. MCCONNELL: In fact, I think.... CHAIRMAN ROGERS: Go ahead. MS. MCCONNELL: Pat had hoped to try to take a cut at a draft for discussion and he just did not get a chance to do that before today for which he apologized and then left the room. I have to deliver the message. CHAIRMAN ROGERS: Why don't we come back to that issue then after we discuss the permanent fund issues and see if we can get an outline of the major features we want in such a resolution. O.K., with that let's move on then. We've got from the permanent fund, we've got Byron Mallott here. We've got Michael O'Leary from Callan Associates, advisors to the permanent fund. We have Permanent Fund Trustee, Clark Gruening. And I'd like to ask all of you to come forward and join us at the table, and Jim Baldwin from the Department of Law. Jim, I know this is an issue you've been following for the administration as well if you'd like to join us at the table for the discussion and we can walk through the issues that had been raised. Let me see if I can get the -- get us out where you can see everybody here. Our draft legislation has a constitutional amendment with actually two really -- two sections of the constitution rolled into a single bill at this point. The deal with the 4 percent and the increased deposit and I think perhaps if we can begin with the issue of the issues that have been raised by the Permanent Fund Corporation Board of Trustees and Byron, I'll turn it over to you. I'd ask that each person identify yourself so that the people transcribing this will be able to figure out which voice is which. MR. MALLOTT: Mr. Chairman I'm Byron Mallott, the Executive Director of the Fund. First, a quick disclaimer. We aren't here with anything that we're doing making recommendations as consistently has been our relationship with Long Range Financial Planning Commission as to hopefully offer views and analysis and data that allows you to make the kind of judgements or helps you make the kind of judgements that you have made with the Permanent Fund hopefully being of assistance in that process. Subsequent to your last meetings and Mr. O'Leary has joined us at my immediate left. You know him as a disembodied voice of a long weekend meeting during the course of the summer that we chatted with him. But basically two issues. One is, I think it came particularly from Annalee but I think it was generalized through the Long-Range Financial Planning Commission, is does the 4 percent work? Does it really work? We had a brief discussion with Michael which he indicated in the course of that single phone conversation that is made sense, and we subsequently went back and said lets look at that in more detail and he has done that we provided the information to you. I'd also like to make clear that I'm certain and I know it is inadvertent on Brad's part. In his --- in recent memo analysis of competing fiscal plans it's suggested in there that the 4 percent was recommended by the permanent fund. That we were reacting to a payout rule that the -- that you I think Mr. Chairman had proposed and I just want to make that clarification. But we have done that analysis Mr. O'Leary is prepared to summarize it briefly and to be responsive to questions from you. And, secondly because a constitutional change is obviously a very major public policy act, the whole question of whether changes to the Permanent Fund language in the constitution might be absolutely necessary was raised by several members of our board particularly Trustee Gruening who was in the legislature at the time that all of this evolved and was raised such that we asked both the A.G.'s office. Jim Baldwin had been asked to comment on the draft constitutional language he -- he as a courtesy asked the APFC to comment as he conducted his review subsequent to conversations with Trustee Gruening I asked our external legal counsel, Ron Lorensen and Juneau's former Deputy A.G. to just give us the benefit of his thinking on that subject and we've given you a copy of that memorandum too and I want to make it clear that none of that is by way of recommendation it's by way of offering other views. With that Mr. Chairman unless there are questions based upon these brief comments, I'd like to ask that Michael if he could summarize the material that he prepared and what we call the endowment primer. CHAIRMAN ROGERS: Please. MR. O'LEARY: Thank you. It's a... I am delighted to be here and I hope that the work that we did is of some use to you and your deliberations. MR. MALLOTT: Mr. Chairman I would just mention that this is Michael O'Leary. He's with Callan and -- and -- and Associates, the firm that is the investment policy consultant to the Alaska Permanent Fund Corporation. MR. O'LEARY: In the study that -- that the first part of the study that we conducted, we went back to 1926 and we looked at three different policies investment policies. A very conservative investment policy - 30 percent bonds/70 percent -- 30 percent stocks / 70 percent bonds. A middle of the road policy of 50/50 stocks to bonds. And a very heavy equity policy - 70/30 - 70 percent in equities - 30 percent in bonds. And, we looked at two different distribution policies. One distribution policy was to distribute half of the -- of the total return experienced over the preceding five years. And the other distribution policy was to distribute 4 percent of the average five year market value. And, we contrasted each of those. And basically what we found was that there was a great deal of similarity between the 50 percent of the average five year earnings and the 4 percent of average five year market value. And that is detailed in the study that you have. The most remarkable difference to me was that the 4 percent of average five year average market value distribution policy resulted in a much more consistent and stable flow of distributions that the 50 percent of earnings. So that was looking back and both with at a 50/50 asset mix both distribution policies resulted in preservation of the purchasing power of the fund corpus. If you couple a very conservative investment policy - the 30 percent stock/70 percent bonds- with the 4 percent distribution the results were more period specific. So, from a long term investment perspective, were the fund to distribute 4 percent of its average market value and attempt to preserve purchasing power it would be very important to have an investment policy that was consistent with that. Such as a 50/50. Obviously the current statutory limitations preclude the more aggressive investment policy of 70 percent stocks that was modelled. That was stage one. Stage two which you haven't received and was just distributed to the Permanent Fund Trustees at their meeting yesterday was a simulation, prospectively. Now what we did here is we took the spreadsheet which I believe you all prepared and augmented that with some data on historic earnings and market values which we got from Jim Kelly at the permanent fund. And we rather than in your spreadsheet you have a single number for endowment earnings. What we did was to simulate a range of possible earnings to try to take into account the risk inherent in financial markets. And so rather than a single number we have a whole range of numbers. We ran 200 simulations and we looked at three different investment policies again: A conservative policy, the Permanent Fund's actual current investment policy and a very heavy equity investment policy. What we found was that the median expected return actually exceeded the spreadsheet forecast that you all have used. But that there that is one possibility out of this range of great range. We extended the spreadsheet and looked at what might be the range in fiscal gap holding everything else constant that was in your spreadsheet and what might the consequences be on the constitutional budget reserve late in the forecast period. And, I will leave a copy of that study with you and will have additional ones sent to the permanent fund to forward to you. The bottom line of it was that there were no significant differences from the work that you had done but I think that this added step of looking at the range of possibilities gives you some new information. I'd be happy to address any questions that you might have before I part with my last remaining copies. CHAIRMAN ROGERS: (Indisc.) Steve. SENATOR RIEGER: Yeah, a couple. First well you made the statement that at the conservative mix the results were very period specific. Are you saying that in fact you weren't able to preserve capital at a 4 percent payout rule? MR. O'LEARY: With a conservative investment mix the periods that we looked at were from 1926 forward then we looked at 40 years ended 12-31-94, 30 years ended 12-31-94, 20 years ended then and the 10 years ended then. And, there were clearly five and ten year periods where one could say if you just focused on that period, yeah, you haven't preserved purchasing power. CHAIRMAN ROGERS: But over longer terms? MR. O'LEARY: Over the longest terms absolutely it had been preserved. MS. BRADY: Is that with a 70/30 mix? MR. O'LEARY: That's with a 50/50, the 70 percent stock mix and also with the 30 percent stock mix but there it gets to be very narrow. There -- there it depends on the periods. MS. BRADY: I was trying to follow up on.... MR. O'LEARY: So the more conservative the investment policy, the more conservative the investment policy the greater the probability that you don't preserve purchasing power when you distribute 4 percent of market value. MS. BRADY: What kind of inflation figures were you using? MR. O'LEARY: The actual inflation the actual infl.. historic inflation. MS. BRADY: Oh you went back? MR.O'LEARY: When we went back. MS. BRADY: O.K. CHAIRMAN ROGERS: Steve. SENATOR RIEGER: If -- did you or have you -- do you work with funds where there is a constituency which has a call (indisc.) on the payout, but also a call on the investment policy of the fund itself? MR. O'LEARY: Yes. SENATOR RIEGER: In those kind of cases, have you found pressures for financially inferior investments that would affect the viability of a fixed payout rule? MR. O'LEARY: Yes, let me give you the one specific case that I that I personally have been involved with so can therefore give you some accurate information on. One of our clients is the New Mexico, the state of New Mexico State Investment Advisory Counsel. In New Mexico there are two funds - a permanent fund and a tax severance fund. The distribution policy is that income is spent from the tax severance fund it goes to support state operations and from the permanent fund it goes to support education. And, in the short run, investment policy through altering your investment policy you can affect realized returns. TAPE 2, SIDE B MR. O'LEARY: ...additional budget amendment constitutional amendment to the state to shift toward a market value distribution type of approach. Because there was understandable concern that -- that might in the short run actually reduce distributions. There was a transition rule which called for distributions to be at a minimum 102 percent of the prior years distributions. O.K. And as a result of that, I think the gain from the sort of shift to the market value approach was not apparent for sometime into the forecast period because of the current level of policy. Now, staff at the --the state of New Mexico felt that there was or proponents of the change let me characterize associate it with a step. Proponents of the change, felt that the current status quo resulted in over emphasis on fixed income securities and indeed when interest rates were low encouragement to move out to longer term fixed income securities to try to preserve the level of income. So that is an illustration of the -- the conflict if you would of pertaining to control over both investment policy and the distribution formula. CHAIRMAN ROGERS: Steve, do you want to follow-up? SENATOR RIEGER: Well, just I'm thinking a little bit differently because when I say a constancy for the investments of the funds per se I am thinking of for example pressure for a fund to invest in a politically popular infrastructure project for example that would have if you had a fixed payout rule very little or no near term affect on the payout. Because you'll payout 4 percent of your corpus as long as you carry that investment at book value. And you'll have your current income will be almost immaterial to how much you payout except to the extend that it gets reinvested. MR. O'LEARY: I -- I sorry I misconstrued your question I don't have experience with people in that in that circumstance. CHAIRMAN ROGERS: Mary. MS. NORDALE: In the New Mexico experience was the distribution that was made from either fund or, perhaps I should say, did the distributions include the what would be termed capital gain? MR. O'LEARY: Realized return? Yes. MS. NORDALE: Oh, so it was everything. MR. O'LEARY: Yes. MS. NORDALE: Both income ordinary as well as capital. MR. O'LEARY: Yes. CHAIRMAN ROGERS: Annalee, did you have a question? MS. MCCONNELL: Yeah, I'm sorry if I because I was distracted here by a couple of conversations if you've already answered this question. Among the funds that are doing this sort of thing now or have been and have been for some time which is the more commonly used approach, the fixed payout rate or half of earnings or some other percentage of earnings? And do they generally use the five year average? MR. O'LEARY: Let me qualify my answer. There is it is very common among educational endowment funds for the distribution policy to be a function of the market value of assets as opposed to earnings. In the study that we prepared we referenced a survey which found and let me get the numbers right in front of me this is a 1992 survey of educational endowments conducted by (indisc.), which is an association of endowments. They found that 17 percent of the endowments spent current income. Forty-eight percent spent a percent of moving average market value, 5.7 percent spent a percent of the prior years spending, 13.8 percent determined a spending rate each year, and 14.7 had some other spending rule. So, with that one under score is in typically university endowments and foundations. In the public sector I think that it is much more common to have distribution policies that are similar to what you have had with the Permanent Fund which is a percent of realized return. And I think that there is a natural there's a historical basis for that because initially and even today the preponderance of those funds are invested in fixed income securities and so earnings are thought of as income. CHAIRMAN ROGERS: Of the -- and I guess you have to use the (indisc.) study probably, but in terms of those that have a percent of moving average market value what's the range of percents that's that is out there? Are there are more of them above 4 percent or below 4 percent? MR. O'LEARY: I think in the foundation area you get up to 5 percent and there's some tax reasons for that. In the endowment area Yale who has a very, very aggressive investment policy just moved to 4-3/4 percent of and it is more typical to see five year averaging than something that is shorter than that. CHAIRMAN ROGERS: The -- one of the competing proposals had a the Cremo plan was recommending a 6 percent annual withdrawal. Under the simulations you've done would that be sustainable? MR. O'LEARY: Well, not with the current policy would be my judgement. Current investment policy. Let me and indeed Yale who has 80 percent of their assets invested in equity-like investments felt that the highest that they could go was 4-3/4 percent and still have an acceptable probability of maintaining the purchasing power of the corpus of the fund. I -- I think that's more representative of the typical thinking. In our work with the permanent fund's current policy which is essentially a 50/50 type of policy, the expected return using our projections is about 8.8 percent, 8.79 percent to be specific. And so if 6 percent were distributed you'd be looking at an inflation of less than 6 percent of what five year market value is actually a lower effective rate but it would be very close to a and probably on balance would result in some diminishing of purchasing power. CHAIRMAN ROGERS: Are there questions for Mr. O'Leary? Judy. MS. BRADY: You run balance sheets that show and talked about different funds that you are familiar with that do things different ways it sounds like when you ran through the percentages of funds that do things various ways it's kind of spread out over the map. And obviously when we talk about doing anything with the permanent fund either leaving at it is or changing any way people worry about things. They worry about people investment if we do this then that will encourage investment. It looks for a higher rate of return that would be it would be good you know we worry about things. One of the things this is not a number question this is more of a policy question, what are the things that when you look at a permanent fund and you look at changing the way it operates like were talking about like doing a payout rule that's different, what are the kinds of policy issues that you think a state should be looking at or a board that are the ones that would make a difference? MR. O'LEARY: I believe very strongly that the biggest risk to oversight of any pool of money is what I'll call policy risk. And that is the risk that you don't persevere with whatever your policy is. We've all seen the (indisc.) types of studies that demonstrate very clearly that a very heavy equity orientation over the long run is the most productive. However, there the long run is a series of short runs and there clearly are five and ten year periods where what is happening appears to be at odds with that long run record, and it's very difficult to sustain the policy through those interim periods. So, for example, if one had a policy that had a very heavy equity orientation and the market in 1973-74 the stock market declined almost 50 percent in that two year span and so whatever your distribution is people can see flowing through that sort of market decline having an impact on distributions and so at that point there could well be tremendous pressure to alter the policy at exactly the wrong time. And so I think that that the job of trustees is very difficult they want to do what's going to maximize return in the long run but they have to survive to the long run. MS. BRADY: What other state would just blame it on Jim Kelly? MR. O'LEARY: And -- and -- and -- and that would be well done. MR. MALLOT: That's what I like to hear. UNIDENTIFIED SPEAKER (Female): That's true. CHAIRMAN ROGERS: Steve. SENATOR RIEGER: Question, on excluding the idea of a payout based on principal value but a payout based on earnings and let's assume that inflation is adequately provided for inflation proofing of some sort, is five years an adequate period of time to average performance so that you can probably have a pretty stable cash flow? MR. O'LEARY: I think it generally is, however there have been five and ten year periods where the financial markets have not produced returns in excess of inflation. And you all have experience with that you've had to sort of go into the bank for inflation proofing and over the history of the permanent fund and that has been a period of extraordinary financial market returns, as well. So.... MR ROGERS: (indisc.) O.K. go ahead. MR RIEGER: If there were a five year payout rule and if the -- and still with the present scenario of inflation proofing and so on, is it better to have an aggressive portfolio or a moderate portfolio? Which would you recommend? MR. O'LEARY: Could you define moderate? SENATOR RIEGER: The two you've outlined here. You know with the 70/30 versus 50/50. MR. O'LEARY: I think a moderate. Because there each year when we help the board in its deliberations with regard to asset allocation, we one of the exhibits we prepare is what is the probability that your return will exceed some threshold rate of return over three years, five years, seven years. And, we encourage the board members to look for the opportunity side toward the longer ones and for the risk side toward the shorter one shorter periods. And it's a balancing act but clearly the -- I think you have to be cognizant of what could happen in five years. SENATOR RIEGER: One last question. What--what would it--I mean I look at the higher return on the on their more aggressive portfolio. What would it take in terms of buffers and smoothing to make that the choice that you'd feel comfortable that it was the preferred choice for as an investment (indisc.)? MR. O'LEARY: I--I--I think to have a heavier equity orientation the distribution policy really ought to be linked to the average market value as opposed to the average earning. UNIDENTIFIED SPEAKER (Male): Confirmed trustee's tenure in the constitution. SENATOR RIEGER: That's (indisc.) MR. O'LEARY: Is that responsive to your... SENATOR RIEGER: Yup. MR. O'LEARY: (Indisc.) what I wanted to hear SENATOR RIEGER: Well, it wasn't what I wanted to know, but in the absence of that you don't think that any amount of buffer is in longer periods of averaging could get you there? MR. O'LEARY: Those would be alternatives but I don't think that they do as much of a -- as much of a job. CHAIRMAN ROGERS: Mary. MS. NORDALE: I want to get you to go back a little bit. In comparing the scenarios of simulations that you developed using your the current model, if I understood you to say, if I understood you correctly, I understood that a distribution based on market value as proposed 4 percent rolling at five year yielded approximately the same amount of funds for the general fund as a 50 percent distribution of earnings, is that correct? Or, was I mis... MR. O'LEARY: That's correct. That given the current policy given a 50/50 policy there is very close between 4 percent of market value and 50 percent of total return. Not realized return. UNIDENTIFIED SPEAKER (Male): Over what period of time? MR. O'LEARY: The long term. MS. NORDALE: Total return? MR. O'LEARY: Total return. MS. NORDALE: So that left 50 percent in the fund for appreciations. Right? Or it met the inflation proofing cost. MR. O'LEARY: Yes. CHAIRMAN ROGERS: Would--would that say therefore that the long term average rate of return is 8 percent? Was 8 percent? MR. O'LEARY: It--historically had exceeded the real rate of return (indisc.) with something on the order of 4.6 percent for a 50/50 policy. And, if I could apologize to the folks in Juneau who will have difficulty seeing this, this is a graph of a spending comparison for the 70/30 policy going back to 1926. And the dashed line is 4 percent of market value. The solid line is 50 percent of five year total return and the explanation for my position was this span where the general trend in distributions for a prolonged period was down and obviously was volatile. And that's the period where of greatest discomfort -- and that was the motive that-- that's the rationalization for my position of the 4 percent being a more palatable with the heavier equity orientation. CHAIRMAN ROGERS: Mary. MS. NORDALE: Bob, you--New Mexico is your client? MR. O'LEARY: Yes ma'am. MS. NORDALE: It's my understanding that New Mexico had some problems -- political problems in basically selling to the general public that constitutional amendment which would accomplish the changes that were desirable for their (indisc.). Can you tell us, one, did they overcome those problems, and if so, how? MR. O'LEARY: The proposal was defeated so they obviously didn't overcome. It is my understanding that they have not given up on it that they are going back to try again. And, I think that the issue was a very complex issue there because there were a number of other things that were going on at the same time. They were considering broadening the investment parameters. So, I think what happened was that support some support was lost because proponents some proponents felt that the 102 percent was putting the fund at risk even though they supported the notion of a market value linked spending approach. The specific percentage that they had I think was 4.75 percent if I recall correctly. Some people who supported the notion of going to that type of distribution felt that that number was too high. Others were uncomfortable with the loss of flexibility putting the distributions in effect into the constitution. So those -- those to me as an outsider were the issues that were on the table. Part of the amendment was would have given the state investment board the flexibility to invest in a broader range of stocks than they currently have to include international stocks and some people may have supported the general notion but objected to that so there were maybe too many elements involved. MS. NORDALE: Thank you. CHAIRMAN ROGERS: That issue answers in part for me one of the questions that's been raised about our draft which is whether we go from a range of investments specified by law to the prudent institutional investor rule in the constitutional amendment. While I favor moving to the prudent institutional investor rule, I don't know that we should combine it with our approach right now in- order-to lessen the concerns that might occur from leaving the -- taking the legislature out of the list of approved investments. I think the right thing to do in the long run would be for the legislature to repeal its laundry list and go with prudent institutional investor and, rather than making the constitutional change because that that might result in some loss of support for the constitutional amendment for the endowment fund. Jim, you raised the issue in your discussion I think the trustees are right, prudent institutional investors the right rule, I'm just not sure this is the time to do that. MR. MALLOT: Does that segue us Mr. Chairman into.... CHAIRMAN ROGERS: That's what I was trying to do, yes. MR. MALLOT: Just very briefly and Clark is here as well as Jim Baldwin. Jim is also the Assistant Attorney General working with the permanent fund. I guess again I want to make clear that a suggestion that the prudent investor rule might be included in the constitution or even addressed by the legislature, is not a position of the trustees. We currently are rested with that motion. There is to some degree comfort in having an investment list and so we aren't advocating anything like that. We also are not in our comments addressing whether or not payout rule ought to be locked into the constitution as a matter of public policy. We are not addressing whether the change from 25 percent to 50 percent should be changed by way of an amendment to the constitution. In our internal analysis certainly on a personal basis trustees and others may have strong feelings about the issues, but looking at the permanent fund and the notion of the permanent fund being an endowment with a payout rule we have done legal analysis that suggests to do that a constitutional amendment may not be necessary. And that's -- and that's the essence of it -- it is not anything that the trustees have signed off on it's purely analysis that has been done. We wanted to call that to your attention, particularly Trustee Gruening as discussed that issue with the trustees and internally to the degree that you might want to discuss our review of this issue we're here to do that with you. CHAIRMAN ROGERS: We're distributing an opinion by Ron Lorensen of Simpson, Tillingast, Sorenson and Lorensen on the issue of whether there is a need for a constitutional amendment to implement the endowment concept. Just I guess one note I'll turn it over to Clark in just a second. I--one concern I have would not having a constitutional amendment is that the payout if the payout rate is not set by constitution the legislature can play with that and that's part of the limitation on spending that I think is a key part of the plan. There -- without a constitutional amendment that says the most you can draw is 4 percent, the legislature could decide well, "Yale is at 4.75 percent lets go to 4.75 this year and or lets try five lets", and I see a greater risk to the long-term viability of the fund if the payout rate is subject to legislative action from year-to-year. Although, certainly the process is easier if we don't require a constitutional amendment. Clark. MR. GRUENING: Byron, I -- as a former Legislator is -- your former Legislator I think we're underestimating the creativity of legislatures to work the appropriation process to achieve whatever the goals are and that the only real restraint in the end is the public constituency for one policy or another. The constitutional budget reserve is an example of -- of the kind of problems we get into if we try to nail things down in terms of the appropriation process. Where I'm coming from and this is really personal because we have not as a board of trustees come to any conclusion on this but I recall the discussions that surrounded the original constitutional amendment and the purpose of that drafting there was to create maximum flexibility for the legislature to deal with earnings. For that reason I -- I raise the issue of whether a constitutional amendment was necessary and -- and the executive director also asked Ron Lorensen to follow that up. My -- my opinion for what it was worth with another attorney's opinion and so I would suggest at this point and I've discussed it with Annalee she has the copy of my memo is to at least examine the approach -- kind of -- at least look at a statutory scheme. I think you may have less problems with the amendment or what you want to say if you -- you look at what the statute the implementing statute may have to provide. I have spent some time going through the various drafts and this latest draft still leaves a great deal of confusion. It -- that would have to be judicially sorted out. Just for an example, and I haven't seen this in any draft that Mr. Baldwin has -- has created, but it talks about the amount of appropriations from the permanent fund that takes effect. Now, I don't know what takes effect modifies is that the amount of the appropriation, there's a grammatical problem there but beyond that is that referred to effective date? If that refers to effective date you haven't cured the problem of the legislature deciding well we can have more than the 4 percent payout we'll just make it effective in a different fiscal year. So, whether you have calendar year or fiscal year there is a lot of gains that can be played with effective dates. So, I don't know what "takes effect" means. If it means effective date that mean or doesn't mean effective date, does it mean that unobligated appropriations haven't taken effect? Does it mean that impounded appropriations haven't taken effect? And I raise that in that my -- my memo but I think you could struggle with this for a long time and never really know for sure until you had judicial interpretations particularly on this. We haven't had any for the permanent fund for the last 19 years and it's worked pretty well. So, I guess it's a personal caution -- cautionary note to maybe work more with the drafts to deal with the endowment concept because I -- my basic feeling is that you have an endowment amount and the legislature has chosen to use that to set up a dividend program and inflation proof the fund through or and re-inject earnings back into the fund or other appropriations. They have been very protective of the fund and I think that reflects the public view and I think ultimately that is the ultimate protection. CHAIRMAN ROGERS: Judy. MS. BRADY: The -- what we've found around this table and I'm sure you found in the legislature and (indisc.--too soft)... CHAIRMAN ROGERS: Speak up. MS. BRADY: ...public policy work that you have done is that we always invoke what the public wants. If the legislature is doing what we think what we think it should be doing we say "well, it reflects what the public wants." This is the first time and this is the first time that we've talked about a number of things going together in a plan at the same time and using the fund as an endowment rather than syphoning off money and continuing to build the gap with one time monies which the legislature has been doing. And, I think -- I think what -- I think what this commission has been saying and what individual groups in the public have been saying it that they believe the legislature is to some degree out of step with what the concerns of the public are right now about the fiscal gap itself. And the questions to the public is do they want to use the fund -- the earnings from the fund in -- in a way to help close that gap and it is a question to the public. And I think the only way we're going to know the answer about what the public really thinks is to put that question to the public. And I -- but I -- but I share your concern about the language. If it was not clear enough and we get ourselves in another -- another question of what are we really talking about like we often do in constitutional amendments, or make amendments that actually don't don't do what we intended then we've wasted our time and we're back to zero. MR. GRUENING: Mr. Chairman, that's -- that's a good point and I -- I personally think that I've heard the governor say this that he wants a vote on any change to the permanent fund and I guess the issue here is whether you can have a bill, advisory vote on a bill or a contingent effective date on the on the bill. And, I've talked a little bit with other attorney's about it and I -- I think you can probably get a a vote of the people whether you do an amendment or not. I mean in other words I don't think the need for a vote commands that you do a ...... MS. BRADY: What's the difference between if you can't -- what's the difference between getting clear language for a constitutional amendment and getting clear language for a bill? MR. GRUENING: The difference is that you have at least a two year turnaround and a two-thirds vote in the legislature to correct any problem - witness the constitutional budget reserve that may never be corrected. Your -- you can be locked in because it becomes....and -- and you heard Michael Leary describe the problem that New Mexico was having. The (indisc.) in Alaska anyway is a minimum of two years, and it could be very much longer where a bill through a special session or otherwise can be very quick. MS. BRADY: O.K. and my last question I guess is how difficult -- I obviously don't understand the difficulty of saying we're going to do 4 percent where going -- I mean -- you know four sentences that say this is what we're going to do. We're going to take 4 percent and -- and or whatever it is you're going to take and it goes into the general fund every year. MS. BALDWIN: Mr. Chairman, if I could make a few comments. CHAIRMAN ROGERS: Yes, please Jim. MR. BALDWIN: Part -- part of the problem that we have with the constitutional budget reserve all the litigation that it (indisc.) was that the drafters there tried to legislate rather than write a constitutional provision which should be a ... MS. BRADY: Jim. I agree with that CHAIRMAN ROGERS: ...broad statement of concept. With in the best of all possible worlds, the legislature implementing it ... MS. BRADY: Yes. CHAIRMAN ROGERS: ... like Clark says and then being able to change it on an annual basis if needed to meet the needs and part of what I see here and this amendment and it should be not considered as a criticism of the draftsman but it seems to me the last part that talks about the 4 percent is attempting to legislate because it's getting down to the calendar year versus fiscal year and it's not stating broad concepts it's trying to get down to the very minute concepts that are going to cause problems. It's going to trip us up I think along the way. MR ROGERS: Jim, I -- I in looking at that last sentence, is there a way to get across our intent of the no more than 4 percent annual withdrawal, 4 percent of the average market value preceding five years, is there a way to say it more simply than what is said there, but to keep that 4 percent cap that was intended by the commission? We -- Tam -- Tam asked some questions earlier version had fiscal year we realized that gee in May when the legislature adjourns you don't know what it is for that fiscal year so you have an uncertain amount so in the discussions between the commission completing work and now we switched to calendar year because we realized that in May you do know what that amount is. Is there a way that we can let the legislature implement this and say it with fewer words because -- because I'm of the school of fewest number of words in the constitution the best? MR. BALDWIN: Yeah -- I -- I know that with a lot of our discussions that we've had, you know at the staff level, there's always been a lot of question about what this calendar year business means and how's it to be implemented and I think it would be better if you just took all reference of it out and just put the 4 percent concept in and then had a provision in that said that the legislature shall implement this by law. CHAIRMAN ROGERS: So, how would you -- how would you say that? I mean (indisc).... MR. BALDWIN: I'd say, "the total amount of appropriations from the permanent fund may not exceed an amount equal to 4 percent of the average mark -- of the average annual market value of the permanent fund during the immediately preceding five years" and leave those other complicating factors out and then add another sentence that said, "the legislature shall implement this by law." And that would just -- I mean I have more trust and than Trustee Gruening has for what the legislature would do simply because you know... MR. GRUENING: Wait a minute, I think I trust them to do they have done well with the fund so far. MR. BALDWIN: Yeah, I think there are certain concepts that have to be left for legislating. CHAIRMAN ROGERS: Do you share the opinion of Ron Lorensen that we could deal with both the change from 25 to 50 percent and the 4 percent annual withdrawal by law rather then by constitutional amendment? MR. BALDWIN: In general I do. I think there are other concepts here that you wouldn't that you'd have to forgo that you apparently adopted. I think you lock in the 50 percent if you do it in the constitution. Right now you could do it by statute but they can be amended at any time. So, you lose the ability of locking it in. You would also lose the automatic inflation proofing which happens by doing it under this version since all would go to principal and then you'd take the 4 percent out. Now, inflation proofing is done by appropriation. There was a time in our history when it was not done by appropriation but that's a subject of argument, but so, that could be changed -- so you -- that's something you wouldn't achieve by doing it this way. So, I think (indisc.) on that basis -- generally I agree with them except for those minor points. MS. MCCONNELL: So, excu... Brian. CHAIRMAN ROGERS: Go ahead. MS. MCCONNELL: So, the -- the concern you have, Jim, is not something -- not about the 4 percent and the five year average stuff in terms of going forward with a constitutional amendment it's -- it's more related to the effective dates of which types of appropriations and that sort of thing? MR. BALDWIN: Yes. MS. MCCONNELL: I'm I -- I -- am very sympathetic to the concerns that Clark raised about getting ourselves into another CBR kind of situation where we recognize that there were are consequences that were not foreseen and then we have a difficulty correcting them, I think my reservation about going to a certainly statutory route is that that I don't think they'll be as Judy put it sufficient public confidence that that that there will be the protections against sucking more out of the permanent fund than what was intended when we put this -- this kind of plan in place. I like the idea of getting some sort of a hybrid where we can where we can implement - - implement it in such a way that -- that we have some flexibility for correcting unintended consequences. And, I also think that I guess the other piece would be that one lesson we did learn from the constitutional budget reserve is that not having much in the way of legislative history and intent creates some real problems down the road and so I think we can do some things to clarify that in terms of descriptions of what this endowment would do this (indisc.) the record a little better. CHAIRMAN ROGERS: Judy. MS. BRADY: I have some concerns about the -- probably because I have still a whole lot of mixed feelings about it. We all give up some of our mixed feelings about the 25 percent and being in a statute, the extra 25 percent I mean being in the constitution. And the reason that I do is that if we got into a huge problem a short-fall to take 25 percent off the table of your recurring revenue where you have no access to it where you can't re-access it. You know without a constitutional without another amendment gives me heartburn, and I know I understand the people who want to cut you know don't want more money on the table and all of that but that's one where I would (indisc.--coughing) You know there's a number of things we could do we could do two constitutional amendments but then one of the problems there might be you'd end up with 25 percent more money off the table and no endowment. So you would really be in trouble. Or, to direct legis...one thing I thought was perhaps we could direct the legislature I hate to do this in the constitution to vote on that extra 25 percent every year. I don't know. Some way of.... SENATOR RIEGER: That's what an appropriation is. CHAIRMAN ROGERS: Yeah. MS. BRADY: Yeah, but -- but CHAIRMAN ROGERS: We could certainly in lieu of amending the 25 to 50 by constitution I think be consistent with our earlier report and put in legislation that would increase from 25 to 50 that would give the legislature were that adopted the ability in an emergency to revise that legislation back down to 25. MS. BRADY: I would be more comfortable with that. CHAIRMAN ROGERS: I don't believe that the 25 to 50 while I don't believe that's necessarily required to be constitutional. I would prefer it to be in the constitution because you know I wanted to see something I mean I -- ideally we should have set (indisc.) that preserved all of this one time wealth on a long term basis and moving from 25 to 50 to me is a good way of moving in a direction of (indisc.) constitutionally, but I could certainly live with going from 25 to 50 statutorily that does preserve a little bit more flexibility in a crisis. Annalee. MS. MCCONNELL: I would feel O.K. about doing it statutorily I guess either way but the number if you look at the numbers the amount that we give up of money in that 25 percent is going directly to the general fund now is in the range of 250 million dollars each year roughly. We're picking up in a way the endowment earnings starts at $683 or thereabouts so we do already have some cushion we're just because of the way our the big deposits work early on we are in fact picking up additional security so I don't think we're as vulnerable to the kinds of things that Judy you're concerned about because we are replacing that with -- with that a higher amount of -- of total earnings. CHAIRMAN ROGERS: I'd like to raise another issue on the constitutional amendments. I would like to split what's now a single amendment into two and have the -- the permanent fund amendment go to the voters separately from the CBR amendment and sort of my feeling on that is that -- that opposition to constitutional change is additive and so if we add the opponents anyone who opposes the permanent fund to those who might oppose a change to the CBR that there's some chance of loosing them and if the if the voters are presented with both to get...both separately I think there is a greater chance of at least getting the CBR fixed which there seems to be relatively non-controversial we ought to be able to at least get that into place and -- and make that single improvement so I guess I'd like to see this as two separate resolutions rather than a single one. Is there anyone on the commission that has strong feelings about putting them together? MR. POURCHOT: No. Brian my only comment would be your logic isn't always true. Sometimes things going to the voters in big packages also pick-up support sometimes like on bond propositions. CHAIRMAN ROGERS: Good point. MS. NORDALE: I don't think that would be the case here though because of the of the special view of the permanent fund that (indisc. --too soft). CHAIRMAN ROGERS: O.K. well, I didn't hear any dissent so we'll in terms of our legislative package separate this into two. Looking at the first page, the permanent fund amendment, what's the will of the commission? We need to figure out what we want to do here. MS. NORDALE: I would like to address this after lunch. I would like to have an opportunity to read Ron -- Ron Lorensen's memorandum and I'd like to look the Callan Associates stuff before I can see you know there's some easy amendments that could be made that make me think (indisc.) but I'm not (indisc.--paper shuffling) sure of the consequences. MS. BALDWIN: Can.... CHAIRMAN ROGERS: Judy? MS. BALDWIN: Can a constitutional amendment following along what Jim said and some and some of Clark's concerns which we which we all share are real serious concerns. Can you can you write it so you're actually just directing the legislature to write the legislation that accomplishes this no more than 4 percent? I mean can you just.... MR. GRUENING: Well, if you put the 4 percent in there then they're bound by it. I mean if you look at the way the original amendment is written it's very simple. You know it... MS. BALDWIN: Yeah. MR. GRUENING: ...states the amount that's dedicated, states how it can be appropriated or used and it states it's to be in .... TAPE 3, SIDE A MS. BRADY: What would be persuasive to me would be a constitutional amendment that talked about (indisc.--paper shuffling) the endowment, that fixes the constitutional budget reserve fund and limits it, so it works, although that's going to be an interesting -- it does not lend itself to a bumper sticker. I explained this. And then maybe this third thing that we talked a little bit about, but maybe -- and maybe we can't do it 'cause we didn't -- is there any way to fix - not that I know of one in the world that works - but is there any way to fix the budget... the spending limit thing that -- so the -- so the public would see that this is not just another way of increasing spending? Is there any brilliant way - clean way - to fix that? MR. BALDWIN: Is the old spending limit the one that's ...? MS. BRADY: The one that's on the books. MR. BALDWIN: I'm sure there's a way to fix it. MS. BRADY: I mean, has anybody ever made one work, that -- that just ...? MR. BALDWIN: Well, the problem with the one on the books is that it ... MS. BRADY: Oh, I know. MR. BALDWIN: ... it has an inflation factor that has taken us into hyperspace by now, I'm sure. CHAIRMAN ROGERS: But we changed the date -- earlier, to the commission, I proposed changing the date from 1981 to 1995, but that leaves in all the other garbage that is in that section. MR. BALDWIN: Yeah, I mean, there's a -- there's a definite allocation of capital and all that sort of thing that is .... MS. BRADY: And you don't want that. But see, if the intent was clearly that in using the permanent fund as -- in beginning to use the permanent fund as an endowment, yet that you just weren't going to be increasing spending by that much, and still have to do all this other stuff, that you clearly intended for us to get our house in order. UNIDENTIFIED SPEAKER (Female): To get your house in order? MS. BRADY: But see, that would be a nice -- that would be a nice combination of changes, but I don't know if there's any way you can change it to make it work, that doesn't, you know, just tie everybody's hands together. CHAIRMAN ROGERS: It'd take some work. UNIDENTIFIED SPEAKER (Male): (Indisc.--simultaneous speakers). MS. BRADY: Has anybody ever looked at that? Has the legis... has anybody ever looked at that to see if -- I mean, you just sit around at night with nothing to do, and .... MR. BALDWIN: I think if you would look at all the proposals that have been introduced in the legislature in the last five years, you'd probably find just about every possible alternative has been proposed. MS. BRADY: Oh, O.K. O.K. MR. BALDWIN: I may .... CHAIRMAN ROGERS: Let's set aside the permanent fund constitutional amendment until after lunch and look at the budget reserve section. MR. GRUENING: Mr. Chairman? CHAIRMAN ROGERS: Oh, yes. MR. GRUENING: Could I make one more comment? MR. LOESCHER: Mr. Chairman? CHAIRMAN ROGERS: Robert, and then Clark. MR. LOESCHER: Mr. Chairman? CHAIRMAN ROGERS: Yes, go ahead. MR. LOESCHER: Yeah, Mr. Chairman, I -- you know, I -- sitting here pondering, I just received this copy of this legal opinion, and you know, we spend all summer thinking about this, and we listen to all kinds of approaches - the (indisc.) plan, the other plans - and you know, we came to -- we came to a conclusion that -- that we needed - in order to conquer the problem of declining oil revenues and find another way to generate revenues on a stable basis for the state, and then address sustainable spending after that or simultaneously, we needed - you know, some of us - and I think 10 or 11 of us were persuaded that the higher road was to take a hard look at all of the state's assets - that being our natural resources and -- which generate revenues, and then the permanent fund as a state asset - and -- and, you know, attack the problem that way. That's the higher road. Our concept was to grow the fund to -- to -- to -- to make that happen, yet provide enough money to operate state government and to generate some permanent fund dividends to -- to the people of our state. And I -- you know, I see this legal opinion as -- as all lawyers do. They want to attack the thing to get to the lowest common denominator, provide the least restrictions possible going forward into the future, create the most flexibility in -- in decision-making. But I really wonder if we're going to be able to -- to get this thing done, whether we do it by constitutional amendment or we rely on the legislature to -- to advance statutory proposals to -- to accomplish the same thing. I believe that the -- the work of the commission was -- was to -- to stimulate an approach. Certainly there are many things that can be changed within the commission's recommendations to -- to -- to accomplish much of the same thing - I realize that - but what we're doing is that we're going to lose our purpose here if -- if -- if we don't advocate for a constitutional amendment on -- on utilizing a -- a steady stream of permanent fund revenues. And I really am worried that we're going to get copped out of the higher road or -- or that which the public can understand, and then have confidence going forward into the future. Now, if it's the truly -- the -- the reaction of the permanent fund trustees and these lawyers that -- that they want to have the least restrictions possible and more flexibility, and be able to change the world 10, 15, 20 years from now, then we ought to put a sunset clause on -- on this kind of a -- kind of an idea that we have advanced from the commission. That would be a way to do it, if -- if -- if we don't want to be tied -- our hands tied long into the future through the constitutional process. But I believe that -- I -- I believe we have the chicken-or-the-egg problem here, that the commission's high objectives and golden purposes and recommendations are going to be eroded and -- and -- by -- if we don't advance a constitutional amendment, and if we rely on this -- the legislature to design a statutory approach in lieu of a constitutional amendment, it may not happen. And so that's my concern, Mr. Chairman. I hope that we would not, you know, go back on the -- on the policy concepts that -- that -- that the commission wanted to advance to the legislature, the governor and the public. CHAIRMAN ROGERS: Well, for a response from a lawyer, a trustee, and the author of the sunset law, let me turn to Clark. MR. GRUENING: Bob, maybe what you need is a sunset on attorneys. (Laughter) Actually, the opinion - and I hope Mr. Lorensen in writing the opinion didn't lead anyone to believe that either the fund or any particular trustee was taking a position against the endowment - personally, I think the commission needs to be commended for it's exploring this idea. They've put flesh on it, and I think whatever -- however they put the fine details on it, I think it's a concept that I hope the legislature deals with. But it has to deal with that whether it deals with it through a constitutional amendment or a bill. In fact, the legislature would have to be two-thirds in agreement as opposed to 51 percent in agreement if they were taking the constitutional approach. But the one point I wanted to make before -- before we leave - or I leave here - is that if you do amend the constitution, I notice this draft takes out the word - you know, the concept of - preservation of principal. If you're going to set a payout, the argument might be made in the constitutional debate is that despite what the experts - and we just heard from the expert - that this may not preserve purchasing power. There's some reason, I think, to preserve in the constitution the idea of either preservation of principal or protection of purchasing power; and the argument will be posed, if all you do is set how much can be spent out of the fund, then take away language that seems to protect it, that -- that this is going to go down in flames, if it even makes it through the legislature. MR. MALLOT: Mr. Chairman, I'm not going to be able to be back after lunch, and I don't think that it's necessary, but on that particular subject, Mr. Lorensen addresses that specifically on the last page. I also just want to emphasize, as trustee Gruening has, that we aren't here to advocate anything. I do think that it is important that in the public policy debate that, as has been mentioned - somewhat in passing, and that it needs to be emphasized - is that a very powerful section of the Alaska constitution is the Alaska permanent fund constitutional piece. And its entire existence is one of the most politically and public-policy-potent things that this state has ever done. In both its constitutional scheme and in its statutory implementation scheme, it has never been litigated, and the public policy that ha... you know, that surrounds it is probably the most supported of any single public policy scheme framed, at least since its first adoption, in the constitution of the state of Alaska. And it just seems to me that -- that -- that once again, we didn't mean to bring something new to the table, but in that con... but in that public policy context that -- that, you know, I feel as -- as a public servant just an obligation when these issues are raised to bring them to the attention of folks who have the obligation to -- to deal with them, and I just want to echo trustee Gruening's comment that -- that, you know, I've had the opportunity over the course of the summer to attend quite a number of your meetings off and on, and I think you've just given, you know, the whole notion of -- of -- of -- brought the whole notion of -- of volunteer public service to another level in -- in your work, and as a citizen of this state, I appreciate that. I'd -- I'd just like to say, finally, that Mr. O'Leary(Sp.?)'s comments were very summary in nature, and with almost all the questions that -- that you folks posed, there is a lot of detail that is further explanatory in the documents that he prepared. We did give a full set to Annalee; what we faxed to you folks may have been not the entire documents, but we'll make sure that you get everything. O.K.? CHAIRMAN ROGERS: Let me -- the issue that's raised by Ron Lorensen in the final page - the idea of limiting the payout to the 4 percent or the amount available for -- or an amount that ensures that you preserve principal, I think we pick... we purposely picked 4 percent instead of 4-3/4 percent to assure that over the long run there's minimal risk of invading principal. But -- but I think that there'd be a lot more comfort if there were a way of writing this to say 4 percent if that much is available without invading principal. I -- I'm uncertain, though, how we get there in constitutional language, as opposed to statutory language in the constitution. And -- and I don't want statutory language in the constitution, but I think that a lot of people would be much more comfortable if we were able in some fashion to limit that withdrawal to be less than 4 percent if it would have the effect. So maybe we'll -- lunch break, people can think about it; those that are good at drafting - and I'm looking particularly to Jim and Tam - might think of how we might say that. Judy? MS. BRADY: I -- I would -- I guess I would like to make a request for the permanent fund to think about it, maybe rethink about making the request formally. The permanent fund trustees are always very careful to say they don't make policy in regard to the -- how -- you know, in regar... in -- in broad areas about the fund. But as a matter of fact, when you're talking about - and when the public and the legislature are going to be talking about - the use of the fund as an endowment, there are certain questions that I would think are going to be obviously asked to the trustees or the -- or the executive director, either officially or, you know, as you're walking out the door, "tell me what you really think" kind of stuff. And it seems to me important to this whole argument - or whole discussion, not the argument - the question of whether you -- it's time to use the permanent fund as an endowment, or we're already spending too much or -- all those questions are aside from what the -- what the use as an endowment does to the fund itself -- the payout does to the fund itself. And I think the impact on the fund itself, and the different scenarios that have been run today, are the kinds of things, the kinds of roles that the permanent fund board is going to have to play, to say in public - to decide among themselves and say in public .... The permanent fund board, I think, will have to make a decision as to whether or not this use of the fund endangers the fund itself, or the percentage, the four -- however it's -- however it's -- however it's worded, whether or not the use -- that kind of use or that degree of use will hurt the purchasing power insofar as you're able to tell. MR. MALLOTT: Mr. Chairman, just a very brief response - and we'd be pleased to respond to any specific inquiry: one of the reasons that we did what we did was to begin to analyze that question, because you're absolutely right; that is going to be asked of trustees. And to the degree that additional analysis may be necessary, we will pursue it. But -- but the work thus far shows that the 4 percent payout rule, over time, will preserve purchasing power, based upon the -- the -- the asset allocation policy of the fund as we responsibly can foresee it. That analysis does indicate that there could be times when, on a current basis, purchasing power of the fund will be eroded by the payout rule. But that - over the long term - that will be made up; and the question becomes whether it is in terms of Alaska public policy important that at no time will the principal of -- of -- of the permanent fund be eroded. And -- and, you know, that is a public policy question. We could sit back and just take that longer view. We know that -- that probably there is going to be a public policy debate at that - - you know, relative to that issue, and in terms of analyzing it, we would be responsive to any queries that you might make. And I might also just make a final comment that at the trustee level, they certainly are not - and Mary's a former trustee, knows this as well, and myself as a former trustee - we tried to avoid the broader public policy debates and stick to the investment policy (indisc.), that we're all citizens of the state also, and that, you know, be... sitting there being see-no-evil, hear-no-evil, do-no- evil little monkeys from time to time becomes very, very difficult, and is probably not appropriate that because they are there and have a unique view and a unique responsibility for the fund, that their views on the public policy tenets involved ought to be expressed, and as a matter of fact ought to be sought. CHAIRMAN ROGERS: Before we break, I'd just like to call attention on the budget reserve section to the memorandum from Jim Baldwin to Deborah Behr(Sp.?). Pages 2 and 3 speak to the budget reserve fund, and there were three -- three points laid out at the bottom of page 2: first, detailed legislative history - and my assumption is that that's much better as a legislative history than our history, and that we should leave that to the legislature; second, the suggestion that we delete the definition of unrestricted revenue and leave it up to the legislature - it's my intent to propose that; and third, to add a provision allowing the legislature to appropriate money into the budget reserve fund, which was part of our -- part of our plan - we probably need to add that, and it's my intent to propose that as well, after we break. It's 20 to 1:00 by the clock here; can we get back before 1:00 -- at 1:15, or is that going to push things to much? 1:30? I've had -- a couple of people want to get out of here as early as possible, including the chair; so let's be back and I'll call the meeting back to order directly at 1:30, with the i... hope that we can be completed by 2:30. We'll recess. [RECESS -- MEETING RESUMED AT 1:35 p.m.] CHAIRMAN ROGERS: O.K., I'll call ... LEGISLATION INFIRMATION STAFF: (Indisc.) isn't on the -- I mean, Juneau isn't on the other end yet; I'm going to call (indisc.) and find out what the (indisc.) is. MS. NORDALE: What are we dealing with, is it ... CHAIRMAN ROGERS: O.K. MS. NORDALE: ... this one or ...? CHAIRMAN ROGERS: That's the one that Lee marked up. There's another one that's not marked up, that will be easier to read. O.K.? On line 8, the current version deletes the words "the principal of". MS. NORDALE: Uh-huh. CHAIRMAN ROGERS: And I want to leave those in. It also deletes the word "only", and I want to leave that in. So that sentence -- the only change in that sentence is from 25 to 50. What this does is to -- that portion of this amendment would then say, is "the principal can only be used for investment". Now, the second sentence would then read: "Income from the permanent fund shall be retained in the permanent fund [comma] except that" - and then continue - "appropriations may" - delete "only" - "be made from the income" - delete "permanent fund" - "to the general fund". And then, the next sentence: "The" - delete "total amount of" and insert "annual" - "appropriations" - delete "from the permanent fund that takes effect during a calendar year" - "may not exceed" - delete "an amount equal to" - "4 percent of the average market value of the permanent fund during the immediately preceding five" - delete "calendar" - "years". So let me read it the way it would ... MS. NORDALE: Where? CHAIRMAN ROGERS: Let me read the two sentences as they would read after amending: "Income from the permanent fund shall be retained in the permanent fund, except that appropriations may be made from the income to the general fund. The annual appropriations may not exceed 4 percent of the average market value of the permanent fund during the immediately preceding five years." And then I would add one more sentence: "The legislature shall implement this section by law." The effect of these changes .... MS. NORDALE: Well, I would strike "The" in front of "annual". CHAIRMAN ROGERS: O.K. Good. MS. NORDALE: So it'd be "Annual". CHAIRMAN ROGERS: Yes. "Annual appropriations". And -- and .... MS. NORDALE: O.K. CHAIRMAN ROGERS: So what this does is, the first sentence says the principal is inviolate. And then the second says income goes into the fund, but you can appropriate from the income up to 4 percent annually. MS. NORDALE: O.K. So that basically does what a statute could do at the present time. CHAIRMAN ROGERS: Yes. MS. NORDALE: So that we don't need a constitutional amendment to accomplish what you're suggesting be done. CHAIRMAN ROGERS: We do for one reason, and that is to limit the take to 4 percent; and -- and effectively the -- the effect of this is that by statute, you can't limit to 4 percent; the statute ... MS. NORDALE: That's correct, but ... CHAIRMAN ROGERS: ... could be changed at any time. MS. NORDALE: ... by -- under the present structure, you can't exceed income, and ... CHAIRMAN ROGERS: And under this, you can't exceed 4 percent. MS. NORDALE: Right. Of the -- of the ... CHAIRMAN ROGERS: Market value. MS. NORDALE: ... market value of the total fund. CHAIRMAN ROGERS: Right. MS. NORDALE: Right. So, you know, I -- I think that you could do this by statute as long as you built in a provision that it didn't exceed income, you know. CHAIRMAN ROGERS: The difference - and I think that this goes back to Bob's point - is that the commission voted on a constitutional amendment. MS. NORDALE: Oh, I understand what you're saying; ... CHAIRMAN ROGERS: (Indisc.). MS. NORDALE: ... all I'm saying is that ... CHAIRMAN ROGERS: That there's a ... MS. NORDALE: ... in terms of analysis, it seems to me that we ought to know what it is that we're -- we're ... CHAIRMAN ROGERS: Yes. MS. NORDALE: ... actually talking about here. CHAIRMAN ROGERS: There is a way to do this. There is a way to accomplish the deposit and payout on a temporary basis by statute, instead of on a permanent basis by constitution. MS. NORDALE: Uh-huh, uh-huh. CHAIRMAN ROGERS: But I think this language accomplishes in fewer words what we want to do, and it protects the principal. MS. BRADY: O.K., and you're envisioning leaving in the -- the 50 percent ... CHAIRMAN ROGERS: Yes. MS. BRADY: ... in the constitution? CHAIRMAN ROGERS: Since that's what the commission's plan was as of October 1st, even though, upon reflection, I could accept moving that to statute. I think we said it was by constitution, yes. MS. FOUSE: Is there any danger, Mr. Chairman, that it could be read that "which" modifies the royalty payment, rather than the principal of the permanent fund? CHAIRMAN ROGERS: Where's "which"? MS. FOUSE: "At least 55 -- 50 percent shall be placed in the permanent fund, comma, which shall be used for those income- producing investments." MS. NORDALE: No, with the comma in there, "which" modifies the ... CHAIRMAN ROGERS: "Comma, the principal of which ...." CHAIRMAN ROGERS: We're leaving "the principal of" in now. MS. FOUSE: Oh, you're leaving it in. CHAIRMAN ROGERS: Yes. So it would say: "At least 50 percent shall be placed in a permanent fund, the principal of which shall be used only for those income-producing investments. MS. FOUSE: O.K. MS. NORDALE: So the only change in existing law would be from 25 to 50. CHAIRMAN ROGERS: Yes. MR. BALDWIN: It also -- they would also affect inflation-proofing. It would institutionalize inflation-proofing. CHAIRMAN ROGERS: Yes. MS. NORDALE: Uh-huh. MS. BRADY: Yeah. CHAIRMAN ROGERS: Which is now statutory ... MS. BRADY: Yeah. CHAIRMAN ROGERS: ... because of the 4 percent limit. MS. NORDALE: Uh-huh, uh-huh. MS. BRADY: What people are going to want to know is, does that mean they (indisc.) the dividend? Are we -- are we putting it (indisc.--coughing) -- are we putting it into the general fund? I mean, how does that ...? CHAIRMAN ROGERS: Dividends -- dividends would be paid from the general fund, then. MS. NORDALE: Which they, in effect, are now. MS. BRADY: Yes, but they have to be appropriated ... MS. NORDALE: It's just that it's, you know, it just kind of loops in and out. MS. BRADY: Does that mean it'd come out from the -- from the state, then? I mean, actually, they could do that now, couldn't they? Rather than come from the Permanent Fund Corporation? CHAIRMAN ROGERS: Well, they do actually come from the state; it's ... MS. BRADY: I know, but (indisc.). CHAIRMAN ROGERS: ... Tony Knowles' signature on the check, not Byron Mallot's. Let's turn ... UNIDENTIFIED SPEAKER (Female): We let them pay for mailing. CHAIRMAN ROGERS: Let's turn to the budget reserve. MS. BRADY: O.K. CHAIRMAN ROGERS: We have the issue of -- the question of deleting the definition of unrestricted revenue, and leaving that up to the legislature. This definition comes from Senator Rieger's earlier draft. And Jim Baldwin has raised the issue that there may be unintended consequences of putting that into the constitution. I'm very comfortable in just deleting that sentence. MS. BRADY: Literally, on this issue, for the record, I -- I'm not going to be any help at all, because I don't really understand this, and I have talked to myself very slowly, and I still don't really understand this. So, you know, how this got all -- I mean, I understand how it got messed up and everything, but I don't understand how to fix it; so -- I understand what I want fixed, but I don't have any idea how to fix it. CHAIRMAN ROGERS: Well, the section 4 repealer is the biggest fix, and then the second one -- really, what section 3 says is, if you've got less money coming in this year than you spent -- than you had coming in last year, you can tap this fund. That's the layman's way of what we're saying. MS. BRADY: O.K. I think -- I think as long as we're real clear, maybe even do a little cover sheet that says ... CHAIRMAN ROGERS: Uh-huh. MS. BRADY: ... here's what we're trying to accomplish. CHAIRMAN ROGERS: Is there any objection to deleting that last sentence? MS. NORDALE: No. CHAIRMAN ROGERS: O.K. Then, we need to add a sentence that says the legislature may be appropriated to the fund, and that would probably go in subsection A. MS. NORDALE: The -- the what? CHAIRMAN ROGERS: That money may be appropriated to the constitutional budget reserve. MS. NORDALE: And that isn't permitted now? CHAIRMAN ROGERS: It's unclear. Jim, do you want to speak to that? MR. BALDWIN: It just -- I think it would -- our -- our position has been that the legislature can appropriate to whatever fund it wants. MS. NORDALE: Yeah. MR. BALDWIN: But I noted that in your report, you had indicated you wanted to put windfall earnings into the budget reserve, and so I thought it would be beneficial to have it expressly say that. The reason I kind of zeroed in on that is that over here it, you know, the language used to say that appropriations may only be made from the permanent fund income - it didn't sound like it could go the other way. It didn't sound like it could go into the permanent fund. CHAIRMAN ROGERS: Oh, this is in the permanent fund section, or in the CBR section? MR. BALDWIN: No, it's in -- I -- the -- I was saying there's a -- there's a similar provision in (indisc.). MR. CHAIRMAN: O.K. MS. NORDALE: Yeah. And it -- wasn't there a lot of talk about whether or not if appropriations were made, they could actually be counted as principal to -- in the -- in the permanent fund, 'cause they were appropriations, they weren't those specified in the ...? MR. BALDWIN: Yeah, we haven't gotten -- really gotten into that one because of its potential, so ... MS. NORDALE: Yeah, but I don't -- I don't want to do that, but I mean, there were a lot of questions raised about appropriations. UNIDENTIFIED SPEAKER (Male): (Indisc.). UNIDENTIFIED SPEAKER (Female): Yeah, I don't have a problem with saying that (indisc.). MR. BALDWIN: It's kind of like chicken soup; so you know .... CHAIRMAN ROGERS: So you think it's -- there's already implied authority on the CBR; let's not add that, then. CHAIRMAN ROGERS: It's just more words. MR. BALDWIN: ... it -- it -- it just makes something certain, but I don't -- I think we take the position that you can -- the legislature can appropriate wherever they want to appropriate. CHAIRMAN ROGERS: O.K. So the only change we're making on page 2 is the deletion of: that for purposes of this subsection. MR. BALDWIN: Yes. MS. BRADY: And we (indisc.) consider the sweep -- is that the sweep (indisc.)? CHAIRMAN ROGERS: No, the sweep is in section 4. MS. NORDALE: Yeah. MS. BRADY: O.K. MS. NORDALE: And that's repealed. CHAIRMAN ROGERS: O.K. MS. NORDALE: Yeah, and that's O.K. CHAIRMAN ROGERS: With those two changes, we're out of legislation, unless anybody has something else they want to cover. MS. NORDALE: Could we -- when all this stuff is in draft again, can we get copies and ... CHAIRMAN ROGERS: Yes. MS. NORDALE: ... and -- O.K. CHAIRMAN ROGERS: And I may schedule one more follow-up - I think we're going to have to for the ... MS. BRADY: On the resolution. CHAIRMAN ROGERS: ... we've got -- oh, the resolution, yes, thank you, I'd almost forgotten the resolution. Let me think about that - I've forgotten it a couple of times now. MS. BRADY: 'Cause you don't want to write it. CHAIRMAN ROGERS: That's correct. MS. NORDALE: Let's -- let's talk (indisc.). MS. BRADY: (Indisc.). CHAIRMAN ROGERS: That's why I jumped at Pat Pourchot's volunteering to draft ... MS. NORDALE: Yeah, yeah. CHAIRMAN ROGERS: ... the resolution. MR. BALDWIN: (Indisc.) to us saying ... MS. NORDALE: Let's talk conceptual about it, you know, if ... MS. BRADY: (Indisc. -- several speakers at once). Well, it might go to a third party. MS. NORDALE: ... if there's a resolution that adopts the plan, then ... MS. NORDALE: ... it's, you know, I mean, it won't pass. And if the resolution language says approves the plan, it won't pass. I don't know what we want. It seems to me that the record would be quite clear, (indisc.) the speaker, the governor and the president of the Senate transmit it to the legislature - the plan. MS. BRADY: Oh, that the resolution would simply (indisc.) ...? MS. NORDALE: I mean, I -- I -- you know, what would be the point of -- of a resolution that didn't do anything? And it seems to me that it either accepts or approves the plan, and I don't think that kind of a resolution is gonna pass. MR. BALDWIN: What you want is a transmittal letter? MS. NORDALE: Yeah. UNIDENTIFIED SPEAKER (Male): (Indisc.) governor's rules? MS. NORDALE: Yeah. I -- I ... CHAIRMAN ROGERS: See, I think the legislature wants to be able to adopt a resolution, since they're not going to adopt any of the bills. They want us to say we agree with the idea of the plan. MS. NORDALE: I don't -- I don't see that as being a viable scenario (indisc.). CHAIRMAN ROGERS: Has Gail said anything about ... MS. FOUSE: A resolution? CHAIRMAN ROGERS: ... a resolution, what she wants? MS. FOUSE: No. MS. BRADY: Maybe we should go back to the speaker and the president and the governor and find out what final document -- how they want us to close this off, 'cause maybe that's all they want. And the -- but the other thing is, are they going to have -- we need to have a discussion with them about are they going to have some focus on this the first week of session, or the first two weeks of session? MS. FOUSE: The finance committees. UNIDENTIFIED SPEAKER (Female): What? CHAIRMAN ROGERS: The finance committee's the first two weeks. MS. BRADY: How about the whole -- how about the whole legislature? Could they do a couple-of-day thing where they do a whole briefing where the whole legislature gets to work through this stuff and ask questions and say "what if" and all this stuff? Or a whole -- or a whole session where they have -- because for one thing, the other thing that should happen is that, you know, the Cremo plan should be looked at, and the SB 51 -- I mean, whatever. We give ours and then do some planing it, and so people -- man, I've talked to so many legislators who .... CHAIRMAN ROGERS: It is inte... when I made the presentation to the House and Senate here, I saw a number of people change some of their views about the plan once they had sort of seen it all laid out, ... MS. NORDALE: Uh-huh. CHAIRMAN ROGERS: ... which I expect will happen whenever we present to the House and Senate finance committees, if they want another presentation in Juneau. MS. NORDALE: I wish we could have one of those programs like your friend did, or a presentation to the legislature. CHAIRMAN ROGERS: That's what I used with the House and Senate finance (indisc.). MS. NORDALE: Yeah, yeah, but I -- you know ... MS. BRADY: And even add some things, maybe, 'cause we know now kind of what people are -- where their questions are ... CHAIRMAN ROGERS: Uh-huh. MS. BRADY: ... and you could even then do something where you showed the other, you know, kind of the other approaches that we've talked about so far, and what kind of general principles are, and add some things. UNIDENTIFIED SPEAKER (Male): Uh-huh. CHAIRMAN ROGERS: If we could get that -- get a machine to run that software again. MS. BRADY: Well, you -- do we even have that any more or ... CHAIRMAN ROGERS: We've lost it for the second time. MS. BRADY: ... you screwed it up - you screwed it up trying to shorten it up. CHAIRMAN ROGERS: No, wait, we've got the presentation ... MS. BRADY: O.K. CHAIRMAN ROGERS: ... but it's -- we don't have -- I've got the disks with the presentation on it ... MS. BRADY: O.K. CHAIRMAN ROGERS: ... but I don't have a machine that'll run the disks. MS. BRADY: Oh, got to go talk to Don Gilman. UNIDENTIFIED SPEAKER (Female): 'Cause nobody's been able to open those disks. CHAIRMAN ROGERS: Hm? UNIDENTIFIED SPEAKER (Female): Nobody's been able to open those disks. They're compressed or something. MS. BRADY: Somebody screwed them up. CHAIRMAN ROGERS: Oh, yeah? So we don't have ... UNIDENTIFIED SPEAKER (Female): (Indisc.) have a copy. CHAIRMAN ROGERS: You have the copy of the works? MS. BRADY: You have a copy? UNIDENTIFIED SPEAKER (Female): Both. CHAIRMAN ROGERS: O.K. MS. BRADY: Oh, good. 'Cause the legis... because (indisc.). UNIDENTIFIED SPEAKER (Female): Well, she has (indisc.). MS. BRADY: (Indisc.). Oh, you have Ross's. UNIDENTIFIED SPEAKER (Female): Uh-huh. MS. BRADY: 'Cause Commonwealth North did -- Lee Gorsuch did one there that was a university one, and it wasn't nearly as good. I mean, it was good, but it was -- didn't you think? MS. FOUSE: Yes, I did. CHAIRMAN ROGERS: And I've done several from over -- from the overheads ... UNIDENTIFIED SPEAKER (Female): I have, too. CHAIRMAN ROGERS: ... based on that, which is ... UNIDENTIFIED SPEAKER (Female): (Indisc.). CHAIRMAN ROGERS: ... almost as good, but you don't get the advantage of building the graphs. UNIDENTIFIED SPEAKER (Female): Uh-huh. MS. BRADY: That's right, that's right. MS. NORDALE: It's that -- it's that function of movement that ... UNIDENTIFIED SPEAKER (Female): Yes. CHAIRMAN ROGERS: Yes. MS. NORDALE: ... that has a very ... CHAIRMAN ROGERS: (Indisc.). MS. NORDALE: ... -- convincing. CHAIRMAN ROGERS: It also keeps people focused. MS. NORDALE: Right. Uh-huh. MS. BRADY: And there's some ways we could shorten it. When we did that one at Seward, we realized that there's some ways to shorten, and some things you could put in - like I think putting in (indisc.) revenues, some of those things that Commissioner Condon did on why we haven't crashed before, ... CHAIRMAN ROGERS: Yeah. MS. BRADY: ... you know, what has saved us, so that people can begin to see that we haven't just been kind of .... MS. FOUSE: Think there's any way a video could be done, coming on the end of session, or to start a session? MS. BRADY: Might be. MS. FOUSE: There's a lot of enthusiasm for the video notion. CHAIRMAN ROGERS: Uh-huh. UNIDENTIFIED SPEAKER (Female): And there's some ... MS. BRADY: Plus, you know, when you go out to give a presentation, it sure would be nice to be able to give it without sitting there and having to read 15,000 directions on the back of an envelope, where I wrote mine, about what you plug in to get this whole thing (indisc.). I tore off a little end of the envelope and I can't read where I plug that last (indisc.). CHAIRMAN ROGERS: O.K. Well, maybe on the issue of a resolution, if somebody thinks that they want to write one, we can look at it, and if nobody writes one, we probably won't look at. MS. BRADY: Maybe we just do a formal transmittal ... CHAIRMAN ROGERS: Yeah. MS. BRADY: ... 'cause we don't want them to vote it down before they've had a chance to - I think that's a point. MS. NORDALE: Well, I think the transmittal ought to come from the three appointing entities - the governor, and the pres and the secretary - or speaker - and present it to the legislature as a joint transmittal. And -- because there's nothing in the -- in the authorizing resolution that contemplates the requirement that it be, you know, adopted - that the plan be adopted. CHAIRMAN ROGERS: Uh-huh. MS. NORDALE: And I just don't think -- I -- I just cannot believe (laughter) the legislature would say, "Oh, gee, thanks, honey, yeah!" (Laughter). MS. BRADY: Yeah, I think I -- I think -- I think that the chances that you're right are kind of like in the 99 percentile. But who knows, I mean .... CHAIRMAN ROGERS: We may have -- we may have one final meeting the first week of January to check final things. Just looking at this, we -- we terminate upon the convening of the second regular session, which is the 8th of January. So, we might look at the prior week doing a final review of the draft bills, et cetera. MS. BRADY: If we could pick a date, that would be good, because my ... CHAIRMAN ROGERS: Let's pick a date. UNIDENTIFIED SPEAKER (Female): January (indisc.). CHAIRMAN ROGERS: We could -- I -- I make -- I bet we could pick a date that every member who's here can make it. MS. BRADY: But you know what: I can't even do January yet, actually, because my calendar stops, and .... UNIDENTIFIED SPEAKER (Female): In December? CHAIRMAN ROGERS: Well, the 1st is out. UNIDENTIFIED SPEAKER (Male): Why? CHAIRMAN ROGERS: Because some people are up awfully late the night before. MS. BRADY: Yeah, that's the young -- that's the (indisc.). CHAIRMAN ROGERS: So we have the 2nd through the 7th. And the 6th and the 7th are a weekend. MS. NORDALE: What's the 5th - is that a Friday? CHAIRMAN ROGERS: Friday the 5th. MS. NORDALE: Well, let's get it over with. CHAIRMAN ROGERS: Friday the 5th. MS. BRADY: What time? MS. NORDALE: Is this going to be televideo? CHAIRMAN ROGERS: Video conference. 9 a.m. to noon. MS. NORDALE: That's fine. CHAIRMAN ROGERS: O.K.? MS. BRADY: O.K. CHAIRMAN ROGERS: Any further business to come before the commission? UNIDENTIFIED SPEAKER (Female): No. MS. BRADY: Oh, how much money do we have left? Do we have any? MS. FOUSE: We have some, but we don't know how much, because the bills are slow. CHAIRMAN ROGERS: That is something ... UNIDENTIFIED SPEAKER (Female): (Indisc.). CHAIRMAN ROGERS: ... -- we've done a lot of distribution of this report, by the way, in addition to -- has it been in the News Miner yet? BOB WALSH (STAFF): No, it hasn't been in the News Miner, and the reason it hasn't been in the News Miner is we had a little glitch in the printing (indisc.) - the disks got sent over - we have the wrong disks from the original. So we got that squared away, and it'll be going in the paper next weekend. CHAIRMAN ROGERS: Sunday's paper. MD. FOUSE: Saturday's. MR. WALSH: Saturday's. CHAIRMAN ROGERS: Saturday's paper. MS. NORDALE: Saturday's. O.K. CHAIRMAN ROGERS: O.K. And we've -- we've done -- the other significant pieces were that bush mailer that went to 43,000 households - an abbreviated version of the report .... MS. BRADY: We should have put a big bow on this and said, "This is your Christmas present, Alaska." (Indisc.). CHAIRMAN ROGERS: And then we had The Paper in Juneau, 13,000. MS. NORDALE: What's The Paper? CHAIRMAN ROGERS: That's the new weekly paper - Larry Persily's paper. MS. BRADY: That's whose? CHAIRMAN ROGERS: Larry Persily. UNIDENTIFIED SPEAKER (Female): He did it for free, the only -- the only body in the whole state who offered to do it for nothing. UNIDENTIFIED SPEAKER (Female): Right. CHAIRMAN ROGERS: And have we done anything on the Kenai and Mat- Su? MR. WALSH: Kodiak. CHAIRMAN ROGERS: Kodiak we did? Kenai, Mat-Su. MS. FOUSE: We're doing Kodiak. MR WALSH: We're doing Kodiak with the Fairbanks run, the same .... MS. BRADY: How about the Clarion? MS. FOUSE: No. UNIDENTIFIED SPEAKER (Male): Where? UNIDENTIFIED SPEAKER (Female): No, ... CHAIRMAN ROGERS: The Clarion? MS. FOUSE: ... we delivered 300 down there, but we haven't had it in the paper. MR WALSH: Haven't had any calls for it, either. CHAIRMAN ROGERS: What about the Frontiersman? MS. FOUSE: It's sort of Anchorage. We haven't done Anchorage 'cause it's gotten press, and it's expensive. MS. BRADY: Yeah, we've gotten press, all right. UNIDENTIFIED SPEAKER (Female): (Indisc.). MS. BRADY: One story (indisc.). CHAIRMAN ROGERS: And Ketchikan: did we do Ketchikan Daily News? UNIDENTIFIED SPEAKER (Male): It all went with the Southeast, in The Paper, didn't it? MS. FOUSE: No, that was just Juneau. MR. WALSH: Oh. MS. FOUSE: No, we haven't done Ketchikan. CHAIRMAN ROGERS: Well, do we want to do more? MS. NORDALE: Getting to the bills, I had an interesting experience this morning. The travel agency had booked me on Delta, which leaves about an hour after Alaska Airlines, and called me last night, and said the flight's been cancelled; we can book you on Alaska at such and such a time (indisc.). I picked the 6:25 flight (laughter). I got there and I had to pay 35 bucks to make that transfer. MS. BRADY: Yes. MS. NORDALE: Now, who gets to bear that burden, Mr. Delta? Or Ms. Nordale? CHAIRMAN ROGERS: Don't worry, the commission (indisc.). MS. FOUSE: The commission will pay for it. MS. NORDALE: Oh, yeah, but I think that the commission is entitled to be reimbursed from Mr. Delta. CHAIRMAN ROGERS: Probably. MS. BRADY: However, the paperwork involved. CHAIRMAN ROGERS: It probably costs more than $35 to collect 35. MS. NORDALE: I know, but it's the principle of the thing - that really pissed me off. (Laughter) I'm always counseling with my clients, you know: make the economic decision; don't do it on principle (laughter). UNIDENTIFIED SPEAKER (Female): Yes, yes. CHAIRMAN ROGERS: Is there further business? MS. NORDALE: No. (Indisc.) adjourn. MS. BRADY: (Indisc.) we just don't want to go out in the cold. CHAIRMAN ROGERS: We'll recess until January 5th, 1996. MS. BRADY: And happy holidays, merry Christmas, and ... [END OF TAPE -- RECESSED UNTIL 1/5/96]