MINUTES SENATE FINANCE COMMITTEE May 14, 1999 8:12 AM TAPES SFC-99 # 137, Side A and Side B CALL TO ORDER Co-Chair Torgerson convened the meeting at approximately 8:12 AM. PRESENT Senator John Torgerson, Senator Sean Parnell, Senator Pete Kelly, Senator Randy Phillips, Senator Gary Wilken, Senator Lyda Green, Senator Al Adams, Senator Dave Donley and Senator Loren Leman. Also Attending: ANNALEE MCCONNELL, Director, Office of Management and Budget, Office of the Governor; WILSON CONDON, Commissioner, Department of Revenue; WENDY REDMOND, Vice President, University Relations, University of Alaska. SUMMARY INFORMATION SB 167-UOA SCHOLARSHIPS/ALASKA SCHOLARS PROGRAM The committee heard testimony from the University of Alaska. A committee substitute was adopted and amended. The bill was reported out of Committee. HB 40-EXECUTIVE BRANCH REORGANIZATION This bill was scheduled but not heard. SB 76-PERMANENT FUND INCOME ADVISORY VOTE The committee heard testimony from the Department of Revenue and the Office of Management and Budget. Amendments were adopted and the bill was reported out of Committee. SENATE BILL NO. 167 "An Act relating to scholarships to attend the University of Alaska; establishing the Alaska scholars program; and providing for an effective date." This was the first hearing for this bill in the Senate Finance Committee. This bill relates to the University of Alaska's new program to grant scholarships to the top ten percent of each Alaskan high school's graduation class. Co-Chair John Torgerson explained the proposed committee substitute, CS SB 167 1-LS0900/G 5/13/99, before the members, which eliminates from statute, the Alaska scholars program. In addition, the committee substitute maintains the objective to allow information to be released from school districts to the University of Alaska for the purpose of notifying students who are eligible for the new scholarship program. Co-Chair John Torgerson explained that this committee substitute is necessary to place provisions into AS 14.40 to comply with a federal law that limits the release of educational records that contain personally identifiable information. Co-Chair John Torgerson stated he would make available a legal opinion relating to SB 167 written by Mike Ford, Legal Council at the Division of Legal and Research Services. [Copy on file] Co-Chair John Torgerson read a portion of the memo into the record where Mike Ford stated, "I find no reason why the legislature could not chose to provide for the release of this kind of educational record. While the federal law does limit the release of educational records that contain personally identifiable information (see 20 U.S.C. 1232g), this law also contains an exception for the release of an educational record for the purpose of applying for financial aid (see 20 U.S.C. 1232g(b)(1)(D))." Senator Gary Wilken moved to adopt CS SB 167 1-LS0900/G 5/13/99 as a Workdraft. There was no objection and it was so ordered. Senator Gary Wilken moved for adoption of Amendment #1. Co- Chair John Torgerson objected for the purpose of explanation. Senator Gary Wilken referred to page two, line 11 of the committee substitute noting the amendment inserts, "for each scholarship program" following ".students.who meet scholarship eligibility requirements". This limits the release of names and addresses of students relevant to individual scholarship programs, he explained. Senator Gary Wilken explained the second part of the amendment inserts new paragraphs on page two following line 13 of the committee substitute. The new paragraphs provide that school districts shall amend their policies as necessary to comply with the bill but that a school district shall not provide the information if the student or parent objects. He said this is the provision that allows school districts to release the student's names and information and to comply with the federal Family Educational Rights and Privacy Act (FERPA). Senator Randy Phillips asked if this bill is the result of a new federal law and who was the prime sponsor of that federal law. WENDY REDMOND, Vice President, University Relations, University of Alaska, replied that the federal law is not new and has been around for over a decade. She explained this is the first time Alaska had ever come up against the FERPA law and is because of the University's attempt to award scholarships to the top ten-percent of graduating high school students. She said some of the school districts would not release the names to the University citing that the federal law prohibits them from doing so. She told the Committee that the University's legal council determined FERPA provides an adequate allowance so the schools can release the names for financial aid purposes. However, she pointed out, the school districts' attorneys argued that a state law is also needed. Senator Randy Phillips asked if the issue of compliance was raised by the local school districts. Wendy Redmond responded that the compliance issue was raised by some of the districts. Co-Chair John Torgerson clarified that this matter came up because of the University's new scholarship program. Wendy Redmond confirmed that the current scholarship is awarded to the one, top-graduating senior from each high school and is granted only after the qualifying student applies for it. The new program is broader and entails the University notifying all qualified students of their eligibility for the scholarship. Because of the notification process, the University needs to know who those qualifying students are, stressed Wendy Redmond. Senator Randy Phillips wanted to know if the school districts were claiming a right to privacy. Wendy Redmond said the school districts were only saying they were afraid to release the information because of restrictions in the FERPA law. She explained that most school districts send notification to students' families at the beginning of each school year asking permission to use the student's name in a school directory. Parent's who sign the form are signing a basic FERPA release, according to Wendy Redmond. Senator Dave Donley wanted to know if, in order for the information to be given from the high school to the University, the student had to sign a release. Wendy Redmond answered it was the parents who signed the release. Senator Dave Donley asked if therefore, the University wouldn't get a complete list of all qualifying students because some students' families would chose to not release that information. Wendy Redmond replied the University wanted to leave that option available to the parents and that is the reason AS 14.43.930(d) is proposed in Amendment provide to the board the name of a student if the parent of the student objects to the disclosure." Senator Dave Donley wanted to know what prevented the University from selling the information received to other universities or otherwise distributing it. He asked what controls govern the information once the University of Alaska receives it. Wendy Redmond responded that there were no provisions in statute or in regulations but that keeping the information confidential is just common sense. She added that the University is also held under FERPA requirements to keep student information confidential. Senator Dave Donley wanted assurance that this information would not be sold by the University. Wendy Redmond promised that the University of Alaska would never sell the information. Senator Lyda Green said this was no different from information going to other scholarship programs. She explained that a lot of information was gathered by scholarship review committees and was kept guarded. She didn't want the Committee to lose sight of the honorable intent to provide scholarships to Alaskans. Senator Randy Phillips said this was the first time he had seen the bill. Senator Gary Wilken referred to a letter from the University of Alaska Scholars Program [Copy on file] stating that from the participating school districts, 181 students plan to take advantage of the scholarship. Senator Gary Wilken commented that the question remained as to how many of those students would have attended the University of Alaska without the scholarship program in place. He stressed that this bill is an attempt to get the quality students to attend the University. He knew students followed their peers and that this also applied to where they go to college. He expected that in five years the State would wonder what it ever did without the program. Amendment #1 was adopted without objection. Senator Gary Wilken offered a motion to move from committee, CS SB 167 (FIN) Version "G" as amended with individual recommendations and accompanying fiscal note. There was no objection and the bill was reported out of committee. AT EASE 8:30AM / 8:59 AM Co-Chair John Torgerson made a brief announcement that HB 40 would not be heard at this meeting. Members were working on drafting amendments to SB 67 and the meeting would come back to order when they were ready. AT EASE 9:00AM / 9:57AM SENATE BILL NO. 76 "An Act authorizing an advisory vote on whether appropriations of income from the permanent fund should be restricted; and providing for an effective date." This was the second hearing for this bill in the Senate Finance Committee. A committee substitute, 1-LS0493\M, was adopted as a Workdraft in the previous hearing. Co-Chair John Torgerson reminded the Committee there had been discussion in the bill's previous hearing regarding an updated Governor's plan. Because of the discussion, he had invited a Cabinet member to address that plan. He noted that in-depth information showing assumptions and how the plan works was not available at this time. WILSON CONDON, Commissioner, Department of Revenue, came to the table to explain the Governor's plan to the Committee. He referred to a spreadsheet entitled, "Comparison of Financial Plans" [Copy on File]. The handout showed comparisons of the plans to address the State's financial situation that had been suggested by the Governor, the House Majority and the Senate Majority. Wilson Condon felt it is important when doing comparisons to use a consistent set of assumptions. He stated that the assumptions used in this spreadsheet are different than assumptions on the handouts referenced during the first Senate Finance Committee hearing on the bill. He thought that one of the assumptions needing to be consistent for comparison is the "rate of return". The rate of 8.25 percent is too risky, in his opinion. However, in looking at the Senate Majority's proposed plan, he suggested that a payout of 5.25 percent could be used within an 8.1 percent return strategy. He stipulated that in order to do that, the five-year average pay-out formula included in the plan must be maintained. He defined five-year payout formula as, "the value of the assets of the fund four years ago. averaging the value two years ago, three years ago, four years ago, five years ago and six years ago." He continued saying that those 20 quarters are used to determine the base that is then multiplied by 5.25 percent. Over time, he said, the value will always be adequately lower than the average value of the fund today and that a 5.25 percent payout probably will work. He cautioned that it would be close and that he would be more comfortable if the payout was lower. Wilson Condon stated that the spreadsheet uses both and 8.1 percent projected median case over time rate of return strategy and a 5.1 percent payout, which is different than proposed in the Senate Majority plan. He commented that if he had more time, he would have prepared a comparison for the Committee using an 8.1 percent return strategy and a 5.25 percent payout strategy. He thought that comparison would have honored the provisions of the Senate Majority proposed plan and provided an accurate comparison to the Governor's proposed plan. Wilson Condon noted that he and the Committee had discussed the elements of the different plans. He reiterated that the Governor's plan is to make a one-time transfer of the earnings from the permanent fund into the Constitutional Budget Reserve (CBR) fund to pay for public services. He projected that in order to make the plan work at a median case over time, additional transfers would have to be made in the future. Under the median case, the CBR would run out of money sometime around 2012-13, so the transfer would need to be made in 2010, according to Wilson Condon. Senator Randy Phillips wanted to know if the Governor's plan includes a $4 billion immediate transfer from the permanent fund to the CBR for 1999 or 2000 expenditures. Wilson Condon responded that the Governor's plan, announced in the State of the State address, would have made the transfer at the end of this fiscal year, 1999. Senator Randy Phillips continued his questioning, asking if the plan then requests another transfer, and if so, when. Wilson Condon restated the year for the next transfer would be 2010. Senator Randy Phillips then asked if and when a third transfer would be requested. Wilson Condon replied it would probably be in 2020. Senator Randy Phillips summarized his understanding of the Governor's plan is to make three transfers of $4 billion each from the permanent fund into the CBR in the years 1999, 2010 and 2020. Wilson Condon agreed, pointing out the information is shown on the spreadsheet. Senator Randy Phillips wanted to get the facts on the table for the purpose of drafting ballot language for the advisory vote. Wilson Condon continued his presentation listing another element of the Governor's plan as the broad-based tax that would raise $350 million a year beginning in fiscal year 2001. Wilson Condon stated that the target rate of return on the CBR is 8.1 percent under the Governor's plan. He noted that initially the target rate of return for the permanent fund would not change. However, under reconsideration, he stated that a change made sense. Senator Sean Parnell noted the spreadsheet indicates a 25- percent reduction of permanent fund dedication and corrected additional oil revenue. He asked if this information was based on legislation sponsored by Representative Norm Rokeburg, HB 96. Wilson Condon answered the inclusion of the data on the spreadsheet is not an endorsement of the bill by the Governor, but rather an effort to use a common set of assumptions to compare the plans. Senator Sean Parnell clarified that the Governor did not support, nor oppose HB 96. Therefore, he surmised that the spreadsheet does not reflect the Governor's plan. Wilson Condon reiterated that the spreadsheet was prepared to compare the three plans using a common set of assumptions. He admitted that all parties had not necessarily used the same set of assumptions when drafting plans, but stressed that common assumptions must be used to accurately compare the plans. Senator Sean Parnell asked if because of the common assumptions, the permanent fund dividend data shown on the spreadsheet does not necessarily reflect the predictions made in the Governor's plan. Wilson Condon replied that the data is very close. Senator Randy Phillips asked when the income tax component of the Governor's plan begins. Wilson Condon referred to the State of the State speech, where the Governor proposed the income tax would be imposed beginning in the calendar year 2000. Co-Chair John Torgerson commented that the witness, in past testimony repeatedly stressed that an 8.25 rate of return is not achievable. However, the spreadsheet before the Committee today uses that rate. He asked for an explanation. Wilson Condon responded that is the target rate of return used in the House Majority plan. He believed it to be the same target rate used in the Senate Majority plan as well. He again cited the need for common assumptions. Wilson Condon stated there would need to be a trade off between the size of the dividend and other revenue, taxes or otherwise. The level of the dividend would be a function of the decision of whether or not to impose a tax, he explained. He pointed out that the Governor offered a policy choice of a tax with a higher dividend. Wilson Condon expressed that another choice could be made to have no taxes and a lower dividend. He noted this option was represented in all three plans although he was unsure what the new revenue source in the Senate Majority plan was. It looked to him that two separate line items were included to accommodate new oil revenue but he didn't know if the two line items reflected a double accounting of the revenue. He noted additional cuts to public services but he didn't know if those services had been identified. To summarize his comments on the Senate Majority plan, he felt 8.25 was too risky. However he believed the plan's payout rule of 5.25 percent would work without such an aggressive earnings target. Senator Sean Parnell was concerned "because one day the Governor's plan seems to have spots, the next day it seems to have stripes." He referred to the comparisons made at this meeting using the 25-percent dedication proposed in HB 96 and discrepancies with the acceptability of the 8.25 percent rate of return. He asked, "Where do we go for a definitive view of the Governor's proposal?" He stressed that if the advisory vote is to give an accurate portrayal of each plan, the Committee needs information, such as an updated spreadsheet. Wilson Condon offered to provide a spreadsheet. He commented that the 8.25 percent comparison was prepared for presentation to the House Finance Committee earlier in the week. At that hearing, he carefully explained that the 8.25 percent did not reflect the Governor's plan and was simply and effort to put the plans on a common basis. He did not feel it was fair to characterize the use of a spreadsheet using the 8.25 percent figures as an inability to "land on a particular square." Co-Chair John Torgerson commented that the last permanent fund earning figure was 8.13 and he asked why that figure was not used. Wilson Condon had not seen that number so he could not comment, except to say that a figure of approximately 8.1 is what he believed an earnings target ought to be. Co-Chair John Torgerson asked if the witness used the earnings estimates of the Permanent Fund Division or if he changed the numbers. Wilson Condon replied that he looked at numbers prepared for the division to make his 8.1 percent recommendation. There was further debate if the Commissioner had actually seen the 8.13 figure. Senator Randy Phillips asked if the Committee would get different numbers than those presented on the spreadsheet before the members today. He ascertained that the information was not actually the Governor's plan. Wilson Condon said that he would provide a backup spreadsheet. Senator Randy Phillips wanted to know what the dividend would be for the year 2001 under the Governor's plan. Wilson Condon replied the amount would be between $1750 and $1800. He noted that the spreadsheet indicated the amount would be $1796, but that the actual amount would be different. Senator Randy Phillips wanted an exact number. He also wanted a projected dividend amount for the year 2010 using the official Governor's plan. Wilson Condon stated that he would provide those projected figures according to what the Governor proposed in his State of the State address. Co-Chair John Torgerson asked if it would be a fair statement to say that in the plan before the Committee, the Governor is instituting a personal income tax in order to keep the dividend higher. Wilson Condon didn't think it was an exact portrayal, but it was close, because collecting a broad based tax permits a higher dividend. Co-Chair John Torgerson thought the Governor's original plan showed a substantial decline in the dividend to below $1000 in the year 2001 after the sale of realized gains. Wilson Condon didn't remember how far the dividend declined but noted that if assets were sold in order to transfer funds to the CBR, the dividend would spike up substantially. At the time the Governor made the original proposal, Wilson Condon said they were uncertain whether or not the transfer to the CBR could be made without selling assets. Therefore, to be conservative, the original plan did not reflect the spike. He noted that the transfer could be made which will result in a fairly level stream of dividends, rather than a spike up and then a big decline. Co-Chair John Torgerson asked if for each of the years having the $4 billion transfer, the dividend spike would not happen. Wilson Condon affirmed. Senator Randy Phillips wanted to know what other taxes would be used for the broad-based tax other than personal income. Wilson Condon responded that the Governor would welcome any broad-based tax that the legislature enacted, including a sales tax. Senator Randy Phillips wanted to know what other tax the Governor actually proposed. He asked if the proposed gasoline tax was considered a broad- based tax and was part of the plan. Wilson Condon said it was included but that it would not generate the needed income. Senator Gary Wilken noted an earlier request from the Committee for a reconciliation of the number of employees needed to administration the personal income tax. That information had not been provided to him. Wilson Condon apologized for the oversight. ANNALEE MCCONNELL, Director, Office of Management and Budget, Office of the Governor, did not want to miss the opportunity to say that the Administration applauds the Senate for making a commitment to a public vote on the use of the permanent fund earnings. She felt that is an important element of the process to find the best way to achieve long term plan. In terms of specific language, Annalee McConnell realized it would need to reflect the proposed plan and need "movement and adjustment" as it goes through the discussion. She thought the agreement on a common set of assumptions was a positive step. Annalee McConnell noted there are a number of issues to consider when framing the question on the ballot. She said the Administration continues to believe that the best outcome of this session would be a consensus plan that could be supported by the Legislature and the Administration; by the Majority and the Minority; by the House of Representatives and the Senate. Annalee McConnell stated that the basis element of concern is if the public agrees that the use of permanent fund earnings is appropriate at this time. She was sensitive that the ballot question needs to be framed in such a way that the public perceives it as being objective, clear, not confusing and also that the public not feel that there is any political agenda or attempt to "pull one over." She stressed the need to be conscious of how the public views the question before them. Senator Randy Phillips said he was working on two options for the voter to chose between and to have a balanced and fair portrayal of Plan A and Plan B so that hopefully the people of Alaska could trust it. Senator Randy Phillips asked if the Governor plans on any further spending reductions over the next three years and if so, how much. Annalee McConnell responded that she hopes there would be a common plan that all parties can support and said the Administration was willing to work toward reasonable budget projections. She said the projection should inform the public of any additional cuts plus the needed increases in the future. She noted that the Senate Majority' plan acknowledges the need for some increase in the future. Annalee McConnell stressed that there was still a basic question of whether the best way to approach the ballot issue is with a choice of two plans or to focus on the element of permanent fund earnings. She relayed the question raised by some as to the degree with which the Legislature should be seeking public votes on every aspect of plans, such as budget cuts or types of revenue. Annalee McConnell noted that the plan the Governor proposed in January had evolved and included the possible passage of HB 96. She urged that any plan not be pinned down, but to leave room for elements that everyone could be comfortable with. Senator Randy Phillips asserted that his constituents are demanding, not asking, for budget cuts. Therefore, he wanted to make the ballot question fair. He noted that Plan A includes over $100 million in reductions over the next three fiscal years. Plan B, he noted has no plans for further reductions in state spending. He stressed that the public is saying "show us the cuts" before coming to them with new taxes. He said that the public wants to know where the reductions are made and how they are affected. Therefore, he wanted to know the Administration's plans for further reductions. Tape: SFC - 99 #137, Side B 10:30AM Co-Chair John Torgerson wanted to know if the spreadsheets the Commissioner of Department of Revenue was preparing would reflect the Governor's modified plan. Annalee McConnell stated the Administration prefers a plan that all parties agree upon. She believed that it is in the best interest of the state to have a plan to present to the public that has joint support. She suggested that to put a plan on the ballot that claims $100 million of cuts does not tell the public what the cuts will look like. She predicted that the public will have a much different view of how far the cuts are going today then they had earlier. She wanted the ballot language to include information about what the proposed budget reductions will be, so the voters can make an appropriate decision whether they want the cuts to go that far. Annalee McConnell emphasized that the simplest area to focus on is the use of permanent fund earnings. She did not think the demand was for a vote on the level of funding for the operating and capital budgets, but rather on the permanent fund earnings. Co-Chair John Torgerson took from her statement that the public does not care how much is drawn from the permanent fund. By leaving out the issues of potential revenues and spending cuts, which has an effect on how much money needs to be transferred from the permanent fund, the public can only say whether or not they want the fund tapped. He disagreed that the public is not interested in more involvement. Annalee McConnell clarified that she did not hear the public demanding to vote on the level of budget reductions. The responsibility for appropriations lay with the legislature, she stressed, and therefore the public should not be required to vote on the amount of reductions. The most critical place for public approval is whether or not it is time to use permanent fund earnings, she concluded. Senator Sean Parnell remarked that agreeing on a single plan would be difficult because of the basic philosophical differences with regard to taxes and spending reductions. He stated that these matters are intertwined and the question is not isolated into "should we use the earnings reserve?" He asserted that the voters need to know from a fiscal standpoint why additional revenue and additional reductions are necessary, noting that some voters prefer taxes, others prefer further cuts and still others prefer using the earnings reserve. In order for the Legislature and the Governor to arrive at one common plan, Senator Sean Parnell stressed that there would have to be agreement on those basic elements. Senator Sean Parnell asked if the Governor's insistence on a broad-based tax is a requirement that must be included before the Administration could agree on a plan. Annalee McConnell continued to hold out hope that the wrestling of the policy issues happens as a normal part of the legislative process and that ultimately agreement will be reached on a plan that balances those issues. In the best of worlds, she believed a plan would be made that was supported by all involved parties. She emphasized that the power of that plan could not be underestimated in its message to the public. Annalee McConnell continued by acknowledging that there are some differences of opinion on what is a fair balance between the permanent fund dividend and other kinds of revenue. She noted that neither the House Majority plan nor the Senate Majority plan specifies the additional sources of revenue. She said there is disagreement about whether there should be an income tax or sales tax as opposed to strictly using the permanent fund dividend. These taxes would treat everyone equally regardless of their income level, in her opinion. Annalee McConnell felt it was appropriate that the Senate Majority detail the elements of its plan to the public with regard to the spending cuts. She said that making $100 million in reductions would be very difficult for the finance committees. On the other side, she believed there should be further definition of the additional revenues and how realistic they are. Then, she stressed, the public could decide whether they think it is fair that a family of four earning $30,000 be impacted by the plan the same as a family of four earning $300,000. She stated that currently, with no broad-based tax, the impact of the plan hits people at the same flat dollar amount regardless of the percentage of their income. Senator Randy Phillips asked if the witness is looking for a long-term balanced budget plan. Annalee McConnell responded that is everyone's plan. Senator Randy Phillips then asked if the witness was insisting on a vote addressing only the use the earnings account. Annalee McConnell answered that was incorrect, and that choices need to be made during these discussions, such as should the ballot propose an "either/or" or a "yes/no" choice on the element of using the permanent fund earnings. The Administration did not have a final recommendation at this point, but she felt all involved need to think it through keeping in mind how the public would perceive the ballot question. Some people have said to her they are afraid that an either-or choice is going to make the public even more frustrated because they don't like either choice and want to vote against both options. She thought there needed to be more discussion to find the best way to communicate the issue to the public and show why a plan is necessary. Senator Al Adams wished the Administration would listen to the Majority's intention to make additional budget cuts and that the Administration would simply eliminate 1000 positions or an equal amount of goods and services in Anchorage. He stressed that Anchorage is the area of the state asking for the cuts. Senator Pete Kelly disagreed with the statement that to reduce the permanent fund dividend is unfair because it takes a larger percentage of some incomes than from others. He stressed that the dividend is not distributed based on income and therefore, everyone is treated equally when receiving the dividend. He recommended that if the Committee is going to entertain the idea of reducing the dividend, then it should be done on the same level, not looking at income. He believed the dividend is distributed in the fairest manner and any reductions should also be done fairly. Annalee McConnell repeated her comment on working together. Amendment #1: This amendment inserts into the Plan A description, "Permanent fund dividends in 2001 will be approximately $1250, a reduction which will yield approximately $254 million in additional revenue available for government operations." Senator Al Adams moved for adoption stating that the intent of the Senate Minority is to make the ballot language as informative as possible. Senator Randy Phillips objected. Senator Al Adams explained the language shows the amount of revenue created by the dividend reduction and will allow voters a better plan comparison. He noted that Plan B yields $350 million from a personal income tax. He thought the comparison defines the difference in the underlying principle of the two plans. Plan A is a "flat tax", which taxes children as well as adults and will have a bigger impact on low income Alaskans, he emphasized. He added that Plan B includes a personal income tax for resident and nonresident workers and taxes low-income Alaskans less than the wealthy ones. Co-Chair John Torgerson asked which version of the Governor's plan did this amendment address. Senator Al Adams replied it applies to the most current plan. Co-Chair John Torgerson noted that in his mind the only plan the Governor had endorsed was the one introduced in January, which was represented in Plan B of the committee substitute and did not show an estimated dollar amount of income tax revenue. He said if a corresponding amendment to insert that amount were offered, he would consider supporting the amendment currently before the Committee. Senator Sean Parnell noted the amendment's sponsor indicated the intent is to bring forth information for the public. However, Senator Randy Phillips had another amendment that would address the amounts so he would maintain his objection. Senator Loren Leman advised that a graphical presentation of the impacts showing not only the dividend but also all revenues and spending should be part of the information packet sent to all voters. He thought the voters would want to see the short-term and the long-term impacts and that the legislature needs to make sure the graphic information is clear and accurate. He believed that by simply listing numbers would only confuse voters. Senator Al Adams pointed out that under the Governor's plan, a personal income tax would generate $350 million and that information should be provided to the voters as well. The amendment FAILED to be adopted by a vote of 1-8. Senator Al Adams cast the yea vote. Amendment #2: This amendment changes the description of Plan A, New Revenues, deleting, "An income tax would not be enacted" and inserting, "or taxes" after "Use at least $100,000,000 in new revenues". Senator Al Adams moved for adoption. Senator Sean Parnell objected. Senator Al Adams explained that the Minority did not know what the new revenue would be, but that it could actually be taxes. He referred to other pending legislation that would tax certain kinds of investments and advised the language should be flexible since a tax could be imposed in the future. The amendment FAILED to be adopted by a vote of 1-8. Senator Al Adams cast the yea vote. Amendment #3: This amendment adds Plan C, which uses the permanent fund earnings reserve to inflation-proof the principal of the permanent fund, pay dividends under the current method for calculation and provide approximately $900 million to fund education, including the University of Alaska. Plan C requires no budget reductions or income tax. Senator Al Adams moved for adoption. Co-Chair John Torgerson objected. Senator Al Adams referred to legislation sponsored by Senator Tim Kelly, SB 75 that proposes using $900 million from the earnings reserve to fund education. Senator Al Adams detailed how Plan C could enact that funding, allow continued dividends, require no additional budget cuts or impose any new taxes. Senator Randy Phillips questioned the validity of having three plans. He rhetorically asked if this plan received 30-percent of the votes, would it prevail even though 60- percent voted against it by casting their vote for another plan. He suggested there could be need for a run off election to settle the matter. The amendment FAILED to be adopted by a vote of 1-8. Senator Al Adams voted in favor. Amendment #4: This amendment changes the language on the ballot. Senator Randy Phillips did NOT OFFER this amendment deferring to Amendment #6. Amendment #5: This amendment changes the language of the preamble to read, "Alaska's declining oil production and erratic world oil prices produce an unsustainable state budget system. The legislature and governor seek the public's input in choosing a long-term budget plan. Please select the plan you believe Alaska should implement for a balanced budget." Senator Randy Phillips moved for adoption. He then detailed proposed amendments to the amendment as follows. First sentence: delete "system" insert "plan". Second sentence: delete "the public's" and insert "[seek]s Alaskan's"; delete "choosing" and insert "selecting"; after "long-term" insert "balanced". The amended amendment, and thus the preamble, would read, "Alaska's declining oil production and erratic world oil prices produce an unsustainable state budget plan. The legislature and governor seeks Alaskan's input in choosing a long-term budget plan. Please select the plan you believe Alaska should implement for a long-term balanced budget." Co-Chair John Torgerson asked if the amendment retains the sentence instructing each voter to "Please mark "yes" or "no" beside one or both plans that you believe the legislature or governor should proceed to implement as a balanced budget plan." Senator Randy Phillips affirmed the sentence does remain. Senator Sean Parnell informed the Committee that he had talked to Senator Randy Phillips earlier and expressed an interest in taking up that question separate from the other amendments. Senator Sean Parnell assured this language change does not affect the intent of the committee substitute. Co-Chair John Torgerson pointed out that technically, this amendment deletes the "yes or no" sentence in stating, "delete preamble and replace with:". Senator Sean Parnell moved to amend the amendment to retain the sentence located on page 1 line 12, the "yes or no" sentence, of the committee substitute. Because another motion to amend the amendment was on the table, this motion was out of order and not acted upon. Senator Loren Leman liked the changes proposed for the second and third sentences but did not like the proposed first sentence, preferring the original language instead. He said he did not think the statement was accurate, stressing that the oil production situation did not produce an unstable plan, although he did attribute the low prices to an unstable budget and revenue generation. Senator Randy Phillips countered that the previous year, the Legislature did not project oil prices would drop to ten dollars per barrel. Senator Loren Leman did not argue that point, but suggested removing the change of "system" to "plan" in the amendment to the amendment. Co-Chair John Torgerson commented that Senator Loren Leman's suggestion would be cleaner. Senator Loren Leman stated he supported the idea of having voters chose between two plans. Senator Loren Leman moved to divide the question. There was discussion as to the proper procedure. AT EASE 10:57AM / 11:07AM It was determined that an amendment to the amendment to the amendment was not allowed under the Uniform Rules. Therefore the motion was out of order. Senator Randy Phillips moved to WITHDRAW the motion to amend Amendment #5. He then moved to WITHDRAW the motion to adopt Amendment #5 and to HOLD it until the other amendments had been taken up. There were no objections. Amendment #6: This amendment changes the language describing Plan A and Plan B as follows: Plan A Summary of Plan A: Plan A has further spending reductions. Dividends are a percentage of the value of the Alaska Permanent Fund. This plan has no personal income tax. (1) Spending Reductions/Spending Limits Continue state general fund budget reductions of at least $100 million over the next three fiscal years. (2) Permanent Fund Guarantee the Alaska Permanent Fund is inflation- proofed to protect the value of the principal of the fund for all Alaskans, including future generations. (3) Permanent Fund Dividends Guarantee a dividend is paid to qualified Alaska residents at a minimum of $1,700 in 1999 and $1,700 in 2000. Thereafter, the annual dividend is based on a rate of 2.75 percent of the market value of the Alaska Permanent Fund, including the Alaska Permanent Fund Earnings Reserve Account. These dividends are projected to be $1,250 in 2001 to $1,430 in 2010. (4) Permanent Fund Earnings Reserve Guarantees inflation-proofing the Alaska Permanent Fund and pays Permanent Fund Dividends, then prioritizes remaining funds in the Alaska Permanent Fund Earnings Reserve Account for education, public safety, and transportation. (5) New Revenues Use at least $100 million in new revenues. No new broad-based taxes. Plan B Summary of Plan B: Plan B has no further state spending reductions. Dividends from the Alaska Permanent Fund are calculated under the current method. This plan includes a personal income tax. (1) Spending Reductions No further reductions to state spending. (2) Permanent Fund Guarantee the Alaska Permanent Fund is inflation- proofed to protect the value of the principal of the fund for all Alaskans, including future generations. (3) Permanent Fund Dividends Dividend will not be changed from the current formula and method of calculation. (4) Permanent Fund Earnings Reserve Immediately transfer $4 billion from the permanent fund earnings to the Constitutional Budget Reserve Fund with an additional $4 billion dollars in 2011, and $4 billion dollars in 2020. Spend the Constitutional Budget Reserve Fund earnings for state government services. (5) Income Tax Impose a personal income tax on all wage earners projected to be 31 % of a person's federal income tax, collecting $350 million. Senator Randy Phillips moved for adoption. Senator Pete Kelly objected. Senator Randy Phillips noted that because of information just received in this hearing, he would have changes to propose to this amendment. He shared his intent with this amendment to explain both plans in brief language and then label what each plan does side-by-side for easier comparison. Senator Pete Kelly voiced his intention to amend the amendment during this discussion. In Senator Randy Phillips view, the Administration brought up a good point in advising that Plan A should describe the effects of the $100 million spending reductions. He thought that the ballot language needed to say what would be cut. Senator Randy Phillips next suggested changing the listed amount of the permanent fund dividends in Plan A for the years 2001 and 2010 to $1258 and $1417 respectively, based on the new information provided by the Department of Revenue. Senator Randy Phillips then stated he thought there should be discussion about education, public safety and transportation in the Permanent Fund Earnings Reserve paragraph under Plan A. Senator Randy Phillips's final recommendation on Plan A language was to switch the two sentences in the New Revenues paragraph so the paragraph begins with "No new broad-based taxes." and ends with, "Use at least $100 million in new revenues." He wanted examples of the new revenues listed on the ballot. Senator Randy Phillips then suggested the language describing Plan B include the projected dollar amounts of the permanent fund dividend of approximately $1750 in the year 2001 and $1800 in the year 2010. Senator Al Adams asked if dividend amounts projected under Plan B should be listed for the years 1999 and 2000 as well. Senator Randy Phillips responded that he wanted to make the language for both plans correspond. Senator Randy Phillips next recommended changing language in the Permanent Fund Earnings Reserve paragraph of Plan B to read, "followed by $4 billion in 2011 and $4 billion in 2020. Senator Randy Phillips wanted to also change the final paragraph heading of Plan B to "New Revenues" to conform to Plan A. Senator Sean Parnell requested that these items be acted upon as amendments to the amendment as they are proposed. Senator Randy Phillips concluded his suggestions by saying he wanted to insert specific dates to indicate when the income tax and the gasoline tax begin. Senator Lyda Green asked if the Committee didn't already question the accuracy of some of the information presented by the Administration and proposed for insertion into this amendment. Co-Chair John Torgerson stated he could not support much of what was before the Committee at this time. He stressed that if a "side-by-side" approach is taken, detailed spreadsheets must be provided by the Governor detailing the Governor's plan. Senator Dave Donley suggested assigning a subcommittee to work out the details. AT EASE 11:19AM / 11:23AM Senator Randy Phillips moved to amend Amendment #6 (1) to delete "Spending Limits" from the first paragraph heading of Plan A. He explained that he originally had included the language due to discussions about a proposed constitutional spending limit. However, since there would be no such constitutional amendment, he wanted the heading to be clearly labeled as spending reductions. Senator Dave Donley objected. Senator Randy Phillips pointed out that there is no mention of a spending limit in either plan. Senator Dave Donley argued that the amendment itself deleted language relating to spending limits and that language should be added to support a constitutional amendment requiring spending limits. Senator Randy Phillips WITHDREW his motion. There was no objection. Senator Randy Phillips moved to amend Amendment #6 (2) to insert, "and enact a spending limit" at the end of the sentence in the first paragraph of Plan A. Senator Gary Wilken asked what was a "spending limit". Senator Dave Donley explained the state constitution already contains a spending limit, but that it has never worked. He wanted to make it clear to voters that an effective constitutional spending limit must be enacted in order for a balanced budget to be successful. He wanted the voters to give that direction to the legislature during this advisory vote. Co-Chair John Torgerson advised that the word "enact" could not be used in this ballot question. He suggested "place before voters" instead. Senator Gary Wilken cautioned that there are different understandings in the legislature of what a spending limit stands for, suggesting that some take it to mean "tax cap". He stated that he had no problem with the intent, but had concerns with the wording and trying to defend it unprepared. He recommended against a constitutional amendment until the definition of "spending limit" is agreed upon. The motion to amend Amendment #6 (2) FAILED by a vote of 1- 8. Senator Randy Phillips cast the yea vote. Senator Randy Phillips reintroduced his motion to amend Amendment #6 (3) to delete "Spending Limits" from the first paragraph heading of Plan A. He WITHDREW his motion to defer to Senator Dave Donley. Senator Dave Donley moved to amend Amendment #6 (4) to insert, "that is placed before the voters an effective constitutional spending limit" at the end of the sentence in the first paragraph of Plan A. Senator Pete Kelly objected. Senator Dave Donley repeated his comment that the original committee substitute has a spending limit provision. He surmised that the only way to enact a spending limit is through a constitutional amendment. He stated that the existing constitutional spending limit is ineffective. He thought it would be fair to suggest to voters that the constitution should be functional and amended to include a usable spending limit. He understood Senator Gary Wilken's concerns regarding the meaning of a spending limit but noted that most of the implementation of this plan would be left up to future legislatures. He speculated that future legislators could draft a proposal to place before voters to enact an effective spending limit. Senator Gary Wilken pointed out the proposed plan has spending limits that are implied in the numbers shown on the spreadsheets. He wanted to follow that plan. He reminded the Committee that a new constitutional spending limit could be something that future legislatures will not want. He stressed, "Until we know exactly what we're asking for, I suggest we not ask for it." Senator Pete Kelly spoke to his objection saying he believed the amendment to be too nebulous. Tape: SFC - 99 #138, Side A 11:32AM By a vote of 4-5, the amendment to Amendment #6 (4) FAILED to be adopted. Senator Randy Phillips, Senator Dave Donley, Senator Sean Parnell and Co-Chair John Torgerson voted in favor. Senator Randy Phillips moved to amend Amendment #6 (5) to delete "Spending Limits" from the first paragraph heading of Plan A. (This is the same as Amendment #6 (1) and (3).) Senator Pete Kelly objected. Senator Randy Phillips again explained his reason for the change is to reflect the absence of spending limit language in the description. He noted that there is nothing in the ballot language stating that reductions would be made after the three years indicated. Senator Gary Wilken commented that the plan does contain spending limits that are implied by the dollar amounts set for in the plan. The amendment to Amendment #6 (5) FAILED to be adopted by a vote of 3-6. Senator Randy Phillips, Senator Dave Donley and Senator Sean Parnell voted in favor. Senator Gary Wilken voiced confusion over the language stating, "at least $100 million over the next three fiscal years." He referenced the Legislative Majority's existing five-year budget reduction plan calling for reductions of $40 million in the year 2000 and $30 million in 2001, the final year of the plan. He asked if the correct interpretation of the $100 million reductions retains the same amount of reductions for those two years plus an additional $30 million reduction in the year 2002. Senator Randy Phillips replied that in a prior draft, he had the amounts specified as $33.3 million reductions for each of the next three years. Senator Sean Parnell commented that the intent of the plan is not to "straight-jacket" future legislatures into one particular number. Rather, the intent is to give direction to make $100 million in general fund reductions over the next three years. He noted that the plan calls for $40 million the first year and $30 million each of the remaining two years, but he qualified that the reductions don't have to follow those amounts exactly. AT EASE 11:36AM / 11:37AM Senator Gary Wilken moved to amend Amendment #6 (6) to replace "$100 million" with "$70 million" and replace "three fiscal years" with "two fiscal years" in the first paragraph of Plan A. He explained his intent is to maintain the goal of $40 million in reductions for the year 2000 and $30 million in reductions for the year 2001. Senator Dave Donley objected, saying he supported additional reductions. Co-Chair John Torgerson said he thought the intent of the amendment is to conform to the Senate Majority's budget reduction plan, although he understood Senator Dave Donley's argument as well. Senator Gary Wilken affirmed Co-Chair John Torgerson's assessment. He noted that $10 million per year in reductions are included in the Senate Majority's plan beginning in 2003. Senator Al Adams stated he would be voting against the amendment to the amendment as he believed the reductions are too broad. Senator Randy Phillips made inaudible comments. Senator Dave Donley understood one of the proposed plans does not have the same level of reductions. He stressed that one of the things learned from the model is that these kinds of reductions in the earlier years of the plan make a tremendous impact later. He believed it is good public policy to prescribe to this level of reductions because of the positive future impact. Senator Sean Parnell thought that his comments regarding to the $100 million in reductions was causing confusion among the members. When he referred to the $100 million total, he was including reductions being made this year plus the next two. He pointed out that Senator Gary Wilken's amendment to the amendment only applies to the two years after this year. The resulting reductions still equal $100 million after three years. Senator Lyda Green wanted to know if it is implied there would be no further spending reductions after the year 2002. Co-Chair John Torgerson noted the language specifies "at least" so additional reductions could be made. Amendment #6 (6) was AMENDED by a vote of 6-3. Senator Dave Donley, Senator Loren Leman and Senator Al Adams voted against the motion. Senator Randy Phillips wondered if the ballot language should specify general areas where the cuts would be made. Senator Pete Kelly moved to amend the amended Amendment #6 (7) to delete the heading of paragraph 5 of Plan A, "New Revenues" and insert "No Income Tax". The amended amendment also changes the description of paragraph 5 by replacing "No new broad-based taxes" with, "instead of implementing new broad-based taxes." The two description sentences are combined into one separated by a comma to be grammatically correct. He felt using consistent paragraph headings properly reflects both Plan A and Plan B. Senator Dave Donley objected to the motion. Senator Dave Donley was uncertain of the word "use" that began the description sentence. He wanted to know where the new revenues are coming from. He suggesting replacing "use" with "adopt measures to create". In his opinion, that language would parallel the description given in Plan B. Senator Pete Kelly had no objection to Senator Dave Donley' recommendation, but noted that to amend the amendment to the amendment while it is on the table would be out of order. Senator Randy Phillips suggested titling paragraph 5 as, "Income Tax" and leaving out, "No". By a vote of 5-4, the amendment to the amended Amendment #6 (7) was ADOPTED. Senator Al Adams, Senator Randy Phillips, Senator Loren Leman and Co-Chair John Torgerson voted in opposition. Senator Loren Leman had drafted language that he felt reflects the consensus of the members and would be easier to work from. The new amendment was being copied and he advised waiting until the copies were ready for distribution. Co-Chair John Torgerson stated that if the language was similar to the amendment before the Committee, the same process would have to be done. Senator Pete Kelly commented that as a voter, he knew what he was looking for and that was an option that does not include taxes. He speculated that the plans would become known as "the one with no income tax" and "the one with an income tax." He therefore suggested moving paragraph 5 to the top of each of the plans, making the income tax item the first description. Senator Randy Phillips stressed that the language is to be drafted objectively, then paragraph five is mislabeled and should read "Income Tax" on both plans. Senator Randy Phillips moved to amend the amended Amendment heading of paragraph 5 of Plan A. There was no discussion on the motion and no voiced objection. The motion to amend the amended Amendment #6 (8) FAILED by a 2-7 vote. Senator Al Adams and Senator Randy Phillips cast votes in favor of adoption. Senator Pete Kelly moved to amend the amended Amendment #6 (9), which moves paragraph 5, NO INCOME TAX to the beginning of both Plan A and Plan B and renumber the paragraphs accordingly. Senator Randy Phillips objected, saying this change slants the language and would sway the voters. He stressed that this is a biased question and leads voters in one direction without them considering the entirety of both plans. He continued to argue in support of naming this paragraph "Income Tax" in both plans. Co-Chair John Torgerson noted that the inclusion of "No" was no longer before the Committee. Senator Pete Kelly countered that the reordering of the paragraphs is not biased. He stressed that saying one plan implements an income tax and the other does not, is not unfair. Senator Gary Wilken opposed the motion and hoped the whole effort does not "boil down" to whether or not there is an income tax. He felt there was much more to the matter than just the tax. He used an example of a grocer placing milk at the back of the store to get shoppers to walk by the other items. He suggested the income tax description should be placed at the end of each plan for the same reason; to get voters to read the other substances of the plans. Senator Pete Kelly countered that past ballot initiatives showed him that voters have not "taken that stroll through the store." As a result, in his opinion, matters have been brought back before the legislature for repair because the voters did not have all the information laid-out properly. He did not think the question was only about an income tax, but felt the debate would emerge that way. The motion to amend the amended Amendment #6 FAILED by a vote of 4-5. Senator Pete Kelly, Senator Lyda Green, Senator Dave Donley and Co-Chair John Torgerson voted in favor of the motion. Senator Gary Wilken moved to amend the amended Amendment #6 (10) to delete the last sentence of paragraph 3 in Plan A reading, "These dividends are projected to be $1250 in 2001 to $1430 in 2010." Senator Dave Donley objected. Senator Gary Wilken explained his intent was to make the two plans comparable. He noted that Plan B does not contain projections of future dividend payments. He viewed the dividend amount language in Plan A as a promise and should not be included. Senator Randy Phillips planned to offer a new amendment to insert projected dividends in Plan B after the spreadsheets were received by the Governor's office. He felt that the public has the right to know what the plans do to their dividends to help them make a decision. Senator Dave Donley felt balance between the two plans was important, but felt the change should be made to Plan B. Co-Chair John Torgerson stated that there is no Plan B because the Governor has not been consistent in detailing his plan. Senator Dave Donley remarked that the ballot should state that the legislature has idea of the projected dividend under the Governor's plan. Senator Gary Wilken's pointed out that the voter would not get the necessary information only on Election Day because there would be plenty of discussion beforehand. He described the third paragraph of Plan A, Permanent Fund Dividends, as making three promises. The first is to guarantee a dividend, the second promises how the dividends will be calculated and the third projects the amount of the dividend. He didn't think the projection fit the ballot language. Senator Randy Phillips stated that he disagreed with Senator Gary Wilken's assessment. By a vote of 5-4, the amendment to the amended Amendment #6 (10) was ADOPTED. Senator Randy Phillips, Senator Dave Donley, Senator Al Adams and Senator Sean Parnell cast nay votes. Senator Randy Phillips moved to amend the amended Amendment public safety and transportation" and insert "state government services". He questioned why the earnings reserve account was dedicated for just the three services. Senator Sean Parnell objected. Senator Dave Donley pointed out that even if permanent fund earnings are only used for education, public safety and transportation, the effect still frees general funds for other uses. Therefore, he believed Senator Randy Phillips's proposal is a more honest statement, since the current language implies that only the three departments would be allowed to increase. He supported the amendment to the amended amendment Senator Sean Parnell disagreed, saying that the proposed language gives the impression that the earnings reserve would be spent on all government services with no stipulation. He argued that the current language in the committee substitute tells the public what the prioritization will be in a way that can be accounted for. Because of this, he opposed the amendment to the amended amendment. Senator Randy Phillips suggested that it is inconsistent to specify the spending but not specify the reductions. His goal is to make the language consistent. Senator Gary Wilken commented that during his time on the Committee, he has learned the importance of priorities. He said he asks his constituents what services they feel are most important, because they cannot have everything in times of limited resources. Therefore, he believed this statement is very important since it clearly lists the priorities as education, public safety and transportation, which are the same priorities his constituents value the most. He noted that available funds would be first claimed by those three items, but that the plan does not preclude funding for other services after the priorities are addressed. Senator Dave Donley remarked that education, public safety and transportation are his priorities also, but wanted the language to state that once the earnings reserve is used to fund the three, general funds are freed to be used for other items. Senator Lyda Green asked if the language implies that there is an endowment. Co-Chair John Torgerson responded that the word "endowment" is not used but he did not know if the implication would be made. Senator Lyda Green asked if the plan dictates that the earnings reserve account could be used only for the three services. She also asked if this is this is the first step toward using the earnings reserve account. Co-Chair John Torgerson felt anything could be read into the language. In his opinion, the three priorities would be the last of all reductions that would be made. Senator Gary Wilken said the language did not speak to him as an endowment, it just gave a very strong commitment to the priority. He spoke to the projected growth allowed for the three services while the rest of state government would be held flat. He surmised that this language backs up the plan and the inclusion of growth allowance on the spreadsheets. Senator Loren Leman didn't disagree that these services are high priority items. However, the noted that there is a big difference between identifying something as a high priority and not scrutinizing expenditures to find better ways to deliver services. He stated he would support the amendment but felt the high priority services should be scrutinized as high as the others would. The amendment to the amended Amendment #6 (11) FAILED to be adopted by a vote of 4-5. Senator Lyda Green, Senator Randy Phillips, Senator Dave Donley and Senator Loren Leman voted in favor of the motion. Senator Randy Phillips moved to conceptually amend the amended Amendment #6 (12) to insert projected dividend amounts for the years 2001 and 2010 from spreadsheets detailing Plan A and Plan B with the language, "these dividends are projected to be. " He noted that the projected numbers were not yet available yet, he wanted to tell the public what the projected dividends would be under each plan. Senator Sean Parnell objected and pointed out that the only plan adopted by the Governor was that portrayed in the State of the State address. However, the spreadsheet provided by the Department of Revenue at this meeting detailing the Governor's plan, reflected a different plan. He surmised that the projections would not be accurate since there is not a clear understanding of the Governor's plan. He did not want to make projections based on anything but the plan detailed in January since that is the only plan the Governor has ratified. Co-Chair John Torgerson agreed but noted that the sponsor of the motion did not agree. Senator Al Adams suggested using the numbers from the spreadsheet before the members today and inserting those projections for the Governor's plan. There was further discussion about what the Governor's plan currently was, where the information detailed on the spreadsheets came from and whether the Governor had seen those figures By a vote of 3-6, the amendment to the amended amendment FAILED to be adopted. Senator Randy Phillips, Senator Dave Donley and Senator Al Adams cast votes in favor of adoption. Senator Randy Phillips moved to withdraw his name as the sponsor of the amended Amendment #6 (13). There was clarification as to the intent of the motion. Senator Al Adams objected, noting the Committee had spent time on this amendment. He withdrew his objection and Senator Randy Phillips's name was removed as the sponsor of Amendment #6 as amended. AT EASE 12:18PM / 12:24PM Senator Pete Kelly moved for adoption of Amendment #6 as amended. There was objection (inaudible). The amended amendment read as follows: Plan A Summary of Plan A: Plan A has further spending reductions. Dividends are a percentage of the value of the Alaska Permanent Fund. This plan has no personal income tax. (1) Spending Reductions/Spending Limits Continue state general fund budget reductions of at least $70 million over the next two fiscal years. (2) Permanent Fund Guarantee the Alaska Permanent Fund is inflation- proofed to protect the value of the principal of the fund for all Alaskans, including future generations. (3) Permanent Fund Dividends Guarantee a dividend is paid to qualified Alaska residents at a minimum of $1,700 in 1999 and $1,700 in 2000. Thereafter, the annual dividend is based on a rate of 2.75 percent of the market value of the Alaska Permanent Fund, including the Alaska Permanent Fund Earnings Reserve Account. (4) Permanent Fund Earnings Reserve Guarantees inflation-proofing the Alaska Permanent Fund and pays Permanent Fund Dividends, then prioritizes remaining funds in the Alaska Permanent Fund Earnings Reserve Account for education, public safety, and transportation. (5) No Income Tax Use at least $100 million in new revenues, instead of implementing new broad-based taxes. Plan B Summary of Plan B: Plan B has no further state spending reductions. Dividends from the Alaska Permanent Fund are calculated under the current method. This plan includes a personal income tax. (1) Spending Reductions No further reductions to state spending. (2) Permanent Fund Guarantee the Alaska Permanent Fund is inflation- proofed to protect the value of the principal of the fund for all Alaskans, including future generations. (3) Permanent Fund Dividends Dividend will not be changed from the current formula and method of calculation. (4) Permanent Fund Earnings Reserve Immediately transfer $4 billion from the permanent fund earnings to the Constitutional Budget Reserve Fund with an additional $4 billion dollars in 2011, and $4 billion dollars in 2020. Spend the Constitutional Budget Reserve Fund earnings for state government services. (5) Income Tax Impose a personal income tax on all wage earners projected to be 31 % of a person's federal income tax, collecting $350 million. Senator Dave Donley voiced a conceptual concern with the deletion of the projected dividend amounts under Plan B. He felt the current description of Plan B is misleading because ordinary citizens would not see either plan as having an effect on the dividend, since they would not understand the methods of calculation. He believed a disclaimer should be placed in the ballot language that identifies the fact that the legislature does not know the impact on the dividends under Plan B. He suggested conceptual language to indicate, "because of withdrawals of $4 billion from the permanent fund, the dividends may drop as low as." He could not support the amended amendment on the table without an explanation of the possible impact. Tape: SFC - 99 #138, Side B 12:26PM Senator Gary Wilken wanted the ballot language to include projected dividend amounts. However, he did not support having dividend amounts in one plan but not the other. He suggested reporting the bill out of Committee and inserting the projected dividend amounts into the ballot language later. Senator Gary Wilken asked if that would satisfy Senator Dave Donley's concerns. Senator Dave Donley responded that the Senate body was waiting for this bill. He didn't know when that information would be available or if there would be an opportunity to insert figures later. He restated he could not support the amendment without the inclusion of either the projected amounts or an explanation of why they are not included. Senator Gary Wilken clarified what would be before the Senate if Amendment #6 as amended were not adopted. Senator Dave Donley pointed out that Senator Loren Leman had Amendment #8 that could accomplish his intentions. Senator Pete Kelly stated the Committee was running out of time and the body of the amendments is positive, reflects the work of the Committee and that it is important the bill passes. He suggested that Senator Dave Donley sign the committee report and indicate the need for further amendments. He noted that Senator Dave Donley would have plenty of opportunities to voice his objections if the bill is not amended to his satisfaction. Senator Dave Donley was not asking the Committee to stop actions because of him. He was just voicing his own opinion. Senator Pete Kelly remarked that if this amendment does not pass, it would only slow the process. He believed it is important that this amendment is incorporated into the committee substitute. Amendment #6 as AMENDED was ADOPTED by a vote of 5-4. Senator Loren Leman, Senator Al Adams, Senator Randy Phillips and Senator Dave Donley cast nay votes. Amendment #7: This amendment inserts into the ballot language, "Please select one: ___Plan A ___Plan B". The amendment does not specify where on the ballot this is placed. Senator Randy Phillips moved for adoption. Senator Pete Kelly objected to ask whether the amendment asks the voter to chose Plan A and/or Plan B. Senator Randy Phillips clarified that the question is simply Plan A or Plan B. He offered to change the question if the Committee preferred. Senator Sean Parnell offered a technical amendment to instruct the bill drafter to conform this amendment to the remainder of the bill should it pass. He noted it would require a change to the language in the preamble as well as a change to language in the body of the bill. The current committee substitute stipulates each plan has a "yes" or "no" choice, thus allowing the voter to vote in opposition to both plans. Senator Pete Kelly removed his objection. Senator Dave Donley objected. He believed it was important to give the voters a choice to vote against both plans. Senator Pete Kelly commented that in some respects, the legislature was advocating its responsibility. However, he believed these are special circumstances because the plan is very large. He assessed the expectation of the public is that balanced budget plans will be presented to them. He warned that if the legislature further advocated its responsibility by placing plans before voters that could possibly give no direction, essentially nothing is accomplished. He admonished that a year's worth of debate will have been wasted. He noted that the current ballot language presents four possibilities for the voters to select with the yes or no option available for each plan. He cautioned that the election could result in no winner or a plan that wins with only 26-percent of the votes. He stressed that the legislature needs to provide more leadership than that. He noted that there has been a great deal of public input in the matter already and that the legislature has responded to the objections raised. "It is now time to put before them a plan - A or B, and live with the consequences." Senator Dave Donley respected that opinion but disagreed with it. Senator Lyda Green wanted to know there was a possibility that neither plan would be voted as acceptable. By a vote of 4-5, the amendment FAILED to be adopted. Senator Randy Phillips, Senator Loren Leman, Senator Gary Wilken and Senator Pete Kelly voted in favor of the motion. Amendment #5: No motion was made to reintroduce this amendment so it was WITHDRAWN. Amendment #8: This amendment changes the election date to October 5, and changes the ballot language to the following: QUESTION Preamble: The state treasury's reliance upon declining Alaska oil production and volatile oil prices constitutes an unsustainable state budget system. The legislature and governor seek Alaskan's input in selecting a long-term balanced budget plan. Please mark `yes" beside the plan that you believe the legislature and governor should implement "Plan A" Description Summary of Plan A: This plan proposes further spending reductions and that dividends will be guaranteed at a particular rate. This plan also proposes no personal income tax. In more detail, the plan would provide as follows: (1) Spending Reductions/Spending Limit: Continue making state general fund spending reductions of at least $70,000,000 over the next two years and enact a constitutional spending limit. (2) Permanent Fund: Ensure the Alaska permanent fund is inflation proofed to protect the value of its principal for all Alaskans, including future generations. (3) Permanent Fund Dividends: Guarantee a dividend is paid to qualified Alaska residents of at least $1,700 in 1999 and $1,700 in 2000, and thereafter at a rate of 2.75 percent of the market value of the Alaska permanent fund, including the Alaska permanent fund earnings reserve account. (4) Permanent Fund Earnings Reserve: After inflation proofing the Alaska permanent fund and paying permanent fund dividends, use additional funds in the Alaska permanent fund earnings reserve account to fund state government. The constitutional budget reserve fund will be transferred to the Alaska permanent fund earnings reserve account. (5) New Revenues: Collect at least $100,000,000 in new revenues. A personal income tax would not be enacted. Plan A [ ] "Plan B" Description Summary of Plan: Plan B proposes no further state spending reductions. Further, it proposes implementation of a personal income tax, and calculation of permanent fund dividends under the current statutory method. In more detail, the plan would provide as follows: (1) Spending Reductions/Spending Limits: Make not further state general fund spending reductions nor enact a constitutional spending limit. (2) Permanent Fund: Ensure the Alaska permanent fund is inflation proofed to protect the value of its principal for all Alaskans, including future generations. (3) Permanent Fund Earnings Reserve: Transfer $4,000,000,000 from permanent fund earnings to the constitutional budget reserve fund. Use constitutional budget reserve fund earnings to fund government operations. (4) Permanent Fund Dividends: The formula for calculating the dividend would not be changed from the current method of calculation. (5) New Revenues: Implement a personal income tax to collect $350,000,000 in new revenues. Plan B [ ] Senator Loren Leman moved for adoption. AT EASE 12:40PM / 12:44PM Senator Loren Leman prepared this amendment in the interest of saving time, but noted that the Committee had already spent that time in debating Amendment #6. Senator Loren Leman moved to WITHDRAW his motion to adopt Amendment #8. There was no objection. Senator Sean Parnell made a motion to report CS SB 76 (FIN) as amended from Committee with accompanying fiscal note. There was no objection and it was so ordered. ADJOURNED Senator Torgerson recessed the meeting at 12:46PM to the call of the chair. SFC-99 (1) 5/14/99