MINUTES SENATE FINANCE COMMITTEE March 22, 2000 9:06 AM TAPES SFC-00 # 57, Side A and Side B 58, Side A CALL TO ORDER Co-Chair John Torgerson convened the meeting at approximately 9:06 AM. PRESENT Co-Chair John Torgerson, Co-Chair Sean Parnell, Senator Al Adams, Senator Lyda Green, Senator Loren Leman, Senator Randy Phillips, Senator Gary Wilken and Senator P. Kelly were present when the meeting started. Senator Donley arrived later. Also Attending: SENATOR JERRY MACKIE; SENATOR JERRY WARD; REPRESENTATIVE GARY DAVIS; REPRESENTATIVE JERRY SANDERS; RON LAURENSON, Attorney, Morrison and Foerster, L.L.P., Attorneys at Law, Attending via Teleconference: From Delta Junction: ART GRISWOLD; JOHN GLOTFELTY; From Homer: MARY GRISWOLD; From Kenai: JAMES SHOWALTER; SUSAN GIBSON; BILL PHILLIPS; RALPH RECTOR; ORVILLE MCETHY; From Kodiak: KATE BALLENGER; From MatSu: JUNE BURKHART; LINDA ANDERSON; JESSE CHANDLER; KEITH LIPSE; From Petersburg: BRYAN VAN ETTINGER; From Ketchikan: ORAL FREEMAN; From Anchorage: CARL WASSILIE; From Big Delta: WALTER ST JOHN SUMMARY INFORMATION SJR 33-CONST AM: PERMANENT FUND The Committee heard from the sponsor and took public testimony. The resolution was HELD. SJR 35-CONST AM: PERM FUND INCOME DISTRIBUTION The Committee heard from the sponsor, legal representation of the Permanent Fund Corporation and took public testimony. The resolution was HELD. SENATE JOINT RESOLUTION NO. 33 Proposing amendments to the Constitution of the State of Alaska relating to the permanent fund and to payments to certain state residents from the permanent fund. SENATOR JERRY MACKIE told of how he wanted to generate public discussion on his proposed plan prior to the resolution being heard in any committee. He stated there was a huge response that represented both pro and con viewpoints. He continued that he was appreciative of those who supported the plan. Of those who opposed the plan, he said he wanted to find out why to determine how the concerns might be addressed. Senator Mackie then began to describe the elements of the resolution, referring to a handout entitled, Mackie Plan Assumptions. [Copy on file.] Senator Mackie stated the resolution is a constitutional amendment that would require voter approval. If approved, he said the plan would provide a one-time final dividend payment of $25,000 from the permanent fund for each Alaskan who is eligible for the dividend as of January 2001. He qualified that no new people would move to the state to take advantage of the payout because the one-year residency requirement has already begun. Senator Mackie noted the plan requires no new statutes or changes to statutes. Senator Mackie shared that after the $25,000 dividends were paid out, which he estimated to total approximately $14 billion, the dividend program would end and there would be a balance of $12 - $13 billion in the permanent fund. He said the Permanent Fund Corporation estimates that 592,000 people would be eligible to collect a dividend in the year 2002. He added that the fund would continue to be managed by the Permanent Fund Corporation, the principal would be constitutionally protected against spending without voter approval and that only the earnings would be available for government spending. Senator Mackie pointed out that the plan also calls for inflation proofing the fund and stated that most people agree that inflation proofing the fund was the responsible thing to do. Senator Mackie relayed that the Corporation gave an estimate of the annual earnings off of the $12 billion balance using rates of return of eight, ten and twelve percent. He qualified that the Corporation issued a disclaimer stating their prediction was an eight-percent rate of return. However, he said their projections were always conservative and he noted that the fund has never earned below ten percent. Therefore, he believed ten percent was the most reasonable assessment of future earnings. He referred to the chart in the handout that showed that once the fund was inflation-proofed earnings of ten percent would be $884 million in the first year of the plan. In the year 2003, he said the fund would earn $923 million. He continued with predicted earnings of $962 million and $1.4 billion in the next two years with the amount continuing to grow. He said the reason the earnings continue to increase was because the plan does not change the current constitutional requirement that 25 percent of oil revenues go to the corpus of the permanent fund. Senator Mackie's prediction was that after the payout, this plan balances the budget with no additional taxes required. He indicated his opposition to taxes. Senator Mackie admitted there would be a significant impact on dividend recipients' individual income taxes. He relayed that the Alaska Society of Public Accountants has volunteered to do a complete analysis on the tax consequences for all tax brackets. He thought the members' would be surprised to learn that individuals would actually have more money after they received the one-time large dividend, paid the tax, invested the remaining funds and received an annual dividend from their personal investment. Senator Mackie noted that the average Alaskan was in the 28 percent tax bracket. He said an individual would have to earn over $250,000 per year in order to reach the 39 percent tax bracket. He added that he was continuing to work on determining how Individual Retirement Accounts (IRAs), educational trusts and other investments could avoid some of the tax burden. Senator Mackie voiced another question raised was the affect the payout would have on the eligibility of recipients of such public assistance programs as welfare, Medicare, and low income housing programs. He talked to Margaret Pugh, Commissioner, Department of Health and Social Services and was told that this could be the best public assistance program ever to get people off welfare and to become self- supporting. Senator Mackie avowed that the reason people are poor was because they didn't have any money. He predicted that giving this money would help people. He also anticipated that the state would save money with the reduction of public assistance. Senator Mackie explained how current statutes does not calculate permanent fund dividends as income for eligibility for the Alaska Temporary Assistance Program Denali KidCare, Adult Public Assistance, or the Longevity Bonus Program. He also learned that permanent fund dividend income was not included in the eligibility requirements for most Medicaid benefits. However, he noted that the dividend would be considered as income for those recipients of two programs, food stamps and supplemental social security insurance. Senator Mackie spoke to low income housing programs saying that while current participants would not be affected because federal guidelines allow for a one-time receipt of cash, any new applicants would be affected. He added that daycare assistance, the USDA child and adult care food program, school meals eligibility, and Headstart would not be adversely affected by the large payouts to eligible Alaskans. Senator Mackie next addressed child support saying that Commissioner Perdue said the reason many people were on welfare was because of back child support owed to custodial parents. He told about the large amount of money that a single parent household would receive after the parent and children's' dividends were collected and after the deadbeat parent's dividend was garnished. He suggested that the money could provide for the children's education, provide job training or fund a small business to allow the family to get off public assistance. He quoted the Department of Health and Social Services "It's not fair to assume these folks want to stay on welfare. Any opportunity they have to get off - they're gone." He stressed that this plan would provide a tremendous opportunity for people who are dependent upon the government for basic support. Senator Mackie shared there were currently 11,000 cases of overdue child support payments in the state, where dividends are garnished to help make those payments. He estimated that garnishing a $25,000 dividend from deadbeat parents, who are Alaskan residents would collect $103 million for those children. He continued that 7,500 of those cases would be closed because the amount due was equal to or less than the amount of the large payout. The balances due on the cases would be reduced greatly, he stressed. Senator Mackie next addressed the 10,100 defaulted student loans equaling $80.9 million owed to the State Of Alaska noting that the garnishment of the large dividend would close 9,000 accounts and repay $67 million to the student loan program. Senator Mackie stated that the $25,000 dividends from the current number of 3,500 felons would yield $87.5 million. He told of how the funds are allocated to the Sexual Violence and Domestic Abuse programs, the Violent Crimes Compensation program and the Department of Corrections Prisoner Rehabilitation program. Senator Mackie believed that the permanent fund was established by the voters to provide a source of revenue that would pay for essential services when oil revenues declined. He stated that only 40 percent of the current residents of Alaska were residents when the permanent fund was established. He continued that it wasn't until six years after the fund was established that the legislature decided to distribute some of the earnings among individual residents. He argued that many people have since developed the attitude that the permanent fund is only in place to provide the dividends. Senator Mackie admitted that he and other legislators had been unwilling to argue this point with the public. He divulged that he was as guilty as many others were of championing on the campaign trail, to protect the citizen's dividends at any cost. As a result, he remarked that because of this attitude, "our state's going down the drain." Since he and others were retiring, he shared that they could now "tell it like it is." Senator Mackie expressed that the state was unable to adequately fund the University of Alaska, K-12 education, deferred maintenance needs and road systems. He expounded that this has had a significant negative impact on the public at a time when Alaska is the richest state in the nation. He surmised that there was not one other state that would not want to trade places with Alaska's financial problems. He restated his opposition to tax, saying that to implement a large sales tax would only drain money from the community He did not appreciate the use of the word "bribe" but noted that the $25,000 dividend was an incentive or a negotiation to try to break the hold that people have on the notion that the fund is only for providing dividends. He talked about the different reasons the September 14, 1999 advisory vote regarding the use of the permanent fund had failed. He asserted that those who claim the budget should be cut further don't understand that an additional $1 billion cannot be cut from a $2 billion general fund. His assessment of the reason the long-range budget plan was not approved was because the legislature did an inadequate job of educating the public. He stated that the plan "looked like a blank check that we are writing to ourselves." He added that the plan was too complicated and did not give the voters enough time to thoroughly understand it. Senator Mackie warned against "sticking our heads in the sand," suggesting that the legislature should devise another option to present to the voters. "If you don't like my plan let me see your plan" he remarked and said he appreciated others' plans. He made further comments about other plans and surmised that other legislators would prefer the matter to "go away." Co-Chair Torgerson warned the witness to keep his comments to the bill rather than speculation of the other member's intentions. Senator Mackie shared one of the reasons he developed this plan was because of his concern about the future. He cautioned that if the state's reserved continued to be spent down, in four to five years the reserves would be gone and the legislature would be unwilling to tax at the high rate that would be necessary to fund government. The only option, he stressed would be to tap into the earnings of the permanent fund, which is what pays for the dividend program. Senator Mackie stated that because of the state's constitutional mandate to balance the budget, the legislature would have no other choice but to use funds from the earnings reserve account. REPRESENTATIVE GARY DAVIS added that when the legislation was introduced he immediately supported it. He noted that this plan balances the budget without imposing new taxes. Representative Davis gave a history of the expectations of dividend recipients that initially were "wow, this is nice" to entitlement sentiments after several years of the program. He spoke of testimony from Alaskans challenging the legislature to not take away their individual dividends. He expressed that those people who argue so ardently against using the permanent fund to help pay for government services are not the same people trying to make the decisions necessary to keep government functioning. Representative Davis stressed that while this legislature is attempting to make a $30 million budget reduction, future legislatures will face the need to make much larger reductions. He admonished those who simply call for reductions without understanding what was involved. Representative Davis stated that in the previous year, the voters rejected a long-term solution to the budget situation and that this resolution offered a short-term solution, which may be what the voters wanted. Senator Green asked if the sponsor had looked at what statutes would need to be revised to incorporate this plan. Senator Mackie said he had not because other than clean-up language in the reviser's bill, there would be no other changes to statute. He was careful to not make any changes to statute. Senator Green repeated Senator Mackie's comments that those recipients of welfare, Medicaid, low income housing, Temporary Aide for Needy Families (TANF) or Denali KidCare would not loose their eligibility for those programs after collecting the large dividend. She asked what would be the impact on the hold harmless and if it would be only a portion of the payout amount or the entire $25,000. Senator Mackie understood that the hold harmless did not automatically rise with the amount of the dividend, but was an amount set in statute. Senator Green wanted to know if the witness thought it was a good thing for people who's income and need were the qualifying factors for these programs to receive $25,000 and not have their eligibility impacted. Senator Mackie responded that it was a good thing in that those individuals and families would become able to move off of welfare, which he predicted all would do. Senator Green said that she understood that those recipients would not be required to move off welfare. Senator Mackie deferred to the department for a specific response. He expressed his prediction that many people would leave these public assistance programs and that the entire hold harmless provision would go away since there would no longer be a dividend. Senator Leman continued on Senator Green's point that the sponsor had said the large dividend would not prohibit people from qualifying for certain programs and that the sponsor thought that was positive. Senator Leman found it interesting that the sponsor took that approach rather than considering it a positive incentive for those people if they would not qualify for the programs. Senator Mackie responded that the hold harmless was already placed in statutes and that the legislature could change those provisions if desired. After listening to those who manage the programs and deal with the participants daily, he realized that the participants would be gone. Senator Leman asked if "gone," meant gone from the state or from the programs. Senator Mackie clarified that he meant those program recipients would no longer participate in the public assistance programs, although some could leave the state as well. Senator Leman asked where is the credibility of the permanent fund program when applicants sign an oath that they intent to stay in the state indefinitely. Senator Mackie countered that was the way the system currently operated and that he was not changing anything. While he was not promoting that people leave the state after receiving a large dividend, for those people who lived in Alaska only to receive the benefits of the permanent fund he said, "don't let the door hit you in the butt on the way out." He stressed that he was born in Alaska, his family has been in the state forever and that he would die in Alaska. He suggested that if those people left, there might be smaller class sizes and fewer people to worry about. Co-Chair Torgerson stressed that this resolution did not repeal any statutes. He thought that for Committee members to drill the witness on the impact the resolution would have on any laws was unfair. Senator Wilken requested another opportunity to continue this conversation after the public testimony. He wanted to discuss the fund's earnings and how they would be projected in relation to inflation proofing. Senator Adams stated that the presentation was excellent but that the plan was ahead of its time because the state was not yet "broke". However, he surmised that this was the best long-range plan before either the Senate or the House of Representatives. He supported no taxes, and expressed "let the people vote." Senator Adams then asked about future generations. Senator Mackie agreed the intergenerational issue was a problem and admitted this was not a perfect plan. However, he was also concerned about future generations if there is no money to fund certain services such as the university system and senior citizen programs. Senator P. Kelly questioned whether this plan would actually lose on the intergenerational point, because of the argument that if the state is going to be able to pay for future services, a long-range fiscal plan needs to be implemented now. Co-Chair Torgerson asked the sponsor to provide a written response from the Department of Health and Social Services regarding Senator Green's concerns about whether recipients of a large dividend would qualify for certain public assistance programs. ART GRISWOLD testified via teleconference from Delta Junction as an older resident who would lose money from his Social Security Insurance as well as his tax deductions for his minor children and his spouse if the large payout was made. He encouraged funding of the land grant university work as intended. MARY GRISWOLD testified via teleconference from Homer that she was opposed to SJR 33 and supported HB 411 as a better method of providing essential government services while preserving the dividend program. JAMES SHOWALTER testified via teleconference from Kenai against SJR 33 saying that legislatures did not know the meaning of the word "no". KATE BALLENGER testified via teleconference from Kodiak in strong support for SJR 33 because she believed it would relieve the current funding situation. She was tired of hearing the debate on what programs to cut when this money was available. She could not understand how anyone could oppose this plan when it would eliminate the deficient. JUNE BURKHART testified via teleconference from MatSu asking Senator Mackie what part of no didn't he understand. She took issue with his suggestion that voters did not understand what they were voting for on the advisory vote. She avowed that she knew what she was voting for. BRYAN VAN ETTINGER testified via teleconference from Petersburg against SJR 33 because he believed it would place a wedge between divorced parents. He addressed the deadbeat dad comment and took offense to the term. JOHN GLOTFELTY testified via teleconference from Delta Junction that the resources were given to all Alaskans in the constitution and told the Committee not to remove the citizens from the oversight of the fund. Tape: SFC - 00 #57, Side B 9:54 AM Mr. Glotfelty continued. SUSAN GIBSON testified via teleconference from Kenai taking issue with Senator Mackie's comment about people's attitude regarding budget reductions. She suggested the legislature get some courage to stand up to special interest groups. LINDA ANDERSON testified via teleconference from MatSu accusing the legislators of lining their pockets. BILL PHILLIPS testified via teleconference from Kenai about his mistrust of the legislature. JESSE CHANDLER testified via teleconference from MatSu that he thought the $25,000 payoff was "stupid". KEITH LIPSE testified via teleconference from MatSu telling the Committee to not use his dividend to fund welfare. He charged that the people on public assistance would return even after receiving the large payout. Senator Mackie concluded thanking the Committee for hearing this resolution. He promised that at the next hearing he would ask those who support the plan to come testify. AT EASE 9:59 AM / 10:04 AM SENATE JOINT RESOLUTION NO. 35 Proposing amendments to the Constitution of the State of Alaska to guarantee the permanent fund dividend, to provide for inflation proofing, and to require a vote of the people before changing the statutory formula for distribution that existed on January 1, 2000. Senator Green testified that she introduced this resolution for the opposite reason of SJR 33. Senator Green explained that this plan takes the current statutory formula for dividend distribution and places it into the Alaska Constitution as an amendment to Article 9 Section 15. Senator Green continued that the resolution would guarantee that the eighteen-year history of earnings distribution was preserved, the dividend was protected, the current method of inflation-proofing the corpus of the fund was unchanged and includes no new taxes. Senator Green surmised that once Alaskans felt confident that the dividend program was safe for future generations and that the integrity of the permanent fund was protected, the discussions could then begin on what to do with any excess earnings. Senator Green thought this resolution was the most important step the legislature could take to show Alaskans that the promise would be kept to protect the dividend program, inflation-proof the corpus and ensure the future of the permanent fund for generations to come. Senator Green shared that one of the issues that would be brought to the Committee's attention regarding this resolution was the tax question. She avowed that there was no proof that the U.S. Internal Revenue Service (IRS) would tax the permanent fund any differently after this amendment to the constitution was adopted. On the other hand, she conceded, there was no proof that the taxation would not change. She disclosed that the IRS had never taxed the program in the past and that to her knowledge, the Permanent Fund Corporation has never requested an opinion on the matter from the IRS. Senator Green spoke of warnings that the legislature would lose control over the permanent fund by placing it into the constitution. She assured that the question of who qualified and who received the dividends would always remain in the legislature's perusal. She stressed that this was probably the sidebar that protects and keeps the dividend program from being reclassified for the purposes of federal taxation. Senator Green declared that she did not believe the IRS would risk losing the revenues it currently receives from taxes on dividends. She cited that since the beginning of the dividend program, $8.9 billion had been distributed as dividends and at a conservative rate of 15 percent, she calculated the IRS has received $1.34 billion. Senator Green continued that the legislature could still change the dividend program or the method of inflation proofing through a constitutional amendment approved by a vote of the people. Senator Green mentioned SJR 18 offered the previous session that also proposed to place some of the dividend provisions into the constitution. She talked about the differences in the language between this resolution and SJR 35, saying the resolution before the Committee at this time places only the current statutes relating to dividends and inflation- proofing into the constitution. Excess earnings, she added, are left in statute under the provisions of SJR 35. Senator Green asserted that this resolution would guarantee the legislature access to excess earnings in times of need. She stressed that before any excess earnings could be spent for government services, the public needs to be assured the dividend and inflation proofing was protected. She referred to the booklet, An Alaskan's Guide to the Permanent Fund, saying she thought it clearly states the intent of the program when it was established. [Copy on file] She emphasized the words, "generations to come" as repeatedly mentioned in the booklet. She cited the reason for the permanent fund was to "have less state income" and that it, "reduces the opportunity for excessive state spending." She told the Committee the legislators needed to remember this statement explains why the dividend program exists and why it must continue. Senator Green then addressed a collection of spreadsheets that show models and projections of the impact of various plans on the permanent fund and the dividend program. She cautioned that many more such spreadsheets would be presented and that they are all "suspects" because none has ever proven to be 100 percent correct. She noted this applied to any scenarios that either confirmed or refuted the objections of this resolution. She did however reference the spreadsheets contained in the handout that gave five scenarios ranging from spending none of the permanent fund excess earnings to spending all of the earnings for government services. According to these figures, she surmised that by the year 2010, the individual dividend changes by $100. Therefore, she asserted there was stability built into the permanent fund dividend program that was the envy of other dividend funds. She concluded that simply protecting the dividend and inflation proofing and allowing investments to continue was in the best interest of Alaskans. Senator Leman appreciated and shared the sponsor's desire to keep the fund a permanent fixture. However, he warned that under the current structure of paying dividends based on realized gains, there was a high likelihood the dividend would end in eight or nine years. He asked why the existing structure was retained in the resolution instead of allowing a change to calculate dividends based on a percent of the value of the entire fund. Senator Green responded that she did not think the fund would be eliminated under the current practice of calculating dividends. Senator Leman relayed his understanding of how the fund would greatly diminish under the existing methodology. He qualified that while it has worked for the first 20 years of the program it had a high risk of failure. The concept of enshrining this method in the constitution concerned him because it could backfire. Co-Chair Torgerson clarified Senator Leman's argument derived from a model presented by Callan and Associates that predicted if inflation rose considerably, the scenario of a depleted dividend could occur. Senator P. Kelly relayed that Senator Leman's concern was that if the current structure was placed into the constitution, then the dividend amount would not be drawn down. Senator P. Kelly thought those assumptions were based on the premise that the dividends would be paid first from excess reserves, then the unrealized gains and finally the principal of the fund. However he was unsure that would happen with the program enshrined in the constitution. Senator Donley thought Senator Leman was right. He spoke to a memo he had sent to members at the start of the year regarding this matter laying out that if certain events occurred, Senator Leman's predictions would occur. Senator Donley had proposed a solution to a particular caveat in the dividend calculation formula. His explained his suggestion would change the calculation in the event of certain occurrences. Senator Wilken requested a graphic representation, such as a pie chart showing the program today and what would occur if the measure were to pass. Senator Green said she would comply but noted that the resolution actually changed nothing from the current system. Co-Chair Torgerson shared that he wrote a memo to the executive director of the Permanent Fund Corporation requesting an official position on this legislation, specifically as it related to the tax exempt status of the corporation. He received a response saying the matter would be taken up at the March 8 Board of Directors Meeting. RON LORENSEN, Attorney, Simpson, Tillinghast, Sorensen and Lorensen, Attorneys at Law, serving as outside council to the Permanent Fund Corporation for five years testified about a legal opinion obtained by the corporation on the taxation question. Mr. Lorensen gave a history of the possible taxation of the dividend and what could be done to minimize the tax. He recounted how the corporation sought two outside legal opinions in 1988, each of which took a different approach to the question. He said the opinions both advised that the permanent fund should not be taxable and suggested certain changes to improve the argument that it should remain tax exempt. He remarked that most of those suggested changes were subsequently implemented including a number of changes made by the legislature in 1994. As a result of the changes, he stated that it was the general view that an argument claiming the permanent fund was subject to taxation would be very weak. Mr. Lorensen continued sharing that in 1998, a similar proposal for a constitutional amendment, SJR 18, was introduced in the legislature. At that time, he said, the board felt it was advisable to seek an update of the earlier tax opinions to learn if the changes made had an impact of minimizing tax concerns and also to assess how the proposed changes might implicate arguments to make the fund taxable. That opinion, Mr. Lorensen informed the Committee, updated the earlier opinions to incorporate the adopted changes to the fund and also address the impacts of SJR 18. He relayed that the opinion advised that imbedding the dividend program into the constitution would create a significant risk of subjecting the permanent fund income to taxation. He cited the opinion gave two inter-related reasons, one was called a "private interest" in funds. He explained that when a private interest was created in government funds, the funds lose the governmental tax immunity protection. The other reason cited in the opinion, he continued was whether or not the income accrues to the state. He expounded that the underlying question was whether the state legislature, the body with the power of appropriation, also has the power of appropriation with respect to that income. He pointed out that by imbedding the appropriation of the dividends permanently into the state constitution, the constitution takes the appropriation power away from the legislature. As a result, he asserted the argument strengthens that the income no longer accrues to the state and becomes a private interest and subsequently becomes taxable income. Mr. Lorensen said that the board had been concerned about the confidentiality of that opinion because of the conclusions contained, which could come back to harm the state if the information became public. He told the Committee that he had communicated to the board, the co- chair's conviction that this opinion was an important aspect of the public policy debate. Mr. Lorensen disclosed that the board has authorized him to provide a copy of the opinion to the Committee "with no strings attached." He expressed that it was the board's preference that the information remains confidential but that the board offered the opinion to the Committee to use as it deemed appropriate. AT EASE 10:26 AM / 10:27 AM Co-Chair Torgerson relayed that he had a lengthy debate with the corporation and Mr. Lorensen about whether or not this opinion should be made public. Co-Chair Torgerson said that during the break, another Committee member suggested to him that the opinion should not be accepted if it could jeopardize the permanent fund. However, he concluded that the question of whether to enshrine the dividend in the constitution is a larger public policy question. He said in order for that question to be considered, Alaskans need to know the potential consequences. Co-Chair Torgerson stated that he was opposed to the Committee having an executive session to review the contents of the legal opinion only to emerge with a decision made without any public input or public record. Co-Chair Torgerson asked the witness whether he thought that releasing the opinion to the public would jeopardize the status of the permanent fund. Mr. Lorensen answered that he did not believe that releasing the opinion would jeopardize the permanent fund. He added that the opinion concludes that the arguments are stronger regarding the tax exemption of the current status of the fund than if the dividend program were placed in the constitution. There was some discussion between Co-Chair Torgerson and Mr. Lorensen about the need for information provided to the Committee in a public hearing to be public information versus information garnered in an executive session. Mr. Lorensen concluded that while he was not convinced the opinion needed to be made public, he was prepared to release the opinion to the Committee to do with it as saw fit. Senator Phillips asked for specific clarification from the legal advisor to the corporation, Mr. Lorensen, if the tax on the permanent fund would greatly increase if the resolution were adopted. Mr. Lorensen affirmed it would be substantially greater, "from something well below 50 percent now to well in excess of 50 percent, I believe." When asked by Senator Phillips if he was guessing at this assessment, Mr. Lorensen qualified that "I'm just doing the best I can. I'm not the court. I'm not the ultimate decider." Senator Green said she knew the defining issue on the vulnerability of taxation was public interest versus private interest. She asked for a clarification of public interest. Mr. Lorensen responded that the matter was not a question of public interest versus private interest, it was a question of whether or not a private interest was created. He explained private interest applied to an individual citizen that was independently enforceable, or could enforce him or herself. He stated that placing the dividend program into the constitution would provide that private interest because it would allow a citizen to make a constitutional claim for the dividend if he or she did not get one. Mr. Lorensen continued answering Senator Green's question saying that the other issue was whether or not the legislature had the ability to exercise the power of appropriation over the money. Senator Green asked about the issue of whether the determination of who could receive the dividend was subject to legislative change. She wanted to know if that was considered when the board was discussing the taxability question and considering obtaining legal advice. She suggested the legislature could make eligibility determinations based on need, senior citizen status, or any permutation of demographic information. She thought that the private interest would not be established if the legislature had the option of redefining eligibility each year. Mr. Lorensen did not think this specific variable was raised with the attorneys. However, he stated Senator Green's suggestion probably did not address the question of whether or not a private interest existed at any one point in time. He explained that while who was entitled to the private interest could change, the fact that an underlying private interested existed, would not change. Senator Green commented that even if the constitution were amended as proposed in this resolution, a future amendment was possible through the same process. Therefore, she concluded that the legislature would always have some involvement in the dividend program through the budget process unless the corporation decided to distribute the dividends itself. Mr. Lorensen said the comments about amending the constitution were correct but that the legislature would not have control over the vote of the people, which would be required to pass an amendment. Co-Chair Torgerson thought that the Committee would have to read the opinion to understand the witness's private interest argument. Senator Adams worried that the federal tax rules were "governed by the creator," meaning that the federal government adopted laws when and how they benefited the federal government. He asked what amount the dividend would be using the model presented the previous year. Mr. Lorensen understood the question but did not know the answer. He did not know if the corporation had calculated those figures or not. Senator Adams restated his question to ask, if the fund lost tax immunity, what percentage or amount of the interest would the federal government take from the fund in the form of taxes. Mr. Lorensen answered it would be approximately 39 percent Co-Chair Torgerson asked if the board took a position on this resolution. Mr. Lorensen replied it had not. Senator Phillips wanted to know if the board would take a position if the legislature requested it do so. Mr. Lorensen could not speak for the board. ART GRISWOLD testified via teleconference from Delta Junction that he believed more research should be done on the tax structure, but once resolved, supported the resolution. LYNN BURKHARDT testified via teleconference from Homer that if the public asked the legislature to not spend the permanent fund, then it should not be spent. She talked about the payoffs of the oil industry compared to the environmental impacts. RALPH RECTOR testified via teleconference from Kenai asking why the tax would be so high because it should be calculated on the number of shareholders. "Keep your hands off of our money." JUNE BURKHART testified via teleconference from MatSu in strong support of the resolution and commended the sponsors. She believed that the fund was created for the benefits of all Alaskans forever. ORAL FREEMAN testified via teleconference from Ketchikan in agreement with the resolution. He repeated the previous speaker's comment that the fund was for all Alaska. CARL WASSILIE testified via teleconference from Anchorage in favor of SJR 35 saying he thought the tax concerns could be resolved with further discussion. Tape: SFC - 00 #58, Side A 10:47 AM JOHN GLOTFELTY testified via teleconference from Delta Junction in support of the resolution and questioned why the tax situation would change. MARY GRISWOLD testified via teleconference from Homer in opposition of the resolution although she did support the concept of protecting the fund. She suggested HB 411 was a better method. She gave detailed to explain her reasoning. JAMES SHOWALTER testified via teleconference from Kenai thanking the sponsors for introducing the bill, which he favored. He stated that it protects the oil revenues. SUSAN GIBSON testified via teleconference from Kenai in support of the resolution. She suggested nonessential services should be eliminated and that if done so, there would be enough funds for the budget. DALE BONDURANT testified via teleconference from Kenai about his understanding of the purpose of the permanent fund and his support of the resolution. LINDA ANDERSON testified via teleconference from MatSu that she thought the government had not been cut enough. JESSEE CHANDLER testified via teleconference from MatSu in favor of SJR 35. CLIFTON CHANDLER testified via teleconference from MatSu that he believed this resolution protected the permanent fund for his and his children's future. KEITH LIPSE testified via teleconference from MatSu thanking Senator Green for looking out for the public's interest in the permanent fund. WALTER ST JOHN testified via teleconference from Big Delta that the IRS would love SJR 33 to become adopted. ORVILLE MCETHY testified via teleconference from Kenai in support of SJR 35. He commented on the fast ferries in British Columbia, Canada and noted that Governor Knowles was planning to purchase two for Alaska. Co-Chair Torgerson ordered the resolution HELD in Committee. ADJOURNED Senator Torgerson adjourned the meeting at 10:57 AM. SFC-00 (18) 03/22/00