Legislature(2003 - 2004)

03/16/2004 11:02 AM EDU

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HB 333-PUBLIC SCHOOL ENDOWMENT                                                                                                
Number 0119                                                                                                                     
                                                                                                                                
CHAIR GATTO  announced that the  only order of business  would be                                                               
HOUSE BILL NO.  333, "An Act relating to an  endowment for public                                                               
education; and providing for an effective date."                                                                                
                                                                                                                                
[Before the  committee is CSHB 333,  Version 23-LS099\X, Bullock,                                                               
3/8/04.]                                                                                                                        
                                                                                                                                
Number 0130                                                                                                                     
                                                                                                                                
REPRESENTATIVE DAN  OGG, Alaska State Legislature,  sponsor of HB                                                               
333, announced that the  intent of HB 333 is to  use a land grant                                                               
vehicle in  order to fulfill a  land grant process and  create an                                                               
endowment  that would  benefit  the University  of  Alaska.   The                                                               
original  legislation  created a  new  education  trust fund  and                                                               
transferred to the  University of Alaska 1 percent  of state land                                                               
in  an undivided  interest in  "tenancy  in common."   Version  X                                                               
[which  is before  the committee]  accomplishes  the same  thing;                                                               
however, it creates a 4 percent  interest in state land and gives                                                               
2  percent to  the University  of Alaska  and 2  percent to  K-12                                                               
public education.   In the  proposed CS  the monies will  flow to                                                               
the University of  Alaska's land grant trust  fund, which already                                                               
exists, while  the other monies  will flow to an  education trust                                                               
fund which  will benefit  K-12 education.   These monies  will be                                                               
kept in  principal and both  funds will  operate on a  percent of                                                               
market  value   (POMV)  method.     Furthermore,   both  versions                                                               
[operate] under the premise that this  would only be in regard to                                                               
new revenues  and wouldn't impact  existing revenue  streams from                                                               
state  lands.   He  reminded  the committee  that  last week  the                                                               
committee adopted a conceptual amendment addressing that point.                                                                 
                                                                                                                                
CHAIR GATTO  inquired as to the  money spent on K-12  versus that                                                               
spent on the University of Alaska.                                                                                              
                                                                                                                                
REPRESENTATIVE OGG  related his belief  that last year  there was                                                               
about $740  to $750 million spent  on K-12 education.   Under the                                                               
House  version  [this  year]  the state  would  spend  over  $800                                                               
million.    The  university  spending  will  be  at  almost  $230                                                               
[million] under the House version.                                                                                              
                                                                                                                                
CHAIR  GATTO announced  for the  record that  Representative Gara                                                               
has joined the meeting.                                                                                                         
                                                                                                                                
Number 0544                                                                                                                     
                                                                                                                                
REPRESENTATIVE GARA related his  assumption that a certain amount                                                               
of the proceeds from land would  be devoted to the university and                                                               
K-12.   Therefore,  it seemed  like a  transfer of,  essentially,                                                               
general fund (GF)  money and a guarantee that the  money would go                                                               
to the  university or  K-12.   However, he  said he  just noticed                                                               
that the  money going to  the university will  not be able  to be                                                               
spent, but will have to be placed  in a trust fund from which the                                                               
proceeds  of the  investment earnings  could  only be  used.   He                                                               
asked if that's how it will work.                                                                                               
                                                                                                                                
REPRESENTATIVE  OGG replied  yes, that's  how it  would work  for                                                               
both the university and K-12 funding.                                                                                           
                                                                                                                                
REPRESENTATIVE  GARA  said  that  this approach  would,  in  some                                                               
sense, increase  the deficit because  money that  would otherwise                                                               
go into the GF  is being taken.  He posed a  situation in which a                                                               
$100 million  is taken and rather  than allowing it to  be spent,                                                               
it  places it  into a  fund  and only  $8 million  can be  spent.                                                               
Therefore, it  seems to add to  the budget deficit.   However, if                                                               
that  money were  merely given  to  the university  and K-12,  it                                                               
wouldn't  change the  budget deficit,  he opined.   However,  the                                                               
[positive side]  is that [with  the trust] an endowment  is built                                                               
up and there is a long stream of income going to these entities.                                                                
                                                                                                                                
Number 0724                                                                                                                     
                                                                                                                                
REPRESENTATIVE OGG  pointed out that it  isn't impacting revenues                                                               
right  now.   For instance,  if the  Bristol Bay  gas lease  sale                                                               
takes place, each of the entities  would receive its 2 percent at                                                               
some point  in the future.   Therefore, the deficit  gap wouldn't                                                               
be  impacted  now.   Representative  Ogg  highlighted  that  this                                                               
legislation  transfers   a  vested  interest  in   property,  and                                                               
therefore if  the entities are  given 2  percent of the  land, it                                                               
comes out of the picture altogether  because the land would go to                                                               
its entity.   Again, there  would be  no impact because  it would                                                               
basically be a gift of the land.                                                                                                
                                                                                                                                
REPRESENTATIVE  GARA  noted his  preference  for  the tenancy  in                                                               
common  concept   rather  than  a   land  grant.     However,  he                                                               
anticipated  that there  will always  be budget  problems in  the                                                               
state.  Therefore,  if this legislation is passed,  then one must                                                               
realize that  a certain amount  of money that would've  gone into                                                               
the general  fund in the  future would now  go into a  trust fund                                                               
and only perhaps  an 8 percent portion of it  can be spent, which                                                               
would result in  the taxpayers having to make  up the difference.                                                               
"I don't ...  know that that's a  bad idea, but ...  it seems ...                                                               
to be the case," he remarked.                                                                                                   
                                                                                                                                
REPRESENTATIVE OGG agreed  that one could view it that  way if he                                                               
or she views  it as a yearly appropriation.   However, he pointed                                                               
out  that  the  supreme  court   has  ruled  that  once  land  is                                                               
transferred  it  isn't  an  appropriation.   Once  the  title  is                                                               
transferred,  the  land  would  be  an  asset  belonging  to  the                                                               
university.     An  endowment  process  is   being  created,  and                                                               
therefore the  money isn't  lost to the  state because  the money                                                               
goes toward funding the university and K-12.                                                                                    
                                                                                                                                
REPRESENTATIVE  GARA   opined  that  it's  a   good  policy,  but                                                               
maintained concern  with the ramifications that  it will actually                                                               
cost something to do this.                                                                                                      
                                                                                                                                
Number 1016                                                                                                                     
                                                                                                                                
REPRESENTATIVE SEATON noted that there  is a proposal to increase                                                               
the percentage  to 5 percent.   Representative Seaton highlighted                                                               
that this  would include the land  as well as any  money made off                                                               
the  land,  such   as  from  oil  revenues   from  new  deposits.                                                               
Therefore, instead of having a  constitutional mandate to take 25                                                               
percent of  oil revenues  and place in  the permanent  fund, this                                                               
legislation would mandate  taking 30 percent of  the oil revenues                                                               
with 25 percent being placed in  the permanent fund and the other                                                               
5  percent in  this new  permanent fund.   Representative  Seaton                                                               
recalled  that  last  year the  legislature  reversed  a  similar                                                               
situation  created  under  HB  11.   He  expressed  the  need  to                                                               
consider the impact of the aforementioned on future budgets.                                                                    
                                                                                                                                
REPRESENTATIVE OGG pointed  out that wouldn't be  an impact today                                                               
because this  legislation only speaks  to new revenues.   He said                                                               
that  it  takes  quite  a  while to  reach  the  situation  which                                                               
Representative Seaton has described,  perhaps a generation or two                                                               
down  the road.   Representative  Ogg highlighted  that only  one                                                               
other  state has  a smaller  land grant  to its  education system                                                               
than  Alaska.   This  legislation  would  fulfill the  state  and                                                               
federal governments'  desire to  fund Alaska's  university system                                                               
via a land grant.                                                                                                               
                                                                                                                                
Number 1276                                                                                                                     
                                                                                                                                
CHAIR GATTO  surmised that what  Representative Seaton  is saying                                                               
is  that the  state  operates on  a revenue  stream,  and as  the                                                               
existing  revenue stream  winds down  and it  is replaced  by new                                                               
revenues.   Under this  legislation, if money  is taken  from the                                                               
new revenue  stream as  the old revenue  stream is  depleted, the                                                               
old revenue  stream is  compromised.   "So that  even if  this is                                                               
something that will  be productive in a generation or  two, it is                                                               
financed through an existing revenue stream," he stated.                                                                        
                                                                                                                                
REPRESENTATIVE OGG  reiterated that  it wouldn't  impact existing                                                               
revenue streams.                                                                                                                
                                                                                                                                
Number 1361                                                                                                                     
                                                                                                                                
REPRESENTATIVE  WILSON   agreed  with  Chair   Gatto's  comments.                                                               
However, she opined that the  concept of this legislation is very                                                               
important  because the  future is  unknown.   She further  opined                                                               
that  Alaska's university  system  and schools  have been  funded                                                               
inadequately.   This legislation  looks to the  future and  is an                                                               
important first step for education.                                                                                             
                                                                                                                                
Number 1501                                                                                                                     
                                                                                                                                
REPRESENTATIVE  SEATON remarked  that HB  333 seems  to establish                                                               
two new permanent funds, the impact  of which is unknown.  If the                                                               
desire is  to tap the revenue  stream from oil and  the permanent                                                               
fund,  that  should  be  done   rather  than  creating  two  more                                                               
permanent  funds.    He  suggested  that  it  may  be  more  cost                                                               
effective to tap into 2 percent  of the earnings of the permanent                                                               
fund  each  year  to fund  [education].    Representative  Seaton                                                               
clarified  that  he doesn't  oppose  the  idea of  an  endowment.                                                               
However,  current  income  money  is being  sequestered  and  the                                                               
earnings  from  that   money  is  going  to  be   used  [to  fund                                                               
education].  He  questioned where such types of  funds would end,                                                               
noting  that he  could see  such a  fund established  for [Alaska                                                               
Department  of  Fish  &  Game].     He  questioned  whether  this                                                               
legislation  is  really  discussing   a  process  to  access  the                                                               
earnings that are  sequestered in a permanent  fund or endowment.                                                               
This is  a complicated way in  which to have a  dedicated revenue                                                               
stream for education, he summarized.                                                                                            
                                                                                                                                
Number 1672                                                                                                                     
                                                                                                                                
REPRESENTATIVE  KAPSNER noted  her excitement  with regard  to HB                                                               
333  because  she  believes  there should  be  an  endowment  for                                                               
education,  which  is  a constitutionally  mandated  requirement.                                                               
She  opined that  creating  an endowment  is a  good  use of  the                                                               
state's   resources.     Representative   Kapsner  informed   the                                                               
committee that she recently watched  an interesting program on C-                                                               
SPAN  which  reported  that  there  will  be  more  technological                                                               
progress in the  next 25 years than  in the last 100  years.  She                                                               
also informed  the committee that  before [the  terrorist attacks                                                               
of September 11,  2001] there was a study  regarding the greatest                                                               
threats  to national  security.   The second  threat to  national                                                               
security was  how far  behind students are  in math  and science.                                                               
Therefore, she announced her strong support of this legislation.                                                                
                                                                                                                                
CHAIR GATTO  pointed out that  the U.S.  tries to educate  all of                                                               
its children,  and therefore  the average  scores are  lower than                                                               
had the  U.S. only educated  its best and brightest.   Therefore,                                                               
he opined that the U.S. isn't doing  as bad a job as indicated by                                                               
some data.                                                                                                                      
                                                                                                                                
REPRESENTATIVE  KAPSNER remarked  that generational  advances are                                                               
being  made.     She  acknowledged   that  it's   expensive,  but                                                               
highlighted that  in the long term  it will be beneficial.   With                                                               
regard to  resource development  and comments  that the  gas line                                                               
will be on-line  in six years, she pointed out  that in six years                                                               
the  current  sixth  graders  will  be in  the  work  force,  and                                                               
therefore [the state] should invest in those resources.                                                                         
                                                                                                                                
Number 1904                                                                                                                     
                                                                                                                                
REPRESENTATIVE  OGG  acknowledged  that  this  legislation  is  a                                                               
policy  call with  regard  to  a land  grant  for the  university                                                               
system  and  K-12.   He  pointed  out  that the  legislature  has                                                               
established  a land  grant for  the university  in the  amount of                                                               
250,000   acres.      This    legislation   would   rescind   the                                                               
aforementioned because the discussions  regarding getting to that                                                               
land  have  been  fraught  with   difficulty.    Therefore,  this                                                               
legislation maintains the land grant  policy and expands it to K-                                                               
12, but  fulfills the policy  by providing an  undivided interest                                                               
and retaining management.                                                                                                       
                                                                                                                                
REPRESENTATIVE  GARA  opined  that   this  is  good  legislation.                                                               
Although  this   legislation  will   cost  money,  it's   a  wise                                                               
expenditure in the  short term for a long-term  benefit, he said.                                                               
He announced that he will  support the legislation, and expressed                                                               
the need  for the legislature  to get  past the notion  that only                                                               
legislation without a fiscal note can go forward.                                                                               
                                                                                                                                
CHAIR  GATTO  commented  that  the  House  Special  Committee  on                                                               
Education  recently report  legislation out  of committee  with a                                                               
seven   digit  fiscal   note,   so  he   does   not  agree   with                                                               
Representative Gara's remark.                                                                                                   
                                                                                                                                
REPRESENTATIVE SEATON clarified that  he isn't opposed to funding                                                               
education.    However,  he  reiterated   his  concern  that  this                                                               
legislation  sequesters an  additional 5  percent of  the state's                                                               
future  income stream  in  addition  to the  25  percent that  is                                                               
already  sequestered  for  the  permanent fund.    This  is  very                                                               
different than  saying something will  be done with land.   These                                                               
funds  will be  placed  in a  bank somewhere  where  it is  hoped                                                               
interest will  be made which will  then fund education.   That is                                                               
where he has a problem, he stated.   He reiterated that he has no                                                               
problem funding education.                                                                                                      
                                                                                                                                
Number 2229                                                                                                                     
                                                                                                                                
JOE  BEEDLE, Vice  President of  Finance,  University of  Alaska,                                                               
testified that the university supports HB 333.                                                                                  
                                                                                                                                
REPRESENTATIVE  WILSON inquired  as  to what  Joe  Beedle or  Bob                                                               
Loeffler,  Department of  Natural  Resources (DNR),  see for  the                                                               
next 20  years with regard  to the  state's revenue stream.   She                                                               
mentioned  looking forward  to more  resource  extraction in  the                                                               
state.                                                                                                                          
                                                                                                                                
Number 2358                                                                                                                     
                                                                                                                                
CLIFF  STONE,  Staff  to Representative  Dan  Ogg,  Alaska  State                                                               
Legislature,  noted  that  the committee  packet  should  include                                                               
Legislative  Research  Report  number  04.176  regarding  revenue                                                               
projections  from  future  resource   development.    The  report                                                               
projects that in 2030, new  resource development will be over $21                                                               
billion, which includes  the gas line being in place.   Mr. Stone                                                               
clarified  that the  aforementioned  projection  isn't an  annual                                                               
rate, but  rather an accumulation to  that point.  He  noted that                                                               
the  $21 billion  is very  conservative.   In  response to  Chair                                                               
Gatto,  Mr.   Stone  specified  that  new   resource  development                                                               
includes   the  gas   line,  Arctic   National  Wildlife   Refuge                                                               
development, the  undiscovered National  Petroleum Reserve-Alaska                                                               
(NPR-A),  the Beaufort  Sea, and  some  central north  satellites                                                               
that aren't  currently on line.   In addition to the  oil and gas                                                               
[development], there  would be minuscule resource  development in                                                               
platinum, gold, or other ore extractions.                                                                                       
                                                                                                                                
REPRESENTATIVE SEATON  turned attention  to the fiscal  note from                                                               
DNR  regarding which  lands would  be transferred.   However,  he                                                               
understood that the legislation  wouldn't transfer any lands, but                                                               
would  transfer between  a 1  to 5  percent interest  in all  the                                                               
revenue  generated from  those lands  under a  tenancy in  common                                                               
approach.   Therefore, he questioned  whether the fiscal  note is                                                               
based  upon  the physical  transfer  of  land  or transfer  of  a                                                               
percentage of the amount of money made on those lands.                                                                          
                                                                                                                                
Number 2489                                                                                                                     
                                                                                                                                
BOB LOEFFLER, Director, Central  Office, Division of Mining, Land                                                               
and Water,  Department of Natural  Resources, explained  that DNR                                                               
and  the  attorney  general  read  the  legislation  to  transfer                                                               
specific lands rather  that a percentage of revenue  from all the                                                               
lands.  Therefore, [the fiscal note  is based on] all the revenue                                                               
of all  the lands.   After discovering that  isn't Representative                                                               
Ogg's intent,  the department developed language  that would make                                                               
the  intent clear.    However, that  language  isn't included  in                                                               
version  X,  but once  it's  included  in the  legislation  DNR's                                                               
fiscal note would drop to zero.                                                                                                 
                                                                                                                                
MR.  LOEFFLER, in  response to  Representative Wilson,  specified                                                               
that  proposed  AS  14.40.507 would  merely  require  some  minor                                                               
changes  that  would  clarify  that there  is  no  conveyance  of                                                               
individual parcels of land, but  rather that there is an interest                                                               
in the revenue stream of all the lands.                                                                                         
                                                                                                                                
CHAIR  GATTO  turned attention  to  page  26 of  the  Legislative                                                               
Research   Report  attachment   entitled  "Resource   Development                                                               
Opportunities" from  the Fall 2003  Revenue Sources  Book, Alaska                                                               
Department  of   Revenue,  which  shows  a   sizable  portion  of                                                               
anticipated  revenues  to  come  from ANWR.    He  mentioned  the                                                               
difficulty in  predicting future  revenues.  On  page 34  of this                                                               
attachment, the following statement is found:                                                                                   
                                                                                                                                
     In 2003, Korea signed a contract valued at $20 million                                                                     
     with Usibelli to resume importing coal from Korea.                                                                         
                                                                                                                                
CHAIR   GATTO   expressed   confusion    with   regard   to   the                                                               
aforementioned statement.                                                                                                       
                                                                                                                                
MR. LOEFFLER clarified that Alaska is exporting coal to Korea.                                                                  
                                                                                                                                
CHAIR  GATTO  said he  was  aware  of  that, and  therefore  that                                                               
statement is of  concern and causes him to  question the validity                                                               
of the other data.                                                                                                              
                                                                                                                                
CHAIR  GATTO  likened  this  legislation to  when  parents  of  a                                                               
newborn set  aside money  for its  education in  the future.   He                                                               
explained  that the  aforementioned means  that money  that would                                                               
ordinarily be  available to  spend today would  be set  aside for                                                               
future  expenditures.     Therefore,   this  legislation   is  no                                                               
different than a bank account.                                                                                                  
                                                                                                                                
MR. LOEFFLER agreed.   He specified that a  separate endowment is                                                               
being created  and the  earnings from  that endowment  is funding                                                               
the partial cost of education in Alaska.                                                                                        
                                                                                                                                
CHAIR  GATTO surmised  that  essentially what  is  being done  is                                                               
taking the  CBR [constitutional budget reserve]  fund and setting                                                               
it aside  for a  future use,  which is exactly  what the  CBRF is                                                               
for.   "If we're  going to  borrow from the  CBR to  fund today's                                                               
expenses  and we're  going to  borrow  from ourselves  to fund  a                                                               
future expense, that means we have  to take more out of the CBR,"                                                               
he surmised.                                                                                                                    
                                                                                                                                
Number 2900                                                                                                                     
                                                                                                                                
REPRESENTATIVE  WILSON  returned  attention  to page  26  of  the                                                               
attachment to the  Legislative Research Report.   She pointed out                                                               
that it refers  to developing new oil fields, and  she noted that                                                               
the state  will never reach  the 2 million  barrels a day  of the                                                               
past.  She highlighted that  the state's natural resources aren't                                                               
unlimited, and  therefore she emphasized  the need to  look ahead                                                               
and put something like this legislation in place.                                                                               
                                                                                                                                
CHAIR GATTO commented  that such was done long ago  and the state                                                               
would really be  in a bind today without the  permanent fund.  He                                                               
reiterated his  view that this  legislation establishes  a second                                                               
permanent fund.                                                                                                                 
                                                                                                                                
MR. STONE acknowledged that everyone cares about education.                                                                     
                                                                                                                                
TAPE 04-16, SIDE B                                                                                                            
                                                                                                                                
MR. STONE  highlighted that at  this point more money  comes from                                                               
the permanent  fund than  from oil.   However, there  hasn't been                                                               
the political  resolve to [use]  the earnings reserve  account to                                                               
fund  what  is  constitutionally mandated.    Therefore,  another                                                               
revenue stream  has to be  found.   In his personal  opinion, Mr.                                                               
Stone said  that HB  333 takes  care of  the land  endowment, and                                                               
creates another  "permanent fund."   Although  the aforementioned                                                               
will cost the state some money  in the short term, more wealth is                                                               
created for  the future.  That  wealth would come from  this "new                                                               
permanent fund" that the legislature has the resolve to spend.                                                                  
                                                                                                                                
Number 2918                                                                                                                     
                                                                                                                                
REPRESENTATIVE SEATON opined that it  would probably be better to                                                               
have  a   separate  account  [for  education]   in  the  existing                                                               
permanent fund.   In the  aforementioned scenario  there wouldn't                                                               
be any  administrative costs.   Representative  Seaton reiterated                                                               
his concern  that this legislation establishes  two new permanent                                                               
funds.   "If what  we're trying  to do is  ... a  revenue stream,                                                               
then what  we need  to do  is account for  that money  within the                                                               
permanent fund,  that money, under  POMV, comes out of  there and                                                               
it  is directed  to ...  the recipients  and that  gets us  there                                                               
without  having  the  administrative burden  of  having  separate                                                               
funds," he opined.                                                                                                              
                                                                                                                                
REPRESENTATIVE  SEATON, in  response  to  Chair Gatto,  clarified                                                               
that what he  is saying is that HB 333  establishes new education                                                               
funds  and  new  mechanisms  for   managing  it,  when  the  only                                                               
management [necessary] is what is  required of the permanent fund                                                               
endowment.    Therefore, he  suggested  that  the Permanent  Fund                                                               
Board should  manage this  money as it  does the  permanent fund,                                                               
and the  revenues stream of  the POMV percentages would  come out                                                               
and be  distributed to  the university and  K-12 education.   The                                                               
aforementioned would seem to simplify the concept.                                                                              
                                                                                                                                
Number 2801                                                                                                                     
                                                                                                                                
REPRESENTATIVE  OGG  acknowledged  that  Representative  Seaton's                                                               
suggestion  could be  used.   However,  he pointed  out that  the                                                               
university  already has  a land  grant trust  fund and  the money                                                               
[generated  under  HB 333]  would  flow  into  that fund.    This                                                               
legislation creates an  education trust fund for  the State Board                                                               
of Education.   Representative Ogg explained that  land grants do                                                               
something  different  than  the  permanent  fund.    Land  grants                                                               
specify  that  land  assets  will  be  utilized  to  ensure  that                                                               
education has a  source of funding.   Representative Ogg recalled                                                               
serving on the Board of Regents  for the University of Alaska and                                                               
when it wanted  to develop land, part of the  constituency of the                                                               
university  supporters   didn't  want  certain   land  developed.                                                               
Therefore, in giving  the land in the fashion  [proposed under HB                                                               
333],  the  state's resources  are  being  tied directly  to  the                                                               
state's  education system.   Perhaps,  folks  would realize  that                                                               
development  of  the  land  would provide  more  funding  to  the                                                               
[education  system], and  over  time  would support  development.                                                               
That  direct  linkage wouldn't  be  achieved  with the  permanent                                                               
fund, he said.                                                                                                                  
                                                                                                                                
REPRESENTATIVE WILSON  informed the committee that  K-12 has land                                                               
that  has been  set aside  for it.   In  fact, she  believes that                                                               
those  lands  allowed  for  $7  million to  be  placed  into  the                                                               
foundation formula  this year.   The biggest reason to  put forth                                                               
legislation such as  this would be to  establish an understanding                                                               
by the  citizens of  Alaska of  the purpose  of the  fund, rather                                                               
than  having a  situation such  as that  with the  permanent fund                                                               
dividend  where people  believe  it was  developed  so that  they                                                               
could  receive  a   check  each  year.     She  highlighted  that                                                               
generations to come will benefit from this legislation.                                                                         
                                                                                                                                
Number 2524                                                                                                                     
                                                                                                                                
REPRESENTATIVE SEATON  turned attention to  page 4 of  Version X,                                                               
which  establishes   an  Education  Trust  Fund   Board  that  he                                                               
characterized  as   a  new   administrative  bureaucracy.     The                                                               
aforementioned is problematic,  he said.  However,  he noted that                                                               
he liked the  notion of tenants in common because  it discusses a                                                               
percentage of  the income the  state receives going to  the trust                                                               
rather than development of specific  lands, which is exactly what                                                               
is done with  the permanent fund.  He expressed  the need to deal                                                               
with the revenue stream in the most efficient way possible.                                                                     
                                                                                                                                
MR. BEEDLE  explained that when  there is  a transfer, even  in a                                                               
tenants in  common situation, it's  still necessary for  there to                                                               
be an  owner representative, a  trustee, and an  administrator to                                                               
respond to  the other owner,  the State of Alaska  represented by                                                               
DNR.    The  Education  Trust  Fund Board  is  charged  with  the                                                               
aforementioned function  as well as reporting  the uses, expense,                                                               
et cetera  of the  earnings of  the fund  as has  the "University                                                               
Board" over  some 40  years.  Mr.  Beedle informed  the committee                                                               
that the University  of Alaska Education Trust Fund  has some $80                                                               
million  in  investments  and combined  with  the  University  of                                                               
Alaska Foundation  for a  consolidated investment,  and therefore                                                               
the university's  [fund] exceeds  $200 million.   With  regard to                                                               
the Education Trust  Fund Board, Mr. Beedle pointed  out that the                                                               
commissioner of the Department of  Revenue will take care of [the                                                               
K-12 fund]  for purposes of  investment.  He indicated  that [the                                                               
Department of Revenue]  has [in the past] either done  it or used                                                               
the permanent fund [as an administrator].                                                                                       
                                                                                                                                
Number 2296                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GARA related  his understanding  that money  from                                                               
future lease revenue would be  money that would've otherwise gone                                                               
to the  general fund, not  money that would've otherwise  gone to                                                               
the permanent fund.                                                                                                             
                                                                                                                                
REPRESENTATIVE OGG  explained that  currently the  university has                                                               
up to 250,000 acres and it  will take the university some time to                                                               
select that  land.  [That  land] comes out  of the assets  of the                                                               
state and is no longer part  of the state's assets, and therefore                                                               
it's no longer money coming to  the general fund or the permanent                                                               
fund.                                                                                                                           
                                                                                                                                
REPRESENTATIVE  GARA  surmised   that  this  legislation  doesn't                                                               
impact any money that goes into  the permanent fund.  He asked if                                                               
that is correct.                                                                                                                
                                                                                                                                
REPRESENTATIVE OGG  answered, "It affects the  whole spectrum the                                                               
way it's written."                                                                                                              
                                                                                                                                
REPRESENTATIVE   GARA  surmised   that  such   would  require   a                                                               
constitutional change.                                                                                                          
                                                                                                                                
REPRESENTATIVE OGG replied no, and  specified that [a percentage]                                                               
of the  land is  being taken  and becoming  a vested  interest in                                                               
either the  university or [K-12].   "And  it's no longer  part of                                                               
the whole, in a sense.  It's  undivided in the whole but it's not                                                               
an obligation," he said.                                                                                                        
                                                                                                                                
REPRESENTATIVE  GARA  questioned  whether  that's  correct.    He                                                               
pointed out that the Alaska  State Constitution specifies that 25                                                               
percent  of  all royalty  money  goes  into the  permanent  fund.                                                               
Therefore, he said he doesn't  believe establishing this proposal                                                               
under HB 333 would allow  [the legislature] to touch those funds.                                                               
He surmised that  this [legislation] is focusing on  a portion of                                                               
the money  left over  that [would normally]  go into  the general                                                               
fund.                                                                                                                           
                                                                                                                                
REPRESENTATIVE  OGG  responded,  "If  it's read  the  way  you're                                                               
saying, then that's ... what's being done."                                                                                     
                                                                                                                                
Number 2153                                                                                                                     
                                                                                                                                
MR. LOEFFLER  related his  understanding that  DNR would  have to                                                               
meet  both  its constitutional  obligations,  25  percent to  the                                                               
permanent fund, and the obligation of this legislation.                                                                         
                                                                                                                                
REPRESENTATIVE  GARA  surmised  then  that the  4  or  5  percent                                                               
dedicated to the education trust  fund would come from the future                                                               
general fund.                                                                                                                   
                                                                                                                                
MR. LOEFFLER explained that it  would come from the various funds                                                               
that  it would  otherwise  go  into, such  as  the land  disposal                                                               
income  fund.   However,  he agreed  that it  would  be from  the                                                               
general fund and not the permanent fund.                                                                                        
                                                                                                                                
REPRESENTATIVE GARA asked  if the intent is for  this proposal to                                                               
impact money that would otherwise go into the permanent fund.                                                                   
                                                                                                                                
REPRESENTATIVE OGG said that isn't the intent.                                                                                  
                                                                                                                                
Number 2076                                                                                                                     
                                                                                                                                
REPRESENTATIVE GARA  returned to Representative  Seaton's concern                                                               
with regard to dual administration,  and asked if the legislation                                                               
allows the  commissioner of the  Department of Revenue  to manage                                                               
this  money  in  conjunction  with  other  money  that  is  being                                                               
managed.                                                                                                                        
                                                                                                                                
MR. BEEDLE  opined that  this legislation  will allow  either the                                                               
investments [to be  managed] by the permanent fund  board or [the                                                               
Department of Revenue] subject to  the commissioner of Department                                                               
of  Revenue's  decision.   The  aforementioned  wouldn't  require                                                               
separate investment personnel.                                                                                                  
                                                                                                                                
Number 1982                                                                                                                     
                                                                                                                                
THOMAS BOUTIN,  Deputy Commissioner, Office of  the Commissioner,                                                               
Department of  Revenue, clarified  that a  fiscal note  to manage                                                               
this money  is included.   No  matter who  manages the  money, it                                                               
costs money  to do so.   Although there  wouldn't have to  be any                                                               
new staff  or organization to  manage the money, the  fiscal note                                                               
does include  assumptions.  Therefore  the money  management fees                                                               
were included related  to those assumptions.   If the assumptions                                                               
change, the fees change, he noted.                                                                                              
                                                                                                                                
REPRESENTATIVE   SEATON  related   his  understanding   that  the                                                               
transfer of  the 4 percent  undivided interest in the  land under                                                               
this  legislation includes  all new  oil royalties.   He  posed a                                                               
hypothetical  situation in  which someone  has ownership  of that                                                               
land, and  asked if the  royalty percentages come out  before the                                                               
25  percent  of  state  royalties that  are  deposited  into  the                                                               
permanent  fund.   He surmised  that the  4 to  5 percent  of the                                                               
land, including  its mineral wealth  is transferred to  the trust                                                               
funds,  would  come  out  before the  state  royalties  that  are                                                               
generated on the  lands "they" own and thus would  come out prior                                                               
to the permanent fund monies.                                                                                                   
                                                                                                                                
MR.  BOUTIN said  he  read it  as the  sponsor  did, although  he                                                               
recognized that  Mr. Loeffler read  it differently.   He deferred                                                               
to   the   representative   from  the   Alaska   Permanent   Fund                                                               
Corporation.                                                                                                                    
                                                                                                                                
Number 1784                                                                                                                     
                                                                                                                                
LAURA   ACHEE,  Research   and  Communications   Liaison,  Alaska                                                               
Permanent Fund Corporation, Department  of Revenue, said that she                                                               
was sent today to find out the  answer to that question.  If it's                                                               
determined that the  4 percent would be subtracted  before the 25                                                               
percent  is determined,  it would  impact future  revenues coming                                                               
into the permanent  fund.  If it's determined that  the 4 percent                                                               
would be subtracted  from the portion that generally  goes to the                                                               
general fund and other funds,  it wouldn't impact future revenues                                                               
coming into the permanent fund.                                                                                                 
                                                                                                                                
CHAIR GATTO related his understanding  that no one can affect the                                                               
25 percent that goes into the permanent fund.                                                                                   
                                                                                                                                
MS. ACHEE  agreed, but  she highlighted that  it's 25  percent of                                                               
the mineral revenues.                                                                                                           
                                                                                                                                
REPRESENTATIVE GARA concluded that  the legislation will probably                                                               
face  stumbling  blocks  if   the  legislation  requires  placing                                                               
revenue in  this fund  that would otherwise  go to  the permanent                                                               
fund.  Therefore, he suggested  that the language [be made] clear                                                               
that it  is not the intent  to impact money that  would otherwise                                                               
go into the permanent fund.                                                                                                     
                                                                                                                                
Number 1630                                                                                                                     
                                                                                                                                
REPRESENTATIVE WILSON moved Conceptual  Amendment 2 "to make sure                                                               
that the  bill language  is changed to  conform to  the sponsor's                                                               
intent" specifically on page 6, proposed [AS 14.40].507.                                                                        
                                                                                                                                
REPRESENTATIVE  OGG surmised  that the  language in  proposed [AS                                                               
14.40].507 needs  to be clear  that this  bill does not  refer to                                                               
specific  pieces  of land.    He  said  he  has no  problem  with                                                               
Conceptual Amendment 2.                                                                                                         
                                                                                                                                
Number 1474                                                                                                                     
                                                                                                                                
REPRESENTATIVE GARA  objected and expressed  the need to  be more                                                               
specific with Conceptual Amendment 2.   After trying to wordsmith                                                               
the  amendment to  Conceptual  Amendment  2, Representative  Gara                                                               
withdrew his amendment to Conceptual Amendment 2.                                                                               
                                                                                                                                
REPRESENTATIVE  OGG stated  [that Conceptual  Amendment 2  should                                                               
result in language]  "... that it is clear that  the land granted                                                               
is tenancy  in common and it's  an undivided interest.   And that                                                               
DNR and the  university, ... they need to be  satisfied that that                                                               
particular  language says  that."   Representative Ogg  commented                                                               
that the  committee should  decide whether  the 25  percent comes                                                               
off the top of state land or is secondary.                                                                                      
                                                                                                                                
REPRESENTATIVE  GARA  surmised  his  understanding  that  HB  333                                                               
doesn't require  that the  state sell  or develop  any particular                                                               
land,  rather the  university and  the education  community would                                                               
receive a certain  portion of revenues received  from the state's                                                               
lands.                                                                                                                          
                                                                                                                                
REPRESENTATIVE OGG replied yes, and  clarified that the intent is                                                               
that  the  [university  and  K-12]  would  receive  an  undivided                                                               
interest  in the  land and  the  revenues would  flow from  those                                                               
rights, but  the [university and  K-12] wouldn't  have management                                                               
authority.                                                                                                                      
                                                                                                                                
REPRESENTATIVE GARA withdrew his objection.                                                                                     
                                                                                                                                
CHAIR  GATTO,  upon  determining   that  there  were  no  further                                                               
objections, announced that Conceptual  Amendment 2 was adopted by                                                               
the House Special Committee on Education.                                                                                       
                                                                                                                                
Number 1212                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GARA moved  that the  committee adopt  Conceptual                                                               
Amendment 3,  as follows:   "The revenues devoted to  these trust                                                               
funds shall be calculated after  the permanent fund receives it's                                                               
constitutional share of  revenues and ... they  should not affect                                                               
the amount  of money that goes  into the permanent fund."   There                                                               
being no objection, Conceptual Amendment 3 was adopted.                                                                         
                                                                                                                                
REPRESENTATIVE  SEATON requested  a legal  opinion regarding  the                                                               
transfer  of  subsurface  rights  under  this  legislation.    He                                                               
expressed  the need  to ensure  that the  transfer of  subsurface                                                               
rights doesn't jeopardize  the state under the  Statehood Act and                                                               
doesn't  allow  a claim  to  revert  those  [lands] back  to  the                                                               
federal government.                                                                                                             
                                                                                                                                
MR. BEEDLE informed  the committee that the  University of Alaska                                                               
has received  a considerable  amount of land  from the  state and                                                               
enjoys the  subsurface [rights].  The  title is fee simple.   The                                                               
determinations  have consistently  been that  it doesn't  violate                                                               
the Statehood Act.                                                                                                              
                                                                                                                                
CHAIR  GATTO  related  his understanding  that  fee  simple  land                                                               
guarantees the  subsurface rights.   He  asked if  the university                                                               
has received land that wasn't fee simple.                                                                                       
                                                                                                                                
MR. BEEDLE confirmed  that the university has  received land that                                                               
wasn't fee  simple.   In some  cases, the  transfer was  only for                                                               
surface  estate  and  thus  the   university  didn't  [enjoy  the                                                               
subsurface rights].   In other cases the  university has received                                                               
single rights  to enjoy resource  extraction, such as  for timber                                                               
or  gravel, which  were restricted  transfers and  the university                                                               
didn't [enjoy the subsurface rights].                                                                                           
                                                                                                                                
CHAIR GATTO surmised that it varies depending upon the property.                                                                
                                                                                                                                
REPRESENTATIVE  SEATON asked  if, within  the tenancy  in common,                                                               
that it isn't a transfer but  rather that it includes the mineral                                                               
rights as well as the surface estate.                                                                                           
                                                                                                                                
REPRESENTATIVE OGG opined that it's clear.                                                                                      
                                                                                                                                
CHAIR GATTO closed public testimony.                                                                                            
                                                                                                                                
Number 0818                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GARA  moved  to  report  CSHB  333,  Version  23-                                                               
LS099\X,  Bullock,  3/8/04, as  amended,  out  of committee  with                                                               
individual  recommendations and  the  accompanying fiscal  notes.                                                               
There being  no objection,  CSHB 333(EDU)  was reported  from the                                                               
House Special Committee on Education.                                                                                         

Document Name Date/Time Subjects