Legislature(2015 - 2016)BILL RAY CENTER 208

06/14/2016 08:30 AM House FINANCE

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08:38:28 AM Start
08:39:13 AM SB138
12:17:59 PM Adjourn
* first hearing in first committee of referral
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= bill was previously heard/scheduled
Scheduled but Not Heard
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
                  HOUSE FINANCE COMMITTEE                                                                                       
                  FOURTH SPECIAL SESSION                                                                                        
                       June 14, 2016                                                                                            
                         8:38 a.m.                                                                                              
8:38:28 AM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair  Thompson   called  the  House   Finance  Committee                                                                    
meeting to order at 8:38 a.m.                                                                                                   
MEMBERS PRESENT                                                                                                               
Representative Mark Neuman, Co-Chair                                                                                            
Representative Steve Thompson, Co-Chair                                                                                         
Representative Dan Saddler, Vice-Chair                                                                                          
Representative Bryce Edgmon                                                                                                     
Representative Les Gara                                                                                                         
Representative Lynn Gattis                                                                                                      
Representative David Guttenberg                                                                                                 
Representative Scott Kawasaki                                                                                                   
Representative Cathy Munoz                                                                                                      
Representative Lance Pruitt                                                                                                     
Representative Tammie Wilson                                                                                                    
MEMBERS ABSENT                                                                                                                
ALSO PRESENT                                                                                                                  
Craig Richards, Attorney General,  Department of Law; Angela                                                                    
Rodell,   Executive   Director,    Alaska   Permanent   Fund                                                                    
Corporation;  David  Teal,   Director,  Legislative  Finance                                                                    
Division;  Randall  Hoffbeck,  Commissioner,  Department  of                                                                    
Revenue;  Representative  Paul Seaton;  Representative  Andy                                                                    
Josephson;  Representative   Craig  Johnson;  Representative                                                                    
Adam Wool; Representative  Bob Herron; Representative Louise                                                                    
Stutes, Representative Liz  Vasquez; Representative Sam Kito                                                                    
III;  Representative   Lora  Reinbold;   Representative  Ivy                                                                    
HB 245    PERM. FUND:DEPOSITS;DIVIDEND;EARNINGS                                                                                 
          HB 245 was SCHEDULED but not HEARD.                                                                                   
SB 128    PERM. FUND:DEPOSITS;DIVIDEND;EARNINGS                                                                                 
          SB 128 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
CS FOR SENATE BILL NO. 128(FIN)                                                                                               
     "An  Act   relating  to   the  Alaska   Permanent  Fund                                                                    
     Corporation,  the  earnings  of  the  Alaska  permanent                                                                    
     fund,  and the  earnings reserve  account; relating  to                                                                    
     management of  the budget reserve  fund (art.  IX, sec.                                                                    
     17, Constitution of the State  of Alaska) by the Alaska                                                                    
     Permanent Fund Corporation;  relating to procurement by                                                                    
     the Alaska Permanent Fund  Corporation; relating to the                                                                    
     mental  health trust  fund; relating  to deposits  into                                                                    
     the  dividend  fund;  relating to  the  calculation  of                                                                    
     permanent  fund  dividends;  relating  to  unrestricted                                                                    
     state   revenue   available  for   appropriation;   and                                                                    
     providing for an effective date."                                                                                          
8:39:13 AM                                                                                                                    
RANDALL  HOFFBECK,  COMMISSIONER,   DEPARTMENT  OF  REVENUE,                                                                    
stated that  he would be  providing a brief overview  of the                                                                    
bill.  He remarked  that there  were many  misunderstandings                                                                    
related to  the components  of the legislation.  He remarked                                                                    
that the state had  lost approximately three-quarters of its                                                                    
revenue. He  relayed that the  Permanent Fund  Earnings were                                                                    
examined as  a potential  source of  future revenue.  He did                                                                    
not  feel that  there was  a temporary  decline in  revenue;                                                                    
rather there  was a  structural shift in  the price  of oil,                                                                    
which was  fostered by changes  in technology. He  felt that                                                                    
oil prices would  remain between $35 and $65  per barrel. He                                                                    
stressed  that there  was not  enough  oil and  gas tax  and                                                                    
royalty revenue to support  government spending. He stressed                                                                    
that  the state  needed  to examine  alternative sources  of                                                                    
revenue.  He pointed  out that  the Permanent  Fund earnings                                                                    
was  the largest  source of  available revenue.  He remarked                                                                    
that other  sources could provide  nearly $100  million; but                                                                    
the  Permanent Fund  earnings could  provide  $1 billion  or                                                                    
more  to solve  the  deficit problem.  He  pointed out  that                                                                    
there  was  an  approximately   $3.7  billion  deficit.  The                                                                    
legislature had cut nearly $1.2  billion over two years, but                                                                    
there  remained  a  substantial deficit.  He  stressed  that                                                                    
there needed to be immediate  action. He remarked that there                                                                    
were two  major economic drivers  within the state:  the oil                                                                    
and gas industry; and government  spending. He stressed that                                                                    
there was  not much that  could be  done related to  oil and                                                                    
gas prices. He furthered that  the state could stabilize the                                                                    
government spending, and in doing  so provide some stability                                                                    
for the  economy. He  stated that  the private  industry was                                                                    
unwilling  and/or unable  to  make  large scale  investments                                                                    
with the  uncertainty of  the Alaska  economy. He  felt that                                                                    
the legislation  provided a level  of security.  He stressed                                                                    
that there  was no other  available action option.  He noted                                                                    
that  the   current  year  was   the  last  year   that  the                                                                    
constitutional budget  reserve (CBR) could be  used to cover                                                                    
the state  deficit. He noted  that Standard and  Poors (S&P)                                                                    
had  mad  strong  statements regarding  the  state's  credit                                                                    
rating. He  noted that there  were many residents  that were                                                                    
moving from Alaska  to places that were perceived  as a more                                                                    
stable  economy.  He  felt  that using  the  earnings  in  a                                                                    
systematic fashion would stabilize the economy.                                                                                 
Representative   Wilson   announced   that  she   had   some                                                                    
clarifying questions.                                                                                                           
Co-Chair Thompson  stressed that he  would like to  hear the                                                                    
entire presentation before addressing specific questions.                                                                       
8:46:47 AM                                                                                                                    
CRAIG RICHARDS, ATTORNEY GENERAL,  DEPARTMENT OF LAW, shared                                                                    
that  he  would address  the  mechanical  provisions of  the                                                                    
bill. He stressed  that the committee was  familiar with the                                                                    
administration's goal to optimally  use the sovereign wealth                                                                    
assets. He remarked that the  governmental budgets grew when                                                                    
oil prices were  high. He remarked that during  the early to                                                                    
mid-1980s  and the  early 2000s  showed a  time of  high oil                                                                    
prices  and high  oil prices.  The governor's  original bill                                                                    
looked  to address  the problem  of  the "commodities  price                                                                    
8:50:12 AM                                                                                                                    
Co-Chair   Thompson   recognized   Representative   Johnson,                                                                    
Representative Josephson, and Representative Seaton.                                                                            
Attorney General Richards announced  that the bill's initial                                                                    
focus was the  Percentage of Market Value  (POMV). He stated                                                                    
that the  governor's original proposal  said to put  the oil                                                                    
revenues in  the Permanent Fund  and withdraw  $3.3 billion.                                                                    
He  stated that  the bill  was not  the governor's  original                                                                    
proposal,  because it  did  not  place additional  petroleum                                                                    
revenues into  the Permanent Fund. The  bill left production                                                                    
taxes  and   royalties,  except  for   the  constitutionally                                                                    
mandated 25 percent  to the corpus, in the  general fund. He                                                                    
stated that the bill would  draw approximately 5 percent out                                                                    
of the  Permanent Fund.  Therefore, approximately  5 percent                                                                    
of  the  value of  the  fund  would  be withdrawn  from  the                                                                    
Permanent  Fund annually.  He explained  that 20  percent of                                                                    
that amount would  be used for the dividend,  and 80 percent                                                                    
would  go to  the general  fund. He  stated that  the amount                                                                    
would be approximately $1.9 billion  on an ongoing basis. He                                                                    
explained  that  it  would be  a  fairly  consistent  amount                                                                    
because the POMV was based on  the value on the fund and the                                                                    
average of prior years.                                                                                                         
Co-Chair Thompson  acknowledged Representative Kito  III and                                                                    
Representative Reinbold in the room.                                                                                            
8:58:01 AM                                                                                                                    
Commissioner Hoffbeck  reported that  for the first  3 years                                                                    
the  dividend  payout would  be  $1000,  and then  would  be                                                                    
converted to a formula. He  explained that the formula would                                                                    
be 20  percent of POMV  and 20  percent of the  general fund                                                                    
royalties would  establish the  dividend. He  explained that                                                                    
the governor's  original proposal was entirely  based on the                                                                    
royalties,  but  would  provide   for  a  volatile  dividend                                                                    
stream.  He shared  that the  current legislation  created a                                                                    
stable  dividend. He  stated  that 20  percent  of the  POMV                                                                    
would represent approximately 75  percent of the total value                                                                    
of the dividend.                                                                                                                
Co-Chair  Neuman  thought  the commissioner  was  inaccurate                                                                    
regarding  the shock  to  the economy.  He  felt that  there                                                                    
would be a shock to the state economy.                                                                                          
Commissioner Hoffbeck  shared that  his comment  referred to                                                                    
an  interjection of  money into  the economy  that were  not                                                                    
otherwise  there  as  related  to  using  the  earnings.  He                                                                    
stressed that the earnings currently  paid the dividend, and                                                                    
the remainder was  put in savings. He  acknowledged that the                                                                    
dividend size had an effect on the economy.                                                                                     
Co-Chair  Thompson acknowledged  Representative Wool  in the                                                                    
9:02:44 AM                                                                                                                    
Co-Chair Neuman  pointed out that  he had  been a part  of a                                                                    
similar discussion in Fairbanks.  He remarked that currently                                                                    
people  were moving  out of  the state  and their  homes. He                                                                    
stressed  that the  bill  had a  significant  impact on  the                                                                    
economy. He  felt that a  $700,000 reduction to  the economy                                                                    
would result in  the closure of business. He  noted that the                                                                    
CBR balance was  expected to be approximately  $3 billion at                                                                    
the  beginning of  the next  fiscal year.  He remarked  that                                                                    
there was  still between  $7 billion and  $8 billion  in the                                                                    
earnings reserve for  a total of $10 billion  to $11 billion                                                                    
even  after the  current  year's deficit.  He stressed  that                                                                    
there  would be  enough money  to cover  the deficit  in the                                                                    
following year.                                                                                                                 
Commissioner Hoffbeck  felt that there  could not be  a draw                                                                    
on the CBR the following  year, because the state must start                                                                    
using the earnings reserve. He  remarked that there would be                                                                    
approximately $3 billion in the  CBR, but money needed to be                                                                    
left in there. The CBR was an emergency fund.                                                                                   
Co-Chair Neuman disagreed  that it was not an  option to not                                                                    
take action.  He felt  that there would  be enough  money to                                                                    
cover  the  following  year's  budget.   He  felt  that  the                                                                    
assertion that bills  could not be made  without actions was                                                                    
incorrect and wrong.                                                                                                            
9:06:30 AM                                                                                                                    
Commissioner Hoffbeck replied that he  did not mean to imply                                                                    
that the state could not pay its bills.                                                                                         
Co-Chair  Neuman argued  that the  assertion that  the state                                                                    
could not pay its bills was not true.                                                                                           
Co-Chair Neuman stressed that the  state did not waste money                                                                    
over the  past few years.  He felt that the  communities who                                                                    
received those  funds thought those  funds were  well spent.                                                                    
The money spent  reflected the needs of  the communities. He                                                                    
remarked  that the  budget had  been reduced  significantly,                                                                    
and  disagreed  with  those   who  thought  differently.  He                                                                    
expressed concern  about a spending limit.  He was concerned                                                                    
about the ability of future  legislatures. He was attempting                                                                    
to  understand both  sides of  the conversation,  because he                                                                    
was in charge  of the operating budget. He  stressed that he                                                                    
understood  the current  deficit. He  felt that  restricting                                                                    
the legislature was wrong.                                                                                                      
Co-Chair  Thompson  was  concerned  with  a  spending  limit                                                                    
because of deferred maintenance projects.                                                                                       
9:11:39 AM                                                                                                                    
Vice-Chair Saddler  asked about where  Commissioner Hoffbeck                                                                    
was getting  his information about people  leaving the state                                                                    
due  to the  outlook  of the  economy.  He wondered  whether                                                                    
people  were  leaving the  state  because  they were  losing                                                                    
their  jobs. He  understood  that  there were  approximately                                                                    
2300 jobs lost in the oil patch.                                                                                                
Commissioner Hoffbeck  replied that he was  referencing news                                                                    
articles that stated that  transportation companies had full                                                                    
vans of people moving south.                                                                                                    
Vice-Chair Saddler  felt that the Permanent  Fund should not                                                                    
be  considered  a  "sovereign   wealth  fund",  because  the                                                                    
definition of "sovereign wealth fund"  was that it was owned                                                                    
by the  government. He  stated that  the Permanent  Fund was                                                                    
owned by  the people of Alaska.  He wondered if there  was a                                                                    
conflict between the administration's  view of the Permanent                                                                    
Fund   as   a   government   pool  of   money   versus   the                                                                    
constitution's  assertion that  the Permanent  Fund was  the                                                                    
people's money.                                                                                                                 
Attorney  General  Richards  clarified   that  it  was  just                                                                    
vernacular.  There was  no distinction  in his  mind between                                                                    
the two terms.                                                                                                                  
Vice-Chair Saddler  felt that  there was  a conflict  in the                                                                    
bill between the Statehood Act and the bill.                                                                                    
Attorney General  Richards replied that  he did not  see any                                                                    
conflict, rather saw policy decisions.  He stressed that the                                                                    
legislature  had   the  policy  power  to   use,  under  the                                                                    
constitution  to use  mineral  royalties  or Permanent  Fund                                                                    
earnings in  a matter that  it chooses to  incorporate them.                                                                    
He  explained   that  the   Permanent  Fund   earnings  were                                                                    
historically  saved,  issue   dividends,  or  provide  other                                                                    
Vice-Chair  Saddler   wondered  if   he  had   considered  a                                                                    
potential conflict with the Statehood Act.                                                                                      
Attorney General  Richards replied  that he  had discussions                                                                    
about  the issue.  He was  familiar  with Section  6 of  the                                                                    
Statehood  Act, which  set aside  the revenues  from mineral                                                                    
deeds  to  the  State  of   Alaska  for  patrimony.  He  was                                                                    
confident  that the  legislature had  the discretion  to use                                                                    
the earnings in a manner that it saw fit.                                                                                       
Vice-Chair Saddler  wondered if  there were  any limitations                                                                    
for the use of the Permanent Fund.                                                                                              
Attorney  General Richards  replied in  the affirmative.  He                                                                    
explained that, under the  state constitution, the Permanent                                                                    
Fund  corpus could  be  spent through  the  earnings on  the                                                                    
corpus,   and  were   subject   to   appropriation  by   the                                                                    
9:16:23 AM                                                                                                                    
Representative   Wilson   felt   that  "just   because   the                                                                    
legislature has  the discretions, does not  necessarily make                                                                    
it the right way to  go." She wanted clarification regarding                                                                    
the  assertion that  using money  from the  earnings reserve                                                                    
would have  less impact.  She felt  that using  the earnings                                                                    
reserve, once  the dividend was paid  and inflation proofing                                                                    
occurred,  may be  considered savings.  She felt  that there                                                                    
would be an  impact to the economy, because  the money would                                                                    
be taken from the dividend.                                                                                                     
Commissioner Hoffbeck replied that  there would be an impact                                                                    
to  the economy.  He explained  that the  other part  of the                                                                    
savings: the  interjection of money that  would otherwise be                                                                    
put  into  savings, was  the  only  piece that  allowed  the                                                                    
opportunity to deal with the  deficit without a shock to the                                                                    
Representative Wilson  agreed that the state  had previously                                                                    
had $1000  dividend payouts. She  felt that the  economy was                                                                    
different  at that  time, with  higher government  spending.                                                                    
She stressed that the largest  current budget cut was in the                                                                    
capital budget.  She asserted that the  dividend limit would                                                                    
have a greater impact than it may have in the past.                                                                             
Commissioner  Hoffbeck relayed  that  there  had been  other                                                                    
things affecting  the payout  amount including  stock market                                                                    
crash,  and its  implications. He  agreed that  there was  a                                                                    
higher oil  price, so there was  robust government spending,                                                                    
but there were unrelated shocks to the economy.                                                                                 
Representative  Wilson wanted  more straightforward  answers                                                                    
regarding the exact impact of  the legislation. She stressed                                                                    
that  the  bill  did  not only  use  earnings  reserve.  She                                                                    
remarked that  the money would  be taken from  the dividend.                                                                    
She  wondered whether  the spending  limit  would limit  the                                                                    
actual money the government could spend on operations.                                                                          
Attorney  General Richards  replied in  the affirmative,  if                                                                    
the terms of the limit were  met. He was concerned about the                                                                    
lack of clarity around the  definitions of the terms related                                                                    
to  spending  limits.  He  felt that  there  would  be  open                                                                    
questions  for when  the limit  would apply  as a  practical                                                                    
matter. He felt that providing  clarity with those terms may                                                                    
result in limited spending.                                                                                                     
Representative   Wilson   hoped    that   there   would   be                                                                    
clarification with  those terms before the  bill was brought                                                                    
to  a  vote. She  explained  that  limiting spending  to  $3                                                                    
billion would limit  the use of other  savings accounts, and                                                                    
actually limit  the money  that would  go into  the everyday                                                                    
operating budget.                                                                                                               
Attorney General  Richards responded that it  would limit it                                                                    
to   the   previous   year's   unrestricted   general   fund                                                                    
Representative Wilson wanted to  ensure that the legislature                                                                    
could not change that limit at the time of appropriation.                                                                       
9:21:40 AM                                                                                                                    
Representative  Gara  thought  everyone could  count  votes.                                                                    
Currently, there were not enough  votes to pass the bill. He                                                                    
thought the version needed to  be changed, as there were not                                                                    
enough votes  to pass  it in  its current  form. One  of the                                                                    
negatives of  the bill  - according  to Institute  of Social                                                                    
and Economic Research  (ISER) it would equate  to 8000 jobs.                                                                    
He   also   had   a   problem   in   the   bill   with   the                                                                    
constitutionality  of  the  bill.  He thought  it  would  be                                                                    
difficult to enforce the bill.                                                                                                  
Commissioner Hoffbeck responded that  there was only so much                                                                    
money in  the system. He  shared that more  flexibility with                                                                    
the increase  in oil prices  required an examination  of the                                                                    
sustainable draw. He remarked that  there may be a reduction                                                                    
in  the  underlying baseline  draw  in  order to  gain  that                                                                    
flexibility  when prices  increase. He  remarked that  there                                                                    
may be a trade-off of  short-term higher draws for long-term                                                                    
flexibility.  He  stressed  that  it was  a  math  equation,                                                                    
because there was limited money  in the system. He wanted to                                                                    
ensure that  the future generations had  the same advantages                                                                    
in the current structure.                                                                                                       
Attorney General Richards added  that the administration was                                                                    
open to new  ideas. He stated that the  current proposal was                                                                    
not   in   its  original   form.   He   remarked  that   the                                                                    
administration had  an entirely different method  to address                                                                    
the volatility.  He remarked that  the current  proposal was                                                                    
from Senator Stoltze in the  Senate State Affairs Committee.                                                                    
He  pointed out  that  the current  revenues from  petroleum                                                                    
taxes was forecasted at approximately  $600 million, and the                                                                    
limit  did not  "kick in"  until $1.2  billion. He  stressed                                                                    
that there was an additional  $700 million in revenue before                                                                    
the limit would occur. He  noted that the projections of the                                                                    
moment  the limit  was  enacted did  not  show hitting  that                                                                    
limit  in  the  ten-year  horizon   of  the  DOR  oil  price                                                                    
projections. He stressed that the  limit would only occur at                                                                    
a fundamental change in the oil pricing situation.                                                                              
9:28:12 AM                                                                                                                    
Representative  Gara had  a problem  with the  limit because                                                                    
with the formula  at 80 a barrels would not  have any impact                                                                    
under  any of  the  forecasted oil  prices.  He queried  the                                                                    
circumstances  that  there  would  be  out  of  savings  and                                                                    
circumstances that savings would still  be intact at the end                                                                    
of FY 17.                                                                                                                       
Commissioner  Hoffbeck   replied  that  the  CBR   would  be                                                                    
approximately  $3  billion after  FY  17.  He remarked  that                                                                    
examining the FY 16 versus  the FY 17 was approximately $3.8                                                                    
billion. He  stressed that there  would not be  enough money                                                                    
the following  year to  do the same  actions in  the current                                                                    
year.  He stated  that  the problem  was  compounded by  the                                                                    
recognition that there  should be money retained  in the CBR                                                                    
for  the unknown  financial problems.  He stressed  that the                                                                    
legislature was in  a position to have  the exact discussion                                                                    
the following  year, if no  action was taken in  the current                                                                    
Representative Gara felt that the  only way for the spending                                                                    
cap to  be enforceable was  when the people call  each other                                                                    
out on the violation. He  stressed that using a spending cap                                                                    
reduced  the amount  of  money available  year  by year.  He                                                                    
stressed  that  the job  of  the  finance committee  was  to                                                                    
balance a way to maintain  fiscal stability in the state and                                                                    
represent the people  of the state. He  remarked that people                                                                    
were also  leaving the state  because their jobs  were being                                                                    
cut due to reductions in funding for their jobs.                                                                                
Commissioner Hoffbeck responded that  there were many people                                                                    
that would leave because of  the diminishment of the life in                                                                    
Representative Gara remarked that he  was willing to come to                                                                    
a compromise  to protect  the dividend. He  did not  want to                                                                    
currently address  the imbalance to  the plan. He  felt that                                                                    
he was  concerned with the  50 percent of the  population of                                                                    
the  state who  received 20  percent of  their total  income                                                                    
from the dividend.                                                                                                              
Co-Chair   Thompson   noted   Representative   Vasquez   and                                                                    
Representative Herron in the room.                                                                                              
Vice-Chair Saddler  felt that the  bill showed  a three-year                                                                    
review. He noted the three-year  guarantee of permanent fund                                                                    
dividends (PFDs)  at $1000. He  wondered whether  the three-                                                                    
year  guarantee was  an element  of the  governor's original                                                                    
9:33:01 AM                                                                                                                    
Attorney  General  Richards   replied  that  the  governor's                                                                    
original  bill had  a one-year  guarantee,  and the  current                                                                    
version extended to three years.                                                                                                
Vice-Chair Saddler  queried the reason for  the guarantee at                                                                    
any rate.                                                                                                                       
Attorney General  Richards replied  that there  were logical                                                                    
policy reasons for the  guaranteed dividend, particularly to                                                                    
monitor  the  formula  over  time.   He  asserted  that  the                                                                    
dividend formula  was stable enough  to provide for  a $1000                                                                    
PFD regardless of  change in policy. He felt  that there did                                                                    
not even  need to be  a guarantee, because of  the stability                                                                    
of the PFD.                                                                                                                     
Commissioner Hoffbeck  responded that  there had been  a lot                                                                    
of feedback  that one year was  not enough time to  make the                                                                    
transition a different kind of dividend.                                                                                        
Vice-Chair Saddler remarked that  the bill had some elements                                                                    
that included  a three-year review. He  wondered whether the                                                                    
three-year provision was a temporary  provision or a promise                                                                    
for every three years.                                                                                                          
Commissioner Hoffbeck  replied that  the intent was  a long-                                                                    
term  solution. He  stated that  the review  did not  have a                                                                    
sunset, but rather was an  instruction to the legislature to                                                                    
ensure that it was working properly.                                                                                            
9:36:24 AM                                                                                                                    
Representative Pruitt  wondered about the effective  date of                                                                    
July  1,  2016. He  remarked  that  the budget  was  already                                                                    
passed  with the  Permanent Fund.  He  wondered whether  the                                                                    
governor  must   veto  a  portion  of   the  Permanent  Fund                                                                    
currently in the operating budget.                                                                                              
Commissioner Hoffbeck replied in  the negative. He explained                                                                    
that  there   was  no  mandate   to  spend  all   the  money                                                                    
appropriated into  the dividend  account. The  formula would                                                                    
dictate  the   amount  of  the  dividend   payout,  and  the                                                                    
appropriation would remain in the fund.                                                                                         
Representative Pruitt  queried the consequences of  the bill                                                                    
not  passing.  He  wondered  if   the  governor  would  veto                                                                    
regardless of bill passage.                                                                                                     
Commissioner Hoffbeck replied that  the governor was waiting                                                                    
to see what landed on his desk to see what received.                                                                            
Representative   Pruitt    wondered   whether   Commissioner                                                                    
Hoffbeck  stood behind  the  FY 17  numbers  in the  Revenue                                                                    
Sources Book.                                                                                                                   
Commissioner  Hoffbeck replied  that there  were numbers  in                                                                    
the book  that were accurately  tracked. He stated  that the                                                                    
operational cost  forecast were  almost exactly  correct. He                                                                    
stated  that the  capital costs  were  slightly higher  than                                                                    
forecast. The  oil price  was higher  than the  forecast. He                                                                    
shared  that FY  16 forecast  was exceeded  by two  or three                                                                    
dollars per barrel. He shared that  FY 17 was forecast of in                                                                    
between  $39  per barrel,  but  the  current oil  price  was                                                                    
approximately  $10 higher  than  the  forecast. He  remarked                                                                    
that there was  a historic peak at the current  point in the                                                                    
year, followed  by a reduction  in oil  price in the  end of                                                                    
the year. He remarked that  there was a possibility that the                                                                    
oil price  could drop.  He felt that  the current  oil price                                                                    
level would result in  approximately $300 million additional                                                                    
budget for the following year.                                                                                                  
Co-Chair  Thompson wondered  whether the  amount of  credits                                                                    
was the reason for the increased capital costs.                                                                                 
Commissioner Hoffbeck replied in  the affirmative and stated                                                                    
that it was  the amount of money spent by  the oil industry.                                                                    
He stated  that some  would impact  credits and  others were                                                                    
not credit eligible.                                                                                                            
Representative  Pruitt   wondered  how   the  administration                                                                    
viewed the $1.92 billion available  from the legislation. He                                                                    
wondered if  it was seen as  new money or taken  from one of                                                                    
the savings accounts.                                                                                                           
Commissioner Hoffbeck  answered that  it was not  new money.                                                                    
He stated that the bill provided  a structure for the use of                                                                    
the earnings reserve, to prevent  the corpus of the fund. He                                                                    
stressed that using  the money from the  earnings reserve or                                                                    
CBR was each considered savings.                                                                                                
Representative  Pruitt   surmised  that  the  core   of  the                                                                    
discussion  was   about  whether  the  state   would  pay  a                                                                    
dividend. He stated  that it was about the  $700 million. He                                                                    
believed they were  deciding who to give the money  to - the                                                                    
public  or  government. He  opined  that  the remainder  was                                                                    
merely  about guidelines.  He remarked  that the  public was                                                                    
frustrated because it appeared that  the state was playing a                                                                    
9:42:26 AM                                                                                                                    
Commissioner  Hoffbeck   answered  that  the  size   of  the                                                                    
dividend was  key; it was  $700 million that would  not flow                                                                    
out  of the  system under  the  plan. He  remarked that  the                                                                    
long-term stable  plan allowed the  ability to draw  out the                                                                    
5.25  percent,  because  of  the  longer  horizon.  He  plan                                                                    
allowed for  some additional revenue  in downturn  years. He                                                                    
stressed that the bill did  not only relate to the dividend,                                                                    
but allowed for stable structure across all years.                                                                              
Representative  Pruitt remarked  on Commissioner  Hoffbeck's                                                                    
earlier statement about  how if changes were  not made there                                                                    
would  not be  enough  to sustain  government.  He asked  if                                                                    
Commissioner  Hoffbeck  was  comfortable  with  the  current                                                                    
government level.                                                                                                               
Commissioner  Hoffbeck   responded  that  he   believed  the                                                                    
governor had made it clear  that he thought more cuts needed                                                                    
to be made.                                                                                                                     
Representative  Pruitt stressed  that  it  was the  peoples'                                                                    
dividends  they were  talking  about.  He thought  residents                                                                    
were concerned that using money  from the fund represented a                                                                    
slow creep of  use of the funds.   He wanted to  show to the                                                                    
public  that  the  legislature would  not  keep  taking  the                                                                    
Commissioner   Hoffbeck  could   not  answer   the  question                                                                    
completely - part  of it was there would still  be a deficit                                                                    
the following year  and there would continue  to be downward                                                                    
Representative Guttenberg  observed that  he was  the oldest                                                                    
member  in   the  room.  He   recalled  that  there   was  a                                                                    
legislative  session during  Governor Murkowski's  term that                                                                    
dealt  with  POMV.  He  remarked  that  there  was  a  basic                                                                    
fundamental bill  that did not  have major  policy decisions                                                                    
of  the current  bill. He  felt the  bill may  be too  dense                                                                    
because  of all  of the  policy requirements.  He urged  the                                                                    
creation of  a stable structure  with a stable flow  of cash                                                                    
for the  state. He wondered  what could be removed  from the                                                                    
bill to create a stable POMV.  He remarked that the bill was                                                                    
asking  the   people  to  change  their   relationship  with                                                                    
government by changing the PFD.                                                                                                 
9:48:40 AM                                                                                                                    
Commissioner Hoffbeck  replied that there was  a fundamental                                                                    
disagreement that a straight  POMV would stabilize anything.                                                                    
He asserted that a straight  POMV would interject more money                                                                    
into the system, and there could  be a risk of being accused                                                                    
of growing government by putting  the POMV without any other                                                                    
restriction. He  stressed that the  bill did not  ask people                                                                    
to  give  up  their  dividend to  grow  government.  Rather,                                                                    
government was shrinking, and the  attempt was to maintain a                                                                    
level of  government services that  people have  enjoyed. He                                                                    
reiterated that  the intention was  not to inflate  the size                                                                    
of government.                                                                                                                  
Representative Guttenberg  remarked that  almost all  of the                                                                    
projections  on the  table had  been seen  by the  committee                                                                    
over time. He  spoke to being asked to  consider a snapshot.                                                                    
He  was concerned  that the  bill was  too myopic.  He would                                                                    
like to  see something  past, but he  believed the  bill was                                                                    
too top heavy.                                                                                                                  
9:51:30 AM                                                                                                                    
Representative Edgmon  was on board with  the premise behind                                                                    
the  legislation. He  spoke to  plummeting  oil revenue.  He                                                                    
stated  that the  political  support for  the  bill was  not                                                                    
there.  He asked  if there  was public  consent to  make the                                                                    
Commissioner  Hoffbeck answered  that  the dividend  program                                                                    
had to survive  in some way. Typically,  after explaining to                                                                    
people that the state had to do something.                                                                                      
Attorney  General Richards  stated  that the  administration                                                                    
was pretty flexible.                                                                                                            
Representative  Edgmon felt  that  there  was a  fundamental                                                                    
disconnect within the residents of  the state related to the                                                                    
bill.  He   wondered  whether   there  was   another  option                                                                    
Commissioner   Hoffbeck  responded   in  the   negative.  He                                                                    
remarked  that  all  of  the economists  in  the  state  had                                                                    
examined the problem and declared  that there was no path to                                                                    
a  solution  without  using the  earnings  reserve  to  fund                                                                    
government services.                                                                                                            
9:58:24 AM                                                                                                                    
Representative Edgmon remarked that  the legislature had not                                                                    
come  up with  a plan,  and it  was June.  He wondered  what                                                                    
would occur without the necessary votes.                                                                                        
Commissioner  Hoffbeck stated  that  the  governor has  said                                                                    
that the  legislation was  critical. He  felt that  they may                                                                    
need to revisit the issue.                                                                                                      
Representative Edgmon  wondered how  the CBR would  remain a                                                                    
fiscal  shock absorber  with the  management transferred  to                                                                    
the Permanent Fund Corporation for investment.                                                                                  
Commissioner Hoffbeck  replied that the mandate  to move the                                                                    
CBR management  from DOR to  the Permanent  Fund Corporation                                                                    
should require  a conversation to  work through  the process                                                                    
related  to   cash  management  and  liquidity   issues.  He                                                                    
remarked  that both  parties were  capable  of managing  the                                                                    
fund.  He  stated that  the  idea  that the  Permanent  Fund                                                                    
Corporation   management's   ability  to   provide   returns                                                                    
comparable to  the other assets  was probably  not accurate,                                                                    
because they  would face the  same liquidity issues  as DOR.                                                                    
He  remarked that  the  $3  billion could  not  be put  into                                                                    
private equity  and expect the  higher returns.  He remarked                                                                    
that  the  money  needed to  be  available  for  fundamental                                                                    
Co-Chair  Thompson remarked  that the  controversy with  the                                                                    
bill was  related to the  limit of  the PFD. He  wondered if                                                                    
the $1000 limit was acceptable to the people.                                                                                   
Attorney General  Richards stated that the  acceptability of                                                                    
the  size of  the dividend  was up  to the  legislature. The                                                                    
governor  was  comfortable  with  the amount  of  $1000  and                                                                    
thought it was acceptable.                                                                                                      
Co-Chair Thompson noted the  governor appeared on television                                                                    
where he  held up a check  for the amount of  $1000. He felt                                                                    
that  the governor  had set  the amount,  and had  created a                                                                    
bill to force  the legislature to reach that  $1000. He felt                                                                    
that the people were not  yet convinced of the importance of                                                                    
the  bill.   He  wondered  what   would  occur   should  the                                                                    
legislature fail to approve the legislation.                                                                                    
10:03:37 AM                                                                                                                   
Representative  Wilson  stated  that   the  state  would  be                                                                    
issuing less  than the projected  amount without  any change                                                                    
in  legislation. She  had received  phone  calls and  emails                                                                    
that claimed otherwise.                                                                                                         
Commissioner Hoffbeck  replied that there was  feedback from                                                                    
various  organizations around  that  state  who had  claimed                                                                    
that  $1000 was  near  the appropriate  amount. He  remarked                                                                    
that the  public opinion  was unknown  until the  amount was                                                                    
released.  He  stressed  that  it   was  a  policy  call  to                                                                    
determine an  appropriate PFD amount.  He stressed  that DOR                                                                    
was flexible, but noted the importance of the legislation.                                                                      
Representative Wilson asked how  much money was currently in                                                                    
the earnings reserve account.                                                                                                   
Commissioner Hoffbeck  replied that there  was approximately                                                                    
$7 billion in the earnings  reserve. He furthered that there                                                                    
were deposits  in the current  year from the  Permanent Fund                                                                    
Corporation of  approximately $2 billion. He  announced that                                                                    
the total was approximately $9 billion.                                                                                         
Representative  Wilson  noted  that  there  was  between  $7                                                                    
billion  and  $9 billion  in  the  earnings reserve  account                                                                    
(ERA).  She  wondered  if  the  account  would  maintain  $7                                                                    
billion with the removal of  inflation proofing and dividend                                                                    
Commissioner Hoffbeck replied in the affirmative.                                                                               
Representative  Wilson asked  how much  of the  $7.5 billion                                                                    
would make in the current year.                                                                                                 
Commissioner   Hoffbeck    replied   that   it    would   be                                                                    
approximately  7.25 percent,  which  would be  approximately                                                                    
$500 million.                                                                                                                   
Representative  Wilson felt  that  the state  could use  the                                                                    
$500 million in the budget,  and the governor could veto the                                                                    
current budget and request a  reduction of $500 million. She                                                                    
felt that  those actions would  still result in the  same as                                                                    
the legislation.                                                                                                                
Commissioner   Hoffbeck   replied   that  there   would   be                                                                    
approximately  $1.9   billion  from  the   earnings  reserve                                                                    
required for flow.                                                                                                              
Representative Wilson asked how much  money would be used in                                                                    
the GF with the use of the ERA if the bill was passes.                                                                          
Attorney General  Richards replied  that $1.9  billion would                                                                    
be required.                                                                                                                    
Commissioner Hoffbeck  furthered that $1.9 billion  would be                                                                    
used  from the  ERA to  supply the  money required  from the                                                                    
CBR. The  change in  the actual number  spent would  be $700                                                                    
million reduction in the size of the dividend.                                                                                  
10:08:48 AM                                                                                                                   
Representative   Wilson    remarked   that,    without   the                                                                    
legislation, the  state would need  to find $700  million in                                                                    
some other aspect.  She queried the job  impacts of removing                                                                    
an  additional $500  million from  the budget.  She remarked                                                                    
that there was already an 8000 job loss projection.                                                                             
Commissioner  Hoffbeck replied  that the  impact of  cutting                                                                    
government jobs or government spending  was greater than the                                                                    
impact of reducing the size of the impact.                                                                                      
Representative  Wilson   felt  that  there  were   too  many                                                                    
provisions  in  the legislation.  She  felt  it was  already                                                                    
difficult to understand all the aspects of the legislation.                                                                     
10:11:25 AM                                                                                                                   
Representative  Gara claimed  that  there were  a number  of                                                                    
reasons why the  bill would not pass. He  posed the question                                                                    
whether  it   was  fair.  He   personally  thought   it  was                                                                    
intolerable  spending money  on oil  taxes and  asking while                                                                    
asking  people for  their dividend.  He stated  that if  the                                                                    
legislature  waited to  negotiate and  wait until  November,                                                                    
there would  be great impacts  to the state. He  wondered if                                                                    
the state  would have $3.5  billion less in savings  at that                                                                    
Commissioner Hoffbeck  replied that the full  dividend would                                                                    
be paid at  that point, and then half of  the spending would                                                                    
be spent at that point.                                                                                                         
Representative   Gara   queried  the   disadvantages   about                                                                    
returning to further discuss the concept.                                                                                       
Commissioner   Hoffbeck  replied   that  nothing   would  be                                                                    
different  in  November.  He  remarked  that  there  was  no                                                                    
purpose in waiting.                                                                                                             
Representative  Gara  asked  about the  estimated  costs  of                                                                    
deferred maintenance.                                                                                                           
Co-Chair  Thompson confirmed  the money  Representative Gara                                                                    
talked about.                                                                                                                   
10:16:09 AM                                                                                                                   
Vice-Chair Saddler remarked that  the projections would only                                                                    
cover  approximately  one-half  of   the  deficit,  and  the                                                                    
administration had claimed  to fill the gap  with income tax                                                                    
or other types  of taxes. He remarked that  the governor did                                                                    
not  consider  the budget  situation  a  fiscal crisis,  but                                                                    
rather a  cash flow  problem. He asserted  that a  cash flow                                                                    
problem had  two major  dynamics: the  out flow  of expenses                                                                    
and the income.  He felt that the attention  was too greatly                                                                    
focused  on  the income.  He  stressed  that there  was  not                                                                    
sufficient attention  placed on  the expense portion  of the                                                                    
cash flow. He  remarked that the governor had  promised a 16                                                                    
percent  budget  reduction,  but  was  too  focused  on  the                                                                    
revenue.  He   stressed  that   the  administration   was  a                                                                    
significant  opponent to  the legislature's  efforts to  cut                                                                    
the budget. He noted the  three years of increased education                                                                    
funding,  by  $250 million  in  the  foundation formula.  He                                                                    
noted the automatic pay raises  for state employees retained                                                                    
through  the  contracts.  He  stressed  that  there  was  an                                                                    
attempt to  cut the budget  by approximately 16  percent. He                                                                    
wondered what  would be recommended  to the governor  to cut                                                                    
to address the  problem on the expenditure side  of the cash                                                                    
Commissioner  Hoffbeck replied  that  the discussions  about                                                                    
the  budgets  and  the cut  recommendations  would  be  best                                                                    
directed at  Pat Pitney.  He noted that  there was  still an                                                                    
over  $1  billion  deficit.  The  governor  recognized  that                                                                    
additional cuts were part of  the solution. He stressed that                                                                    
the  administration  and  legislature had  been  working  on                                                                    
cutting the budget.                                                                                                             
Co-Chair Thompson  would rather  use the  word, "reductions"                                                                    
than the word, "cuts.                                                                                                           
Vice-Chair  Saddler wondered  whether Commissioner  Hoffbeck                                                                    
advised the governor on spending.                                                                                               
Commissioner Hoffbeck replied that  he advised the governor,                                                                    
as well as other members of the administration.                                                                                 
Vice-Chair  Saddler  asked  if Commissioner  Hoffbeck  would                                                                    
tell the governor what cuts to make.                                                                                            
Commissioner Hoffbeck replied in the negative.                                                                                  
Attorney   General   Richards   agreed   with   Commissioner                                                                    
Hoffbeck. He  shared that there  was always a dialog  in the                                                                    
cabinet  regarding the  direction  of the  governor and  the                                                                    
state. He  announced that he,  as the attorney  general, did                                                                    
not weigh in on the budgets for other departments.                                                                              
Vice-Chair Saddler expressed concern  about only focusing on                                                                    
the revenue without making cuts to spending.                                                                                    
10:21:36 AM                                                                                                                   
Representative Pruitt felt that  there was no political will                                                                    
in the  House to move  forward with the legislation.  He was                                                                    
concerned about  the prospect of the  governor continuing to                                                                    
call  the  legislature  into  session.  He  noted  that  the                                                                    
sustainable draw would be $2.4  billion, but maintaining the                                                                    
dividend  in  its  current  state  would  allow  another  $1                                                                    
billion to  keep the sustainable  draw, but may  offset some                                                                    
of  the   utilization  of   the  CBR-requiring   a  separate                                                                    
appropriation  bill.   He  wondered  whether   the  earnings                                                                    
reserve could be used with an  offset by $1 billion from the                                                                    
CBR; or  was there to much  a focus on reducing  the deficit                                                                    
that  the former  was not  an option.  He expressed  concern                                                                    
that people  would be  more entrenched  in their  views, and                                                                    
result in a  deadlock to not move forward. He  queried a way                                                                    
to  see   a  bipartisan  solution.  He   stressed  that  the                                                                    
Permanent   Fund   Corporation   should   have   procurement                                                                    
discussions  and  ensure  that   the  CBR  was  managed.  He                                                                    
wondered whether it  was possible to not deal  with the PFD.                                                                    
He  did not  want to  continue in  the entrenched  position,                                                                    
incurring cost  to the state  and creating  larger divisions                                                                    
within Alaskans as the legislature remains in session.                                                                          
Commissioner Hoffbeck  stated that the governor  had made it                                                                    
clear  that  a  draw  from  the  Permanent  Fund  without  a                                                                    
structured  plan  was not  acceptable.  He  shared that  the                                                                    
governor was  flexible with how  the dividend fits  into the                                                                    
Representative    Pruitt    announced   that    Commissioner                                                                    
Hoffbeck's  answer "did  not work."  He stressed  that there                                                                    
was  no plan  for the  following year  on how  to spend  the                                                                    
money. He  wondered how  there could  be the  assertion that                                                                    
there  must   be  structure,  with  no   structure  for  the                                                                    
following  year.  He  felt that  there  was  a  disingenuous                                                                    
disconnect that would  force the legislature to  be stuck in                                                                    
Juneau.  He stressed  that  the situation  was  bad for  the                                                                    
state. The  longer the legislature remained  in session, the                                                                    
angrier  people would  become. He  asked  that the  governor                                                                    
consider  meeting the  legislators  in  the middle,  because                                                                    
everyone was dealing with the issue together.                                                                                   
Co-Chair  Thompson  indicated there  would  be  a break.  He                                                                    
stressed  that  the  House   of  Representatives  would  not                                                                    
approve  the  proposal, because  of  the  outcry from  their                                                                    
10:27:40 AM                                                                                                                   
AT EASE                                                                                                                         
10:47:00 AM                                                                                                                   
Co-Chair  Thompson asked  for an  additional scenario  to be                                                                    
discussed. He  invited Commissioner Hoffbeck and  Ms. Rodell                                                                    
to the table.                                                                                                                   
10:47:39 AM                                                                                                                   
ANGELA  RODELL, EXECUTIVE  DIRECTOR,  ALASKA PERMANENT  FUND                                                                    
CORPORATION, introduced herself.                                                                                                
Co-Chair Thompson  asked about  the effects on  the earnings                                                                    
reserve if the bill was not passed.                                                                                             
Commissioner Hoffbeck explained the calculation of the PFD.                                                                     
Ms. Rodell stated  that, under current statute,  the ERA was                                                                    
invested alongside  of the  corpus of  the fund.  She stated                                                                    
that there  were accounting  entries to  move the  money and                                                                    
allocate it  to the ERA,  but was continually  invested. She                                                                    
remarked that the trustees  must reconsider some investments                                                                    
redirected  to liquid  accounts if  the  ERA was  used as  a                                                                    
budget reserve.                                                                                                                 
Co-Chair  Thompson  wondered  how  long  it  would  take  to                                                                    
drastically reduce  the ERA  if no action  was taken  on the                                                                    
Commissioner Hoffbeck  answered that  the ERA would  be used                                                                    
in the following year.                                                                                                          
10:51:31 AM                                                                                                                   
Co-Chair Thompson  asked about  the possibility of  a repeat                                                                    
of 2008.                                                                                                                        
Ms.  Rodell responded  that obviously  the incident  of 2008                                                                    
the corporation would prefer not to revisit that event.                                                                         
Co-Chair Thompson asked about down grading by Fitch.                                                                            
Commissioner Hoffbeck stated that  Fitch had just downgraded                                                                    
Alaska  to double  A plus.  The other  bond rating  agencies                                                                    
would follow.                                                                                                                   
Co-Chair Neuman wondered if there  was a plan for bond sales                                                                    
in the next two years.                                                                                                          
Commissioner Hoffbeck  replied that there was  not a general                                                                    
obligation bond  sale scheduled,  but DOR had  the authority                                                                    
to sell bonds.                                                                                                                  
Co-Chair  Thompson referred  to a  recent newspaper  article                                                                    
that indicated  that the Board  of Regents and  President of                                                                    
the University  of Alaska were  considering bonding  for the                                                                    
engineering building.  He wondered if the  bond rating would                                                                    
affect the cost of their bond.                                                                                                  
Commissioner Hoffbeck replied in the affirmative.                                                                               
Co-Chair Neuman  asked about the  costs effects of  the bond                                                                    
rating change.                                                                                                                  
Commissioner Hoffbeck replied that  the impact was not known                                                                    
until the market reflected the impact.                                                                                          
10:55:59 AM                                                                                                                   
Co-Chair  Neuman asked  for a  value on  bonding. He  stated                                                                    
that he could not even get  a value from the commissioner of                                                                    
Commissioner Hoffbeck replied that  the spreads vary, so the                                                                    
impact was not  known until the market was  known. He stated                                                                    
that AIDEA, AHFC, and the  municipal bond bank were all tied                                                                    
to the state's bond rating.                                                                                                     
Co-Chair Neuman relayed that the  state had over $70 million                                                                    
in assets and he did not  understand how the state could use                                                                    
for investments                                                                                                                 
Commissioner  Hoffbeck responded  that the  state's spending                                                                    
affected the state's bond rating.                                                                                               
Co-Chair  Neuman asked  why Sections  2  and 3  were in  the                                                                    
Ms.  Rodell stated  that  the sections  did  not remove  the                                                                    
Alaska Permanent Fund  out of the Executive  Budget Act. The                                                                    
sections provided  an exemption  from the  State Procurement                                                                    
Code  that was  already utilized  by a  number of  different                                                                    
agencies, including AHFC and UA.  She stated that the reason                                                                    
for the language was because  there were circumstances which                                                                    
the State  Procurement Code limited  the ability  to respond                                                                    
quickly  to investment  opportunities. She  stated that  she                                                                    
wanted  to  hire  third  party  consultants,  and  were  not                                                                    
fiduciary to the fund.                                                                                                          
11:01:08 AM                                                                                                                   
Co-Chair Neuman  asked if  a new  invested officer  had been                                                                    
Ms. Rodell stated that they  had just hired an officer which                                                                    
took 6 months.                                                                                                                  
Co-Chair Neuman asked about the salary of that person.                                                                          
Ms.  Rodell stated  that the  person  was being  hired at  a                                                                    
salary of $400 thousand.                                                                                                        
Co-Chair  Neuman wondered  if it  was  wrong to  hire a  new                                                                    
person at that salary.                                                                                                          
Ms.  Rodell  thought  it  was important  to  note  that  the                                                                    
corporation  would come  to the  legislature each  year with                                                                    
request  for  appropriation,  because  the  corporation  was                                                                    
subject to the  Executive Budget Act. She was  happy to meet                                                                    
with the  legislature any time.  She thought a  heavy burden                                                                    
was  being placed  on the  fund.  She wanted  all the  tools                                                                    
available to manage the fund.                                                                                                   
Co-Chair  Neuman thought  it would  more appropriate  to ask                                                                    
the   legislature  for   more  procurements.   He  did   not                                                                    
understand the necessity of this in the bill.                                                                                   
Co-Chair  Thompson wondered  if there  were any  indications                                                                    
from the bonding agencies that would downgrade the state.                                                                       
Commissioner  Hoffbeck   stated  that  there  could   be  an                                                                    
additional downgrade by S and P as well as by Moody's.                                                                          
Co-Chair  Thompson asked  if the  state  could reverse  that                                                                    
Commissioner Hoffbeck responded affirmatively.                                                                                  
11:05:49 AM                                                                                                                   
Representative Wilson  wondered why the state  would want to                                                                    
take on more debt.                                                                                                              
Commissioner  Hoffbeck responded  that  debt can  be both  a                                                                    
burden  and a  tool. He  explained that  borrowing money  at                                                                    
lower rates would be a tool for the state's rating.                                                                             
Representative Wilson  queried the benefit for  the state to                                                                    
bond for Alaska Industrial  Development and Export Authority                                                                    
(AIDEA) and municipalities.                                                                                                     
Commissioner  Hoffbeck  replied  that  those  entities  were                                                                    
required to pay that debt,  so it did not necessarily effect                                                                    
the state's  books. He remarked  that it provided  a benefit                                                                    
to those entities.                                                                                                              
11:07:51 AM                                                                                                                   
Representative Wilson remarked that  the debt still rose for                                                                    
the  state.  She asserted  that  the  bond rating  would  be                                                                    
reduced, so  the percentage payback  would be  increased for                                                                    
those entities that wanted to borrow from the state.                                                                            
Commissioner Hoffbeck responded in the affirmative.                                                                             
Representative  Wilson  stated   that  further  conversation                                                                    
would be necessary.                                                                                                             
Vice-Chair Saddler wanted a range  of numbers about what the                                                                    
down  tick  in  the  bond   rating  really  meant,  and  the                                                                    
financial impact to the state.                                                                                                  
Commissioner Hoffbeck asked to  be able to provide something                                                                    
in writing.                                                                                                                     
Vice-Chair Saddler referred  to Sections 2, 3, 4,  5, and 7,                                                                    
related  to the  management of  Permanent Fund  Corporation,                                                                    
and did not  relate to the POMV plan. He  wondered whether a                                                                    
bill with only  those sections would see support  as a means                                                                    
to reduce the "top heaviness" of SB 128.                                                                                        
Ms. Rodell responded  that in terms of  reporting certain it                                                                    
would actually  lessen some of  the responsibilities  of the                                                                    
Vice-Chair  Saddler wondered  if  Ms.  Rodell would  support                                                                    
that type of bill.                                                                                                              
Ms.  Rodell replied  that  she could  support  that type  of                                                                    
Vice-Chair Saddler  wondered if the Permanent  Fund was seen                                                                    
as a sovereign wealth fund or the people's fund.                                                                                
Ms. Rodell  agreed with Attorney General  Richards comments,                                                                    
stating that the government's money was the peoples' money.                                                                     
Vice-Chair  Saddler  asked  if   she  agreed  with  Attorney                                                                    
General Richards.                                                                                                               
Ms. Rodell replied in the affirmative.                                                                                          
11:13:04 AM                                                                                                                   
Co-Chair Neuman  stated that  the reason  why the  state was                                                                    
concerned was because the state  had money. He asserted that                                                                    
the money could be accessed for  less than the money made in                                                                    
the  savings  account.  He wanted  to  understand  the  cost                                                                    
Co-Chair  Thompson  relayed   that  the  commissioner  would                                                                    
provide the information.                                                                                                        
Commissioner Hoffbeck agreed to provide that information.                                                                       
Co-Chair Neuman wondered whether the discussion matters.                                                                        
Representative   Gara  asserted   that   some  people   were                                                                    
concerned with the PFD level in  the bill. He wanted to know                                                                    
what would  occur, if the legislature  returned in November.                                                                    
He asked  how much money would  be used from either  the ERA                                                                    
or CBR that was irretrievable.                                                                                                  
Commissioner  Hoffbeck responded  that there  would be  $1.4                                                                    
billion from  the ERA  into the  dividend fund,  unless that                                                                    
draw  was  from  the  CBR.   He  stated  that  it  would  be                                                                    
approximately one-half of the draw.                                                                                             
Representative Gara asked for  rough numbers. He wondered if                                                                    
the state would be down $1.5 billion in savings.                                                                                
Commissioner Hoffbeck replied in the affirmative.                                                                               
Representative  Gara  wondered   whether  waiting  put  more                                                                    
pressure later.                                                                                                                 
Commissioner Hoffbeck responded affirmatively.                                                                                  
11:18:46 AM                                                                                                                   
Representative Munoz noted that  there was growth potential,                                                                    
because of  the tie to  the Permanent Fund. She  wondered if                                                                    
there  might be  a conflict  between the  premises with  the                                                                    
POMV draw and the spending limit.                                                                                               
Commissioner Hoffbeck responded affirmatively.                                                                                  
Representative  Munoz announced  that  the  provision was  a                                                                    
limit on oil  and gas revenue in addition to  the POMV draw.                                                                    
She surmised that it was not calculated on the POMV draw.                                                                       
Commissioner Hoffbeck agreed.                                                                                                   
Representative Munoz remarked  that there had been  a lot of                                                                    
discussion about  the oil  and gas  tax credit  reform bill.                                                                    
She asked the commissioner to provide feedback.                                                                                 
Commissioner Hoffbeck  stated that HB 247  was a compromise.                                                                    
The bill  actually went further than  the governor's version                                                                    
of the bill.                                                                                                                    
11:26:03 AM                                                                                                                   
Representative  Gara stressed  that the  oil and  gas credit                                                                    
bill  allowed for  the state  to  pay the  oil companies  35                                                                    
percent of  their losses. He stressed  that many legislators                                                                    
were coming  to terms  with that idea.  He stressed  that he                                                                    
wanted to  reach a principled compromise  that protected the                                                                    
Vice-Chair  Saddler commented  that  he  had heard  rhetoric                                                                    
concerning  the assertion  that  the bill  would take  money                                                                    
from  Alaskans and  give it  to "greedy  oil companies."  He                                                                    
wondered if that was true.                                                                                                      
Commissioner Hoffbeck stated there  was no direct connection                                                                    
between the two bills.                                                                                                          
Representative  Pruitt  asked   about  the  provisions  that                                                                    
allowed the PFC to manage the funds.                                                                                            
11:28:51 AM                                                                                                                   
AT EASE                                                                                                                         
11:29:41 AM                                                                                                                   
Ms. Rodell stated that it  was currently in statute that the                                                                    
commissioner   of  DOR   could   ask   the  Permanent   Fund                                                                    
Corporation to manage the assets  of the CBR. She noted that                                                                    
the  insertion  of  Section  4  was  the  corollary  of  the                                                                    
insertion  Section  18,  which  repealed  the  statute  that                                                                    
"handcuffed"  the commissioner  of DOR.  She remarked  that,                                                                    
currently,  could transfer  management,  the Permanent  Fund                                                                    
Corporation would  be bound by the  same limitations without                                                                    
repealing.  The commissioner  was  currently constrained  by                                                                    
those limitations.                                                                                                              
Representative   Pruitt   wondered   whether   the   current                                                                    
restrictions allowed for a maintained liquid assets.                                                                            
Ms. Rodell answered in the affirmative.                                                                                         
Representative Pruitt  asked if the individuals  would still                                                                    
be needed to manage at APFC.                                                                                                    
Commissioner  Hoffbeck answered  that  the same  individuals                                                                    
were also  investing in  Alaska Retirement  Management Board                                                                    
(ARMB) funds.                                                                                                                   
Ms. Rodell  agreed; no additional personnel  would be needed                                                                    
to manage the CBR.                                                                                                              
11:32:25 AM                                                                                                                   
Vice-Chair Saddler  asked what  the effect  would be  on the                                                                    
sustainability of guaranteeing a $1500 PFD.                                                                                     
Commissioner  Hoffbeck  replied  that   Mr.  Teal  may  have                                                                    
already done  some of the  modelling. He elaborated  that it                                                                    
would  take approximately  $350 million  with a  $1500 draw;                                                                    
and another $175 million with a $1250 draw.                                                                                     
Vice-Chair  Saddler  asked  if   the  administration  had  a                                                                    
position on the issue.                                                                                                          
Commissioner Hoffbeck  answered that the  administration was                                                                    
willing to consider options.                                                                                                    
Representative  Guttenberg spoke  to  changes in  investment                                                                    
strategy.  He asked  about the  impacts  of the  bill if  it                                                                    
Ms. Rodell  responded that  APFC was  not being  directed to                                                                    
change  any of  its investments  under the  legislation. The                                                                    
question would go  to the trustees to  determine whether any                                                                    
changes needed  to be  made to the  asset allocation  of the                                                                    
fund. She spoke about the fund's level of risk.                                                                                 
11:37:24 AM                                                                                                                   
Representative Guttenberg  asked what  the lower  risk would                                                                    
do to the projected rate of return.                                                                                             
Ms. Rodell answered that lower risk meant lower returns.                                                                        
Co-Chair  Thompson  asked Mr.  Teal  to  address the  fiscal                                                                    
DAVID   TEAL,   DIRECTOR,  LEGISLATIVE   FINANCE   DIVISION,                                                                    
remarked that  the governor's office was  preparing a fiscal                                                                    
note. He stated  that there were no  fiscal notes originally                                                                    
attached to  SB 128.  He remarked  that the  special session                                                                    
did not have  an appropriation bill. He  stressed that there                                                                    
was no appropriation bill necessary  to implement SB 128. He                                                                    
furthered that  there were  fiscal impacts  in the  bill. He                                                                    
shared  that  there  would be  fiscal  notes  primarily  for                                                                    
informational purposes.  He felt that addressing  the fiscal                                                                    
impacts,  even  without  the   physical  fiscal  notes,  was                                                                    
important to  the upcoming public testimony.  He shared that                                                                    
the  largest fiscal  impact was  the reduction  in PFD  from                                                                    
roughly $2000 per capita to  $1000 per capita; which totaled                                                                    
approximately $700 million in the  ERA. He remarked that the                                                                    
bill did  not affect  the ERA,  because there  was an  FY 16                                                                    
appropriation  from  the  ERA   to  pay  the  dividends.  He                                                                    
stressed  that,  should  the  bill  pass  with  the  cap  on                                                                    
dividends, the governor  would likely veto half  of the $1.4                                                                    
billion appropriation in  the operating budget bill-reducing                                                                    
the dividend to $1000. He  remarked that the legislature did                                                                    
not have  control over  the operating  bill, because  it was                                                                    
already passed  from the legislature. He  stated that should                                                                    
the bill  not pass  and the  PFDs were  paid in  full, there                                                                    
would be  $3 billion remaining in  the CBR. He felt  that it                                                                    
was a  sufficient amount to  bring the state through  FY 18.                                                                    
He stated the CBR would be expelled  by the end of FY 18, at                                                                    
which time the ERA would be  used. He remarked that, at that                                                                    
point, the projection  was that PFDs would  be eliminated in                                                                    
2023. He  stated that, under  the Permanent  Fund Protection                                                                    
Act  and with  a  $700  million reduction  in  PFDs, it  was                                                                    
expected  that  dividends  would  drop to  $1000  and  would                                                                    
continue to  be paid for  the foreseeable future  at roughly                                                                    
$1000 per year.                                                                                                                 
11:42:48 AM                                                                                                                   
Mr.  Teal   addressed  another  provision  related   to  the                                                                    
management of the  CBR. He emphasized that  the treasury was                                                                    
not investing poorly.  There was a law that  stated that the                                                                    
money  needed  in five  years  must  be invested  in  liquid                                                                    
funds. He remarked that the  CBR earned roughly 1.5 percent.                                                                    
He  stated that  transferring  management  to the  Permanent                                                                    
Fund Corporations  and repeal of the  handcuffing investment                                                                    
provisions, the earnings for the  CBR would be significantly                                                                    
higher-translating  to approximately  $300 million  per year                                                                    
in  additional earnings.  The CBR  could be  spent, but  the                                                                    
bill did not  close the deficit. He remarked  that there was                                                                    
a  fiscal  note from  the  Permanent  Fund Corporation  that                                                                    
showed an  approximately $13 million increase  in management                                                                    
fees  to manage  the CBR.  He remarked  that the  fees would                                                                    
decrease as  the balance of  the CBR decreased.  He remarked                                                                    
that moving the management of  the CBR without the remainder                                                                    
of the bill,  the management fees and the CBR  would be gone                                                                    
by 2023-resulting  in no extra  money and no extra  fees. He                                                                    
looked   at  the   royalty  provision   which  changed   the                                                                    
dedication  of  royalties to  the  corpus  of the  Permanent                                                                    
Fund.  He stated  that it  was currently  50 percent  on new                                                                    
fields  and 25  percent  on old  fields,  which averaged  to                                                                    
about a 30  percent deposit to the Permanent  Fund. The bill                                                                    
would  reduce that  deposit to  25 percent  for all  fields,                                                                    
yielding an additional  $40 million to $50  million per year                                                                    
flowing to the general fund.  That money would be spendable,                                                                    
and would reduce  the deficit. He stated  that, with smaller                                                                    
dividends, the PFD felon funds  would decline by roughly $20                                                                    
million in money that would  normally go to convicted felons                                                                    
and  incarcerated individuals.  He stated  that cutting  the                                                                    
PFD  to  half,   the  PFD  felon  funds   available  to  the                                                                    
Department  of  Corrections  (DOC)  would  be  reduced  from                                                                    
approximately  $20  million  to  $10  million.  All  of  the                                                                    
remaining fiscal impacts would be  to the revenue. He stated                                                                    
that the DOR fiscal notes  did not require an appropriation,                                                                    
so they were only drafted with information.                                                                                     
11:47:02 AM                                                                                                                   
Co-Chair  Neuman referenced  a  fiscal note  related to  the                                                                    
transfer to  the CBR  and the ability  of the  management of                                                                    
the CBR's  investment limitations. He stressed  that DOR had                                                                    
certain  restrictions as  to how  they  could invest  money,                                                                    
which was  different than  the Permanent  Fund Corporation's                                                                    
restrictions.  He   wondered  whether  the   Permanent  Fund                                                                    
Corporation  had  better  ability  to  invest  with  greater                                                                    
Mr.  Teal  replied in  the  affirmative.  He furthered  that                                                                    
there  was also  an  advantage in  management of  liquidity,                                                                    
because the  CBR must be held  in liquid form, should  it be                                                                    
the only available reserve. He  explained that the liquidity                                                                    
issues would  disappear, if the  CBR was comingled  with the                                                                    
permanent  fund  itself  because  the  size  of  the  corpus                                                                    
allowed for  movement of money  from one  liquid investments                                                                    
to non-liquid investments.                                                                                                      
Co-Chair  Thompson noted  that there  was a  portion in  the                                                                    
bill that  repealed the statutes requiring  liquidity, which                                                                    
restricts the types of investments.  He wondered whether the                                                                    
statute  would  still  exist related  to  liquidity  if  the                                                                    
commissioner  of DOR  wanted to  transfer  authority to  the                                                                    
Permanent Fund Corporation.                                                                                                     
Mr.  Teal replied  in the  affirmative,  and explained  that                                                                    
Commissioner  Hoffbeck   explained  that   the  restrictions                                                                    
caused  the  lower return.  He  stressed  that removing  the                                                                    
restrictions allowed the commissioner  of DOR to continue to                                                                    
manage  the CBR  and receive  a slightly  higher return.  He                                                                    
restated  the liquidity  concerns, and  remarked that  there                                                                    
would  not be  a 7  percent return  at the  current rate  of                                                                    
withdrawal from the CBR.                                                                                                        
Co-Chair Neuman  spoke to the  note that addressed  the cost                                                                    
of the management  of the reserve funds. He  wondered if the                                                                    
cost  for  management  would be  absorbed  within  the  fund                                                                    
itself, rather than the general fund.                                                                                           
Mr.  Teal responded  that CBR  management fees  were an  odd                                                                    
deal,  because management  were  an  expenditure. He  stated                                                                    
that  paying the  management fees  from the  CBR required  a                                                                    
supermajority vote by the legislature.                                                                                          
11:52:51 AM                                                                                                                   
Representative  Gara  referred  to  the first  part  of  the                                                                    
formula that stated  that for every dollar in  revenue was a                                                                    
lost dollar in pay out, so  it remained flat. He queried the                                                                    
reason for  the longer state  deficit up to $100  per barrel                                                                    
as opposed to up to $80 per barrel.                                                                                             
Mr. Teal replied  that less revenue would  be available from                                                                    
the payout. Therefore, a lower  payout at any given level of                                                                    
spending,  required a  need to  fill the  gap from  the CBR.                                                                    
There was  not an opportunity  to break even until  $105 per                                                                    
barrel of oil.                                                                                                                  
Representative Gara wondered whether  the fiscal plan showed                                                                    
that the real dollar budget continued to decrease.                                                                              
Mr.  Teal responded  that revenue  was not  always flat.  He                                                                    
stated  that   only  oil  dollars  would   be  replaced.  He                                                                    
explained that the  oil companies tended to  make more money                                                                    
at  increased oil  prices,  therefore  corporate income  tax                                                                    
would increase. He  stressed that there would be  as much as                                                                    
$200  million   available  in   corporate  income   tax.  He                                                                    
announced  that  it  did  not apply  to  any  other  revenue                                                                    
sources such  as motor fuels  income, etc. He  stressed that                                                                    
the revenue was not necessarily flat.                                                                                           
11:56:07 AM                                                                                                                   
Representative  Gara assumed  the existing  revenues at  $75                                                                    
barrels  of  oil  would  provide  about  approximately  $4.5                                                                    
billion.  He  wondered  whether a  dollar  increase  in  oil                                                                    
revenue resulted in a loss of a dollar in POMV revenue.                                                                         
Mr. Teal  pointed to the right  hand side of the  chart, and                                                                    
noted that  the revenue did  not remain flat; it  was rising                                                                    
until $75, at which point the curve turned downward.                                                                            
Representative Gara  wondered whether the top  line remained                                                                    
Mr.  Teal relayed  that the  line  was flat  because of  the                                                                    
assumed level  of expenditures. He  explained that it  was a                                                                    
line extended  from current expenditure levels.  He stressed                                                                    
that  the actual  expenditure levels  were unknown,  because                                                                    
those  were determined  by the  legislature. The  graph only                                                                    
showed FY  17, and was not  a time series. He  stressed that                                                                    
the graph stated that in  FY 17 the budget was approximately                                                                    
$5.1  billion  without  dividends;  and  approximately  $4.5                                                                    
billion excluding  dividends. He stressed that  it could not                                                                    
extend to 2018 or any other year.                                                                                               
Representative Gara  wondered whether  the $4.5  billion was                                                                    
combined capital and operating budget.                                                                                          
Mr. Teal responded in the affirmative.                                                                                          
Representative  Gara wondered  whether  the number  combined                                                                    
designated and undesignated general funds.                                                                                      
Mr.  Teal responded  that it  did  not combine  the two.  He                                                                    
stated that the number was only unrestricted general funds.                                                                     
Representative Gara asked whether  spending more money would                                                                    
exhaust the CBR.                                                                                                                
Mr.  Teal responded  in the  affirmative.  He remarked  that                                                                    
there  were  discussions related  to  a  spending limit.  He                                                                    
remarked  that  it  should not  be  considered  a  "spending                                                                    
limit." He  explained that the  provision did not  limit the                                                                    
spending.  He asserted  that the  provision would  limit the                                                                    
amount of revenue  received in the POMV  payout. He stressed                                                                    
that it did  not limit revenue from other  sources. He noted                                                                    
that it  could be converted  to be  seen as a  revenue limit                                                                    
actually  limiting spending.  He remarked  that revenue  and                                                                    
spending were  related, but were  not the same.  He stressed                                                                    
that there  was other,  unlimited revenue. He  remarked that                                                                    
the reserves  were not limited.  He stated that  the revenue                                                                    
limit would limit  the draw from the ERA, but  did not limit                                                                    
spending. He explained  that the savings rule  occurred in a                                                                    
surplus  situation. He  announced  that a  savings rule  was                                                                    
also not a spending limit.  He explained that a savings rule                                                                    
stated that  at the  point of surplus,  half of  the surplus                                                                    
would be  put in the  CBR and half  of the surplus  would be                                                                    
put in  the corpus. He  stressed that savings did  not allow                                                                    
for spending.  He felt that calling  those actions "spending                                                                    
limits" confused  the issue, because it  made people believe                                                                    
that  money could  not be  spent beyond  a fixed  amount. He                                                                    
stressed that  the savings  rule was  very weak,  because it                                                                    
allowed  for the  legislature to  spend in  the supplemental                                                                    
budget, and end up with no surplus.                                                                                             
Representative Gara  agreed that he  also would not  use the                                                                    
term, "spending limit." He remarked  that, in order to "keep                                                                    
up" with the actual costs, the  CBR would need to be used or                                                                    
come up with new revenue.                                                                                                       
Mr.  Teal stated  that Representative  Gara was  correct. He                                                                    
stated that there  were many people who wanted  to make more                                                                    
cuts, and the  governor agreed with those  people. He stated                                                                    
that the  remaining appropriations  after cuts, may  be able                                                                    
to keep  up with  inflation. He could  not predict  how much                                                                    
the legislature would spend in  2022. He stressed that there                                                                    
were  many  factors  that  affect  spending:  oil,  economic                                                                    
impacts, and the  legislature at the time.  He stressed that                                                                    
rules would  be set up  for a future legislature  to follow.                                                                    
He  felt that  guidelines  for future  legislators could  be                                                                    
Representative  Gara  did  not  feel  that  the  legislature                                                                    
should adopt rules that were made to be broken.                                                                                 
Vice-Chair Saddler asked if the  bill would require that the                                                                    
CBR be paid back in full, and queried that amount of money.                                                                     
Mr.  Teal responded  that the  amount would  be the  highest                                                                    
balance of  the CBR. He stated  that, at one point,  the CBR                                                                    
was  approximately  $12  billion.  The CBR  was  now  at  $7                                                                    
billion,  because   there  were  a  couple   of  $3  billion                                                                    
withdrawals. He stressed that all  of the money needed to be                                                                    
repaid. He stated that there would  be an annual sweep of GF                                                                    
to the  CBR, and  required a  supermajority vote  to reverse                                                                    
that action.                                                                                                                    
Vice-Chair  Saddler noted  that the  highest balance  of the                                                                    
CBR was  approximately $12  billion, and  must be  repaid at                                                                    
some point.                                                                                                                     
Mr. Teal agreed.                                                                                                                
Vice-Chair Saddler  noted that the bill  eliminated the need                                                                    
to repay  the CBR.  He wondered whether  there was  money to                                                                    
begin to fill that obligation.  He asked if the repayment of                                                                    
the CBR had any functional effect on the fiscal plan.                                                                           
Mr. Teal  stated that until  the price of oil  reached $110,                                                                    
the CBR had to be swept  every year. He remarked that, under                                                                    
the  current price  projections, the  state would  not reach                                                                    
$110 per  barrel of oil.  He remarked that the  savings rule                                                                    
would  not  be enacted,  and  furthered  that there  was  no                                                                    
projection of $75  per barrel of oil for  the revenue limit.                                                                    
He  explained  that  the  issue of  the  revenue  limit  and                                                                    
savings rule would not occur  within the next five years. He                                                                    
remarked that  they state  may see the  rule and  limit, but                                                                    
stressed  that the  $75  limit  only applied  to  FY 17.  He                                                                    
stated  that, as  oil production  fell and  production costs                                                                    
increased, the price  kept moving further out.  He felt that                                                                    
the limit  would not occur,  unless there was  another spike                                                                    
in oil  prices. He could not  say how long or  if they would                                                                    
pay back the CBR.                                                                                                               
12:07:52 PM                                                                                                                   
Vice-Chair Saddler  wondered whether the calculation  of the                                                                    
5.25 percent draw on POMV  was actually closer to 4 percent,                                                                    
because it was  calculated on the most recent 5  of the last                                                                    
6 years.  He wondered whether  other endowment plans  used a                                                                    
similar management target.                                                                                                      
Mr. Teal  stated that the  5.25 nominal payout was  based on                                                                    
the  average balance  of the  past six  years. He  explained                                                                    
that it  was based on the  average of three years  prior. He                                                                    
remarked that  paying 5.25 percent  on a three  year balance                                                                    
was roughly  the same as  paying 4.8 percent on  the current                                                                    
balance. He remarked that  endowments had different payouts,                                                                    
with  5  percent  being  on   the  high  side,  however  not                                                                    
"outlandishly  high."  He  stated that  the  Permanent  Fund                                                                    
investments  were  expected  to  be able  to  cover  that  5                                                                    
percent, with  approximately 2 percent remaining  that would                                                                    
not  be  paid  out.  The   2  percent  could  be  considered                                                                    
inflation  proofing,  but  stressed   that  it  was  not  an                                                                    
endowment with extra earnings into  the corpus. The earnings                                                                    
beyond  the  payout  remained  in  the  ERA,  and  were  the                                                                    
"buffer"  to ensure  that the  ERA  was not  emptied in  bad                                                                    
investment years.                                                                                                               
12:10:36 PM                                                                                                                   
Vice-Chair  Saddler  noted  that   the  bill  proposed  that                                                                    
dividends would  be paid through  royalties. He  wondered if                                                                    
there was a possibility for  royalties from minerals such as                                                                    
gold, silver, or  lead to reach equal or  approach the value                                                                    
of the royalties from oil.                                                                                                      
Mr. Teal responded in the negative.                                                                                             
Representative Wilson  thanked Mr. Teal for  clarifying that                                                                    
there was  not actually a  spending cap. She noted  that the                                                                    
savings rule  only related to  the oil and gas  revenue, and                                                                    
did not come from other  revenue. She remarked that the bill                                                                    
did not cap how much the legislature was able to spend.                                                                         
Mr.  Teal  agreed.  He explained  that  there  was  downward                                                                    
pressure on the  budget, but was not  necessarily because of                                                                    
the  bill. He  stressed  that  the bill  did  not solve  the                                                                    
state's  fiscal problems.  The bill  shifted the  deficit by                                                                    
half.  He  stressed  that $1.6  billion  was  a  significant                                                                    
deficit. He  remarked that the current  revenue covered less                                                                    
than one-third of the expenditures.  He stated that the bill                                                                    
would cover  half the  deficit, but there  was still  a one-                                                                    
third deficit,  forcing a downward  pressure to  balance the                                                                    
budget. He  felt that  there was probably  a time  to create                                                                    
taxes and reduce expenditures.                                                                                                  
Representative  Wilson  wondered  whether a  spending  limit                                                                    
could be  put into the  bill in  order to help  the pressure                                                                    
for future legislatures.                                                                                                        
Mr. Teal  replied that  there were  several versions  of the                                                                    
bill that  had an actual  spending limit. He  explained that                                                                    
many saw that as  impractical and unenforceable. He remarked                                                                    
that the  constitutional spending  limit was in  place, that                                                                    
some people consider unenforceable.  He stressed that future                                                                    
legislatures could break the rule.                                                                                              
12:17:59 PM                                                                                                                   
The meeting was adjourned at 12:17 p.m.                                                                                         

Document Name Date/Time Subjects