Legislature(2003 - 2004)

03/04/2004 08:01 AM STA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HJR 31-CONST AM: PERMANENT FUND                                                                                               
Number 0031                                                                                                                     
CHAIR WEYHRAUCH  announced that the  first order of  business was                                                               
HOUSE  JOINT  RESOLUTION  NO. 31,  Proposing  amendments  to  the                                                               
Constitution  of  the State  of  Alaska  relating to  the  Alaska                                                               
permanent fund  and to payments  to certain state  residents from                                                               
the Alaska  permanent fund; and  providing for an  effective date                                                               
for the amendments.                                                                                                             
Number 0075                                                                                                                     
REPRESENTATIVE   HOLM,  sponsor,   stated  that   HJR  31   is  a                                                               
constitutional amendment, which would be  voted on by the people.                                                               
The resolution would  require a two-thirds majority  in the House                                                               
and  Senate  in  order  to  get to  the  ballot.    The  proposed                                                               
legislation,  he said,  would restructure  the way  the permanent                                                               
fund currently works.   There would be a payout  of $20,000, only                                                               
to those  people who qualified  [for the permanent  fund dividend                                                               
(PFD)] in 2004.                                                                                                                 
REPRESENTATIVE  HOLM  directed  attention  to a  handout  in  the                                                               
committee  packet  entitled,  "HJR   31's  Restructuring  Of  The                                                               
Permanent  Fund," which  shows that,  after the  $20,000 payments                                                               
are made, the  corpus of the fund would change  from it's current                                                               
approximate $28 billion  to $16 billion.  That  $16 billion would                                                               
continue to  earn money and,  "with the possibility  of 8-percent                                                               
earnings  on  average,"  it  would  produce  approximately  $1.28                                                               
billion per  year.  Of that  amount, $480 million is  proposed to                                                               
go back  into the fund  to keep it inflation-proofed,  while $800                                                               
million would  then be available  for government services  and to                                                               
be put  into the  capital budget  reserve (CBR).   Representative                                                               
Holm indicated the "far right" of  the handout and said that "the                                                               
numbers are just  a possibility."  He clarified  that the numbers                                                               
don't have  to be  done this  way and  he said  discussions could                                                               
take place regarding how much  money the government needs and how                                                               
much money needs to be put in the  CBR.  He stated his idea is to                                                               
do the same  thing that is being  done with the CBR,  which is to                                                               
take  the peaks  of  economic times  and to  "put  them into  the                                                               
valleys of  our economic times."   Thus, the excess money  can be                                                               
used to  take up  the slack when  the oil prices  are lower.   He                                                               
suggested that "those things will eventually happen."                                                                           
Number 0354                                                                                                                     
REPRESENTATIVE HOLM stated that there  is a difficult scenario in                                                               
Alaska;  there exists  "twenty  eight  thousand million  dollars-                                                               
worth of assets" that were  derived from the resources of Alaska.                                                               
Those monies were  put in the New York stock  exchange, thus they                                                               
don't "sit  in Alaska"  or produce  jobs in Alaska.   He  said it                                                               
could be  argued that  the earnings from  the stock  exchange and                                                               
resource development  in other parts  of the world  is beneficial                                                               
to  the state  of  Alaska  to the  amount  of approximately  $600                                                               
million for  PFD checks.   Notwithstanding  that, he  stated that                                                               
those  checks are  less than  a  person could  earn with  $20,000                                                               
invested  in a  mutual fund  today.   He explained  that when  he                                                               
looked at  the numbers,  he began thinking  about whether  it was                                                               
possible to put enough money  "in" to make a life-altering change                                                               
for people, while  still preserving the size of the  fund so that                                                               
it  could produce  earnings  large  enough to  take  care of  the                                                               
budget deficits that are created  today with the current spending                                                               
REPRESENTATIVE   HOLM  noted   that  there   has  been   talk  of                                                               
shortfalls, with  $200-$600 million taken  out of the [CBR].   He                                                               
admitted  that he  is not  a manager  of a  huge corporate  fund.                                                               
Notwithstanding that,  he suggested  that the  legislature should                                                               
have the  ability to keep the  pressure on "how we  spend money,"                                                               
while also having enough money in  the accounts to pay the bills.                                                               
He indicated that because of  the current structure and political                                                               
reality, there is  a fear of taking any money  "out of there" and                                                               
affecting  people's PFD  checks, and  "we work  under a  scenario                                                               
that  wastes an  awful  lot of  time worrying  about  how in  the                                                               
dickens we're going  to pay our bills."  He  revealed that he has                                                               
been receiving hundreds  of e-mails from diverse  people who feel                                                               
that [the  legislature] is  not giving  education or  welfare its                                                               
due and is  not adequately providing for services  as required by                                                               
the constitution.                                                                                                               
REPRESENTATIVE  HOLM  stated  that  [HJR  31]  is  not  the  only                                                               
possibility, and  it is  a possibility that  has been  thought of                                                               
before.   He said  he believes  [this proposed  resolution] would                                                               
work and would "change the way  the State of Alaska is structured                                                               
in its  functioning today."   He said it  could be argued  how to                                                               
carry the  plan out,  for example, whether  the people  would get                                                               
$4,000 or $5,000 checks.  He continued as follows:                                                                              
     I suggest there's  one thing we could  possibly do, and                                                                    
     that is to have a  venture capital fund that's owned by                                                                    
     the  people of  the state  of  Alaska -  not the  state                                                                    
     itself, but the  people of Alaska - that  could be used                                                                    
     no  differently   than  what   we're  doing   with  the                                                                    
     permanent fund today, as a  pot of cash that then could                                                                    
     prevent the  monies leaving the  state and  be actually                                                                    
     be invested  into projects within  the state  of Alaska                                                                    
     to  have some  perpetuity of  jobs and  revenues within                                                                    
     the state.                                                                                                                 
REPRESENTATIVE HOLM expressed that one  thing that does not exist                                                               
today  is the  ability of  the  people of  the state  to "have  a                                                               
connect  between what  it costs  for their  government, and  what                                                               
they pay for  it."  He concluded that the  people of Alaska don't                                                               
understand  that  all of  the  resource  money that's  spent  for                                                               
government is  a tax that  has been taxed  away from all  who own                                                               
the resources of Alaska.  He said:                                                                                              
     When we  became a  state, the resources  were put  in a                                                                    
     collective.   The earnings of those  resources are what                                                                    
     we're   receiving  today,   but  we're   depleting  the                                                                    
     resource -  and it's  a nonrenewable  resource.   So, I                                                                    
     would suggest ... that we  look at some methodology ...                                                                    
     that  has  the  potential   for  changing  the  way  we                                                                    
     structure the  government of the  State of Alaska.   We                                                                    
     must balance our  budget.  We cannot go  down this road                                                                    
     much farther - we know we  can't.  We are working under                                                                    
     a  situation where  the  CBR  requires a  three-quarter                                                                    
     vote,  and  because  ... it  requires  a  three-quarter                                                                    
     vote, our  budgets increase immeasurably at  the end of                                                                    
     the session  to get  out of the  session and  make sure                                                                    
     that we get  a vote from the minority,  because we have                                                                    
     to  have a  minority  vote  in order  to  leave in  the                                                                    
     appropriate time.                                                                                                          
Number 0733                                                                                                                     
REPRESENTATIVE  HOLM  reiterated  that  he thinks  [HJR  31]  has                                                               
possibilities to  reach solutions and  he only offers  it because                                                               
he thinks it's  an absolute necessity that "we  as Alaskans" come                                                               
up with  some system that works.   He said he  agrees with others                                                               
who say that it  is the job of [the legislature]  to come up with                                                               
a solution.  He said, "Popular or  not, I believe that if it gets                                                               
on the  ballot it  would pass."   He listed  other possibilities,                                                               
such  as a  dividend  program  and the  percent  of market  value                                                               
(POMV).     He  suggested  that   the  POMV  doesn't   take  into                                                               
consideration  the population  of the  state.   Since 1982,  when                                                               
Alaska  "instituted the  dividend  program,"  the population  has                                                               
increased by  200,000 people.   Representative  Holm said  he has                                                               
never  seen any  indication that  the earnings  of the  fund will                                                               
grow as fast as the population.   He said he understands that the                                                               
POMV approach  is an  excellent way  to manage  funds.   He noted                                                               
that most of  the discussion by the fund  managers have indicated                                                               
that  that is  "the  best  way of  going."   Representative  Holm                                                               
     I suggest  that that would  be the methodology  for the                                                                    
     corpus  of fund  that would  be left  in the  permanent                                                                    
     fund,  starting and  beginning at  the  year 2004,  and                                                                    
     carrying forward  for the next  five years, and  then a                                                                    
     rolling five-year average  from then on.   And that ...                                                                    
     is primarily  because there wouldn't be  $28 billion to                                                                    
     make that beginning of the rolling average.                                                                                
Number 0894                                                                                                                     
CHAIR WEYHRAUCH  asked if  any analysis  had been  done regarding                                                               
the  figures  of  $20,000  payouts totaling  $12  billion  and  a                                                               
remaining corpus of $16 billion.  He asked, "Why those figures?"                                                                
REPRESENTATIVE HOLM indicated that  one consideration had been to                                                               
ask what a good number would  be that people would vote for, that                                                               
would allow  the legislature to do  what it should be  doing.  He                                                               
said he had  considered $10,000, but decided that  it wouldn't be                                                               
enough.  He  noted that he has received  e-mails with suggestions                                                               
for different amounts  and he said he doesn't know  that there is                                                               
a magic number.  Whatever the  amount is, he explained, it should                                                               
be large enough,  but not so large that there  wouldn't be enough                                                               
in the remaining  permanent fund to provide enough  earnings at a                                                               
predicted rate  of 8 percent for  a buffer to use  to balance the                                                               
state budget.  He continued:                                                                                                    
     If  we assumed  ...  that we  would  have $400  million                                                                    
     available,  we  could  balance our  budget,  given  the                                                                    
     current scenario  we are  in today.   And if  we wanted                                                                    
     more money, we  would then have to go  through the same                                                                    
     scenario with  the CBR to  add more money  to education                                                                    
     or to any other programs that we chose to fund.                                                                            
REPRESENTATIVE HOLM reiterated  that the numbers work,  but he is                                                               
not tied to them.                                                                                                               
CHAIR WEYHRAUCH stated  that [HJR 31] has been  described by some                                                               
as  the  "take   the  money  and  run  resolution."     He  asked                                                               
Representative Holm to address that.                                                                                            
REPRESENTATIVE HOLM  replied that  a number  of people  have said                                                               
that "it's greed"  and it's inappropriate for  people to consider                                                               
not having  a dividend program.   He  remarked that he  lived [in                                                               
Alaska] for  38 years before  there ever was a  dividend program,                                                               
so it's not something that's a part of his history.                                                                             
REPRESENTATIVE HOLM  mentioned taking [the money]  and putting it                                                               
into people's  homes.  He said  he looked at the  larger view and                                                               
the  main   view  is  that   government  must  function   in  the                                                               
appropriate manner, which  means that the people  that are paying                                                               
the money for the government must  have a "connect" to that money                                                               
they are paying for that government.  He continued as follows:                                                                  
     Through   these   discussions   I  hope   people   will                                                                    
     understand that  we are taxing $1.7  billion every year                                                                    
     from  the  people of  Alaska  and  using it  for  their                                                                    
     government.  It just means  we're not sending it to New                                                                    
     York to the  stock exchange; we're pulling  it into the                                                                    
     State of Alaska.  The  royalty payments are ... not the                                                                    
     monies of the oil companies - they're our monies.                                                                          
CHAIR  WEYHRAUCH responded  that cashing  out the  permanent fund                                                               
and making a  portion of it available to government  is still not                                                               
putting the responsibility on the  individual.  He stated that to                                                               
have  a connection  between government  [and the  people], a  tax                                                               
system  is  almost  needed,  because   "you  have  to  invest  in                                                               
government."  He  asked if [HJR 31]  would lead to a  setup for a                                                               
taxation system in the state that doesn't already exist.                                                                        
REPRESENTATIVE HOLM answered  that at some future  date it would.                                                               
He suggested  that when the  revenues from the  natural resources                                                               
decline  and the  state's expenses  increase, eventually  a point                                                               
will come where "the two are  not equal," which will require some                                                               
form of taxation to pick up the balance.                                                                                        
Number 1177                                                                                                                     
REPRESENTATIVE HOLM  stated that when people  have an opportunity                                                               
to make  life-altering changes, they  can choose "to  waste their                                                               
investment or  they can choose  to invest their investment."   He                                                               
emphasized  the  importance of  teaching  people  that it's  more                                                               
important to  invest in Alaska, into  new products and jobs.   He                                                               
said those jobs are not government  jobs.  He said, "We produce a                                                               
tremendous number of  educated people here, but we  have very few                                                               
long-term jobs,  and so we  send a  lot of our  people 'outside,'                                                               
because we don't  educate them in fields that they  can stay here                                                               
in, other  than in government  or in something related  to that."                                                               
He mentioned  retail sales and  he said  that "many of  the sales                                                               
jobs are  actually not  very high-paying  ..., quality  jobs that                                                               
you'd want  to be ... having  people pay for a  college education                                                               
to think that that's their long-term goal."                                                                                     
CHAIR WEYHRAUCH stated  that the permanent fund was set  up to be                                                               
permanent and the  money should be there  for future generations.                                                               
He indicated that [HJR 31] would pay out this generation.                                                                       
Number 1262                                                                                                                     
REPRESENTATIVE HOLM offered  an example of a family  of four that                                                               
would get a payout of $80,000  [through the proposed HJR 31].  He                                                               
suggested that  they might buy a  home with that money,  and that                                                               
is an  asset that transfers to  their family.  He  noted that the                                                               
state's  assets are  declining and  future  generations will  not                                                               
have the  nonrenewable resources available  to use.   He remarked                                                               
that once  land is bought,  for example, people a  thousand years                                                               
from now can't  buy that piece of land, unless  they "buy it from                                                               
your heirs."   He questioned "how  far down that road  we need to                                                               
go."  He  said he thinks it's far more  important that people [in                                                               
the state  now] have decent  employment, have an ability  to take                                                               
care of themselves,  and have a proper use and  function of their                                                               
own finances.  He concluded, "I  think it's a far better thing to                                                               
teach people  to fish than give  them fish, and so,  just handing                                                               
them  a  bunch  of  money without  giving  them  the  appropriate                                                               
analysis of what they should do with  it, I think is a very valid                                                               
point, and we need to discuss that."                                                                                            
Number 1336                                                                                                                     
REPRESENTATIVE SEATON,  regarding the idea of  investments, jobs,                                                               
and  people, noted  that many  things are  done in  the state  by                                                               
investment credit, credit  to oil companies, and  credit to small                                                               
businesses, for  example.   He asked  Representative Holm  if his                                                               
proposal  of giving  everybody $20,000  will create  business and                                                               
good paying jobs "versus using  that money over time to influence                                                               
the economy."                                                                                                                   
REPRESENTATIVE HOLM prefaced  his answer by stating that  he is a                                                               
businessman,  so he  worries about  how  much it  costs to  repay                                                               
debt.   He mentioned the  "rule of 72,"  which is [a  formula for                                                               
how] money doubles every 72 months.  He continued as follows:                                                                   
     If you  take $20,000  today ... it's  not inconceivable                                                                    
     that in 20 years of  $1,000 payments for a dividend, as                                                                    
     we  do today,  you  would still  only  have $20,000  in                                                                    
     total funds.  But at 20  years out, the $1,000 that you                                                                    
     get in 20 years is probably  only worth $400 or $500 in                                                                    
     today's  dollars, or  some number.   It's  a discounted                                                                    
     number; it's not $1,000, it's  something less than that                                                                    
     in 2004 dollars.  If  you take $20,000 in 2004 dollars,                                                                    
     even if  you pay the  taxes on it  and you only  end up                                                                    
     with $15,000, the time value  of money, as I understand                                                                    
     it,  means  it's  probably worth  between  $40,000  and                                                                    
     $60,000, depending upon what you do with it.                                                                               
     The other  thing [is], if  you take that money  and you                                                                    
     just put it  in a mutual fund, and you  clip coupons on                                                                    
     it, you  get your  $1,000, ...  but ...  the individual                                                                    
     would own the asset.                                                                                                       
REPRESENTATIVE  SEATON said  Representative Holm  is saying  that                                                               
Alaska is exporting  jobs because it doesn't have  good jobs, the                                                               
brightest "kids"  are leaving the  state, and a  $20,000 one-time                                                               
payout will  create good jobs across  the state.  He  stated that                                                               
he doesn't see the connection and  he doesn't think such a payout                                                               
would  have  the   same  kind  of  effect  as   tax  credits  for                                                               
investments  in certain  businesses, for  example, or  "the other                                                               
kind of  state programs that go  forward."  He said  he wanted to                                                               
make certain that that's Representative Holm's position.                                                                        
REPRESENTATIVE HOLM responded that he  is not saying that this is                                                               
all a  jobs program.   He offered a  couple examples:   First, he                                                               
said that  the $20,000  could be  reducing mortgage,  which could                                                               
result in  a huge economic  boon for the family.   He said  it is                                                               
inherent upon [the legislators] as  leaders to offer solutions to                                                               
people so  that they can  improve their  lot.  Second,  if people                                                               
take  that money  and pay  off credit  cards, on  which they  are                                                               
presently  paying huge  percentages  of interest,  "you also  can                                                               
exact  some  tremendous  positives."   He  added,  "Now,  whether                                                               
people do this or not, I don't know."                                                                                           
REPRESENTATIVE  HOLM  said  there's a  great  disconnect  between                                                               
fishermen and the  amount they pay to Alaska  for the government.                                                               
He reminded the committee that many  of the fishermen who come up                                                               
to the state don't pay any taxes  to the state.  He noted that it                                                               
is reputed  to be that the  people who work in  Prudhoe Bay don't                                                               
pay any money to the state  for its government.  He mentioned all                                                               
the different  things that  the state pays  for, such  as [water]                                                               
ports  and  airports,  and  he   said,  "But  we  don't  get  any                                                               
compensation from those  who work here."  To give  tax credits to                                                               
companies to  come to Alaska  doesn't necessarily  translate into                                                               
paying  money for  the state  government, he  said, while  having                                                               
extra money in  Alaska for creating jobs may be  "the little shot                                                               
in the arm  that will allow somebody to start  a small business."                                                               
He revealed  that he started  his own business with  $30,000, but                                                               
he borrowed from someone.                                                                                                       
REPRESENTATIVE HOLM reiterated  that he does not see  [HJR 31] as                                                               
the only  solution.  However,  he stated  that his sense  is that                                                               
"we do not  function as a decent government here."   He said [the                                                               
legislature]  argues  a  lot  over how  to  balance  the  budget,                                                               
knowing  it hasn't  balanced its  budget in  10 years,  except by                                                               
going to the  savings account to do  so.  He said,  "I don't know                                                               
what the answer  is; this is all about trying  to figure out some                                                               
methodology where this government can function better."                                                                         
REPRESENTATIVE SEATON  expressed appreciation  for Representative                                                               
Holm's words,  but questioned how  the $20,000  individual payout                                                               
ties to the argument that [HJR  31] is for investment in jobs and                                                               
retaining people in Alaska.                                                                                                     
REPRESENTATIVE HOLM  said he isn't  maintaining that  [result] at                                                               
all, but is only maintaining that  if someone wants to get out of                                                               
"the doldrums  or wherever they  are," then [$20,000] might  be a                                                               
significant amount of  money.  He said, "I don't  know about you,                                                               
sir, but  ... $15,000 -  even if that's what  the number is  - or                                                               
$10,000 cash in  your pocket is more money than  many, many folks                                                               
see in  their lifetime.   And  to assume  that people  would just                                                               
waste it,  I don't think  [is] appropriate."   He stated  that he                                                               
thinks [that kind of payout]  has the potential for life-altering                                                               
Number 1678                                                                                                                     
REPRESENTATIVE  LYNN  asked what  the  effect  on eligibility  of                                                               
recipients of public assistance would  be if they were to receive                                                               
"all this money."                                                                                                               
REPRESENTATIVE HOLM  mentioned there  are statements made  in the                                                               
committee packets regarding how the  services would be changed in                                                               
different departments.  He said  it's fairly complex, and he said                                                               
he thinks  Representative Lynn's  concerns are  well placed.   He                                                               
proffered  that it  may  only  be a  one-year  problem for  many,                                                               
because they  may go  right back on  whatever type  of assistance                                                               
that they  currently receive.   He  said it  may be  that certain                                                               
folks shouldn't be impacted by this,  and "we will do things like                                                               
hold  harmless."   He  noted that  [HJR 31]  takes  out the  hold                                                               
harmless agreement  for one specific  reason:  He thinks  that if                                                               
people are given  the opportunity, they will get  away from being                                                               
on  public assistance.   He  noted,  for example,  that a  single                                                               
mother with two children would  receive $60,000, and he suggested                                                               
that many  single mothers with  two children have never  had that                                                               
much  money.   Representative Holm  stated that  he is  trying to                                                               
exact a  social change, as  well as  a government change,  and he                                                               
said  he  doesn't think  the  two  are  mutually exclusive.    He                                                               
concluded, "You  know, we as  a government are trying  to provide                                                               
for those  who cannot  provide for  themselves.   And I  think we                                                               
should do that.   The operative word here is  'cannot,' not 'will                                                               
not.'    And I  suppose,  ...  philosophically, that's  what  I'm                                                               
trying to accomplish."                                                                                                          
REPRESENTATIVE  LYNN   revealed  that  he  calls   four  to  five                                                               
constituents  every  day  to  ask if  they  have  any  questions,                                                               
complaints,  or concerns.    The one  common  denominator in  the                                                               
answers is  in regard to the  fiscal situation in the  state that                                                               
needs to  be solved.   He indicated  that the comments  of people                                                               
regarding the  ideas proposed to  solve the fiscal problem  is to                                                               
"pick something and do it."   Regarding Representative Holm's HJR                                                               
31, he said he thinks many constituents think it's a good idea.                                                                 
REPRESENTATIVE LYNN  said he thinks that  [HJR 31] "has a  lot to                                                               
recommend it."   He pointed  out that,  if a dividend  payment of                                                               
approximately  $1,000 a  year can  be predicted  for the  next 20                                                               
years, then  all those who are  over 60 years old  would probably                                                               
be better off with the $20,000  in their pockets now than betting                                                               
that  they will  live another  20 years.   He  indicated that  he                                                               
would  benefit  in that  way  and  thus  declared a  conflict  of                                                               
REPRESENTATIVE  LYNN said  some  say that  people would  squander                                                               
that money.   He  said that's  probably true, but  said he  has a                                                               
quaint idea that  "it's none of my business what  you all do with                                                               
your money."  Even if some  folks "blew" that money, he observed,                                                               
there  would  still be  a  tremendous  economic impact  upon  the                                                               
Number 1930                                                                                                                     
REPRESENTATIVE LYNN  observed that the permanent  fund has become                                                               
"something  of  a  sacred  cow,"   and  most  [legislators]  have                                                               
promised  in one  manner  or another  to protect  the  fund.   He                                                               
stated that  he is in favor  of [protecting] the fund  because it                                                               
belongs  to  the  people.    He noted  that  the  fund  has  been                                                               
described as something to have for  a rainy day, and he suggested                                                               
that "some variety  of my colleague's suggestion  here would turn                                                               
a rainy  day into a sunny  day."  He  said there are a  number of                                                               
[ideas regarding  the fund], and he  suggested it may be  wise to                                                               
put  more than  one of  them on  the ballot  to "help  the people                                                               
decide."  He stated that he  would support [HJR 31] moving out of                                                               
Number 2033                                                                                                                     
REPRESENTATIVE BERKOWITZ mentioned "the  Mackie plan" [a proposed                                                               
plan by former  Senator Jerry Mackie].  In response  to a comment                                                               
by Chair  Weyhrauch, he specified  that the Mackie plan  had been                                                               
to cash out a portion of the  fund.  Regarding [HJR 31], he noted                                                               
that  there have  been a  lot  of discussions  that the  proposed                                                               
legislation  would  be good  for  the  economy.   Conversely,  he                                                               
stated,  "I just  wonder  what  happens to  the  Python after  it                                                               
swallows a  $12 billion pig.   What  happens for its  next meal?"                                                               
He  questioned what  would happen  when people  leave the  state,                                                               
which is  something he predicted  people would do.   He mentioned                                                               
possible effects to small businesses and the cost of housing.                                                                   
REPRESENTATIVE  BERKOWITZ said  he has  not heard  any discussion                                                               
regarding the  mechanics of "this  liquidation."  He  stated that                                                               
he would like  to know what would happen to  the remainder of the                                                               
fund.   For  example,  he  asked if  [HJR  31]  would impact  the                                                               
quality of  the permanent  fund's investments.   He noted  that 8                                                               
percent  of  $20,000  is  approximately  $1,600.    He  suggested                                                               
another  option  might  be  a "POMV  70-30  split,"  which  would                                                               
maintain the integrity of the fund.  He continued as follows:                                                                   
      And I'm not endorsing that, I'm just pointing it out                                                                      
     that you get to the same place without sacrificing ...                                                                     
     the  very important  notion of  intergenerational store                                                                    
     of wealth that  the permanent fund enshrines.   So, I'd                                                                    
     like to hear a little  bit more about the thinking that                                                                    
     went into this.                                                                                                            
Number 2136                                                                                                                     
REPRESENTATIVE  GRUENBERG questioned  whether the  permanent fund                                                               
belongs just to Alaskans today  or whether it belongs to Alaskans                                                               
in  the  future.   He  mentioned  Representative Lynn's  previous                                                               
remark  that  what other  people  do  with  the money  isn't  his                                                               
business.  He continued as follows:                                                                                             
     If   we  really   subscribe  to   the  principal   that                                                                    
     Representative  Lynn ...  stated,  then  we really  are                                                                    
     affecting  people's money  who  are not  voting on  the                                                                    
     bill - people  who are not old enough to  vote [or] ...                                                                    
     are not even born yet -  and so, we really are making a                                                                    
     decision  about somebody  else's money  if we  take the                                                                    
     money and distribute it now.                                                                                               
     Now you say,  "Well, we do that every time  we take oil                                                                    
     out of  the ground,  because that's  an asset  that may                                                                    
     not  just  belong  to  us, but  may  belong  to  future                                                                    
     generations."   And I would  say that that's  true, but                                                                    
     we don't take  all the money out immediately  - all the                                                                    
     assets out  - and  distribute it.   What we've  done is                                                                    
     taken the  state's share and  kept it in  the permanent                                                                    
     fund,   so  we   really   have  kept   it  for   future                                                                    
     generations.   And  we've followed  the principal  that                                                                    
     I'm espousing,  which isn't just  [that] it  belongs to                                                                    
     the current generation.                                                                                                    
REPRESENTATIVE GRUENBERG  mentioned the land that  was given away                                                               
in Oklahoma  [the Oklahoma Land  Rush, April 22, 1889],  and said                                                               
someone  could point  to that  as an  example of  giving away  [a                                                               
state resource]  to the  people.  He  indicated that  his logical                                                               
response would  be that  to give a  small amount  of distribution                                                               
under  the "let's  help  people  fish so  that  they can  support                                                               
themselves" policy  is good  for the  state to do.   He  spoke of                                                               
helping people  get off welfare  and support  themselves, whether                                                               
they choose to do  so by living on the land  or recreating on the                                                               
land.  He noted that fishing is a renewable resource.                                                                           
Number 2299                                                                                                                     
REPRESENTATIVE  GRUENBERG   said  a  second  question   is,  "Who                                                               
decides?"  The same analysis applies,  he said.  Because [HJR 31]                                                               
is a  constitutional amendment,  the legislature  doesn't decide,                                                               
but  the  people  do.    He clarified  that  it  is  the  current                                                               
generation who  would decide [for  future generations].   He said                                                               
he thinks that  it's safe to say that not  many people would make                                                               
the  analysis that  "I'm discussing  at the  moment."   He stated                                                               
that  the legislators  are really  the ultimate  trustees of  the                                                               
permanent  fund,  because  the  ideas  regarding  that  fund  are                                                               
proposed by the legislature.                                                                                                    
Number 2329                                                                                                                     
REPRESENTATIVE   HOLM  responded   that   he   agrees  that   the                                                               
legislature is  trustee for the  future.  He stated  that because                                                               
of that, the legislature must  solve the fiscal dilemma that [the                                                               
state] is  in today.  That,  he explained, is the  only reason he                                                               
proposed  [HJR 31]  as a  method to  "get there  from here."   He                                                               
reiterated that  it isn't  the only possibility.   He  noted that                                                               
the POMV  [idea] could work,  but said he's concerned  that there                                                               
isn't "the population discussion."  He continued as follows:                                                                    
     But  frankly,  63  percent of  the  people  in  January                                                                    
     didn't even  know what  POMV meant ...  in a  poll that                                                                    
     was taken.   My question is, if  folks don't understand                                                                    
     it, they  won't vote for  it.   If they won't  vote for                                                                    
     it, we're still in the same dilemma were are in today.                                                                     
Number 2376                                                                                                                     
CHAIR   WEYHRAUCH  stated   that  this   obviously  is   a  "huge                                                               
philosophic issue."  He outlined  that the committee's process is                                                               
to  hear  what  the  people  have to  say,  understand  what  the                                                               
implications of [HJR  31] are in terms of state  policy, and vote                                                               
on the issue.                                                                                                                   
TAPE 04-27, SIDE B                                                                                                            
Number 2376                                                                                                                     
REPRESENTATIVE SEATON  said he appreciates  Representative Holm's                                                               
bringing [HJR  31] forward, because  he thinks the intent  of the                                                               
resolution is  to find some way  to enable the state  to take its                                                               
largest income-generating asset and use  it to the benefit of the                                                               
state  through funding  state services  and balancing  the fiscal                                                               
gap.  He noted that most  of the conversation is centered on what                                                               
people  will do  with the  money and  he said  he doesn't  really                                                               
think that's  the crux  of the  problem.  He  said he  thinks the                                                               
question to  consider is whether  the purpose of  Alaska's having                                                               
subsurface  rights and  so much  land is  to fund  and support  a                                                               
state government or to make Alaskans individually wealthy.                                                                      
Number 2283                                                                                                                     
REPRESENTATIVE  COGHILL responded  that  he agrees  with much  of                                                               
what  Representative   Seaton  just   said  and   he  appreciates                                                               
Representative Holm  for bringing forth  [HJR 31].   He confirmed                                                               
that  it's true  that the  subsurface  rights were  given to  the                                                               
state so  it could afford to  maintain its government.   He said,                                                               
"We  were fortunate  enough to  find the  oil in  Prudhoe Bay  in                                                               
1968,  and we  have  had  quite an  interesting  ride ever  since                                                               
then."   He  told the  committee to  be aware  that "during  that                                                               
time, three quarters of the  royalties, revenues, and leases have                                                               
already gone  into the general fund  state coffers."  He  said it                                                               
could be argued  that three quarters of those  revenues have been                                                               
consumed by the current generation;  however, he noted that there                                                               
is an  infrastructure, so  there are benefits  that are  going to                                                               
REPRESENTATIVE  COGHILL  indicated  that  when  discussion  first                                                               
began  about the  permanent fund  dividend, one  idea was  to let                                                               
people  share generally  in the  wealth, while  the other  was to                                                               
protect the fund  itself, so that "people would be  engaged."  He                                                               
said he  thinks that at  this point,  if the dividend  goes away,                                                               
the protection goes away.   Every year [in the legislature] there                                                               
is  discussion  about protecting  the  dividend.   He  said  that                                                               
that's good, but "it also has  its backlash."  He stated the fact                                                               
that  "we" have  actually come  to the  point where  the critical                                                               
mass  in  the  fund  has  allowed a  good  debate  on  turning  a                                                               
nonrenewable resource into a renewable  one.  The dividend now is                                                               
a high focus.                                                                                                                   
REPRESENTATIVE COGHILL  said he  thinks this  is probably  one of                                                               
the  critical  years  when  "we're" going  to  have  to  question                                                               
whether  it's  time  to  use  some of  the  earnings  to  support                                                               
government services,  because up until  now it hasn't  [been time                                                               
to do so].   He said, "I  don't know that by  taking the dividend                                                               
off  the table  that you  really solve  that argument.   I  think                                                               
we'll still have a debate, and  I think there's going to be, once                                                               
again, a  larger mistrust, because  it will be viewed  as playing                                                               
to self-interest  on one  hand, and  allowing the  legislature to                                                               
... manage  the rest of it  outside of their interest."   He said                                                               
he  thinks that  speaks  to  Representative Gruenberg's  previous                                                               
comment regarding whether this is  a trust that is being managed.                                                               
He said that in  many ways it is.  He said this  is a huge policy                                                               
question and he appreciates "the  boldness."  He revealed that he                                                               
isn't necessarily going  to support "this effort."   He explained                                                               
that [supporting  HJR 31 would mean  that] not only is  he of the                                                               
generation  that has  benefited from  the three  quarters of  the                                                               
money that  went into government  services, but he would  also be                                                               
the generation that would get a  direct payout of the earnings of                                                               
that resource.                                                                                                                  
Number 2100                                                                                                                     
REPRESENTATIVE COGHILL stated the following:                                                                                    
     If I'd  have been the  architect, I probably  would not                                                                    
     have  put  a  dividend  in  to begin  with.    I  would                                                                    
     probably [have]  made the state  fight for  a dividend.                                                                    
     And  now we  have ...  the opposite  effect -  probably                                                                    
     rightfully so:   the state now has to  justify its need                                                                    
     to use some of the  earnings of permanent fund.  That's                                                                    
     probably a good debate. ...                                                                                                
     If  I  was   the  architect  I  would   say,  "Give  an                                                                    
     individual dividend, not for  the whole earnings of the                                                                    
     permanent fund,"  ... because  then you  have everybody                                                                    
     engaged  in  this  renewable resource,  just  like  you                                                                    
     would in the  negotiations for the oil  contracts.  Let                                                                    
     the  community share  in it  like Representative  Moses                                                                    
     said; give them a  dividend also that is discretionary.                                                                    
     ...   We did  that; when  we had  a lot  of oil  we had                                                                    
     revenue sharing.   And when  the revenue was  there, we                                                                    
     shared.   If it's not  there we  can't share ....   And                                                                    
     then, let the  government get a dividend,  if you will,                                                                    
     or a  portion of that,  because that was, I  think, the                                                                    
     whole  intent  of  the resource  base,  which  we  have                                                                    
     purported that  this now is a  renewable resource built                                                                    
     out of a nonrenewable resource.   So, at the end of the                                                                    
     day, we'll probably get there,  and we're in the middle                                                                    
     of that  discussion.  But  I think right now,  for this                                                                    
     particular  bill, you  will disengage  the public  from                                                                    
     the protection  of this fund,  and at that point  I can                                                                    
     say it's  worked very  well -  and sometimes  too well,                                                                    
     but I think,  appropriately, has worked well.   And for                                                                    
     that there is an engagement.                                                                                               
     The day that  we get a tax in there's  a different kind                                                                    
     of engagement, and I'll tell you  why.  I pay an income                                                                    
     tax every year  to the federal government, but  I am so                                                                    
     disengaged   from   the    federal   government,   it's                                                                    
     unbelievable.   So, the tax  is a burden, but  it's not                                                                    
     really an  engagement tool.   This actually  has worked                                                                    
     much better than an engagement tool, I think.                                                                              
     Now   sometimes  the   discussion   wobbles  into   the                                                                    
     extremes, but I  don't think that's entirely  bad.  ...                                                                    
     I'm  conflicted too,  by the  way.   Not  only would  I                                                                    
     stand -  my wife  and I  - to have  enough to  set some                                                                    
     things in order in my house  that it would be very nice                                                                    
     -- but that's  exactly what the appeal is  here to that                                                                    
     kind of  interest, not necessarily  to a principal.   I                                                                    
     think  that I  would try  to ratchet  it up  to a  more                                                                    
     noble principal.  However, I'm  not a big fan of people                                                                    
     getting  something   for  nothing  either,  so   I  get                                                                    
     conflicted in the discussion.   The dividend has been a                                                                    
     benefit  to  Alaskans,  generally,   but  it  has  been                                                                    
     somehow  disconnected from  a  responsibility.   And  I                                                                    
     think as  we go  down the road,  we'll need  to discuss                                                                    
     Right now though they have  been carrying a pretty good                                                                    
     responsibility,  in  my  view, holding  the  government                                                                    
     accountable,  saying,  "You  don't  use  any  of  those                                                                    
     earnings 'til  you get  some of  your house  in order."                                                                    
     And it  has been  frustrating, but very  effective, you                                                                    
     know.  And  I appreciate that tool, because  I'm one of                                                                    
     those  guys that  would  ride rates  on  the growth  of                                                                    
     government.  And  this is one of those  tools that I've                                                                    
     actually used to say, "Before  you do anything there, I                                                                    
     want some  changes."  And  I've appreciated  that tool,                                                                    
     quite frankly.   And  it does get  people engaged.   As                                                                    
     for me,  I struggle with  changing that trust  that has                                                                    
     now grown to a huge amount  in Alaska.  And a payout at                                                                    
     this  point would,  I  think, disconnect  it.   And  so                                                                    
     [Representative]  Holm,  I  really  do  appreciate  how                                                                    
     you're trying  to get to  the fiscal needs, but  we can                                                                    
     actually get there without having  to take this off the                                                                    
     table, I think.                                                                                                            
Number 1939                                                                                                                     
DESMON  BUTTS testified  that  he  spent a  couple  years in  the                                                               
financial  markets doing  self-directed  investing and  training.                                                               
He stated  that he is  in favor  of having the  cash distribution                                                               
[proposed in HJR  31], "under a few circumstances."   He told the                                                               
committee  that people  have  expressed being  in  favor of  [the                                                               
payout]  if it  were $20,000  after  taxation.   They also  would                                                               
prefer that  the money be distributed  the first of the  year, so                                                               
that  they would  have  a  year and  four  months  to invest  it,                                                               
especially  if they  have to  pay  taxes on  it.   He offered  an                                                               
MR. BUTTS  said that  if the  rule of  72 is  applied, with  a 5-                                                               
percent return,  the investment would  double in 14.4  years, and                                                               
the rate of  return on $20,000 would be  approximately $1,388 per                                                               
year.  He said,  "If you want to have a dividend  and you were to                                                               
invest that $20,000,  that would give you a  very decent dividend                                                               
indefinitely, and therefore you  protect yourself and your family                                                               
in the long  term."  He explained that there's  no guarantee that                                                               
the  permanent fund  may  even exist  in 20  years,  or that  the                                                               
payout  will  be  consistently  $1,000  per year.    He  said  it                                                               
concerns  him  that  after  inflation,  the  amount  that  future                                                               
generations  may  receive  may  be  only  $200  per  person,  for                                                               
example.   He suggested  that those  who may  not be  around much                                                               
longer can will the money to their successors.                                                                                  
Number 1822                                                                                                                     
MR. BUTTS noted  a problem is the abuse of  the permanent fund by                                                               
those   who  don't   live   [in  Alaska],   but   fill  out   the                                                               
[application].   He  said, "I've  had a  few incidences  over the                                                               
years I've  been here [of] people  telling me that they  have had                                                               
that happen  in their family  - three or four  families reporting                                                               
at the same  address and abusing that fund.   And that would help                                                               
take care of the abuse problem of  the fund, as well."  Mr. Butts                                                               
said  he believes  that  if people  were  educated regarding  the                                                               
long-term effects of having the  cash upfront, the stimulation of                                                               
the   economy,   and  their   ability   to   spend  [the   money]                                                               
appropriately, [the proposed legislation]  would probably be more                                                               
widely accepted.                                                                                                                
MR. BUTTS, in  response to a question from  Chair Weyhrauch, said                                                               
he  moved to  Alaska four  years  ago and  owns a  transportation                                                               
service and limousine company in Wasilla.                                                                                       
Number 1749                                                                                                                     
CHAIR WEYHRAUCH said he would like  to hear what it would mean to                                                               
the state to have this payout.   He acknowledged that some people                                                               
may want  to vote on the  legislation; however, he said  he would                                                               
like a  little bit  more analysis  regarding the  implications of                                                               
[HJR 31].                                                                                                                       
Number 1690                                                                                                                     
REPRESENTATIVE HOLM stated  that his intentions are  to solve the                                                               
fiscal problem in Alaska, which  he indicated has not been solved                                                               
because of  political differences.   He  said, "Because  we're in                                                               
such a dilemma,  it may require this kind of  a drastic change in                                                               
how we do business."                                                                                                            
CHAIR WEYHRAUCH noted  that since the permanent fund  is a trust,                                                               
it  may be  argued that  it should  be cashed  out.   However, he                                                               
noted that, philosophically,  the permanent fund was  set up with                                                               
a lofty  goal of having  a fund  to "invest on"  for generations.                                                               
He opined  that it's  an unfortunate  state of  political affairs                                                               
that  there are  overcrowded classrooms  that can't  be financed,                                                               
for example.                                                                                                                    
REPRESENTATIVE HOLM directed the  committee's attention to a page                                                               
entitled, "Vote for the Alaska  Permanent Fund," [included in the                                                               
committee packet, stapled  in back of pages from  the Division of                                                               
Legal and Research Services].  He  said it is an excerpt from the                                                               
1976 official  election pamphlet and encouraged  the committee to                                                               
read  it.   He remarked  that [the  permanent fund]  was a  lofty                                                               
goal.   He said,  "It certainly was  something that  we predicted                                                               
...  could happen,  but  I  think at  that  time  nobody had  any                                                               
concept of  how large it  could be and  where we would  be today.                                                               
And  given that,  we can  look back,  but history  hopefully only                                                               
keeps us from making the same mistakes again."                                                                                  
CHAIR WEYHRAUCH announced that [HJR 31 was heard and held].                                                                     

Document Name Date/Time Subjects