Legislature(2003 - 2004)

03/24/2004 08:03 AM STA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HJR 31-CONST AM: PERMANENT FUND                                                                                               
Number 0048                                                                                                                     
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 0067                                                                                                                     
SUSAN   TAYLOR,  Director,   Administrative  Services   Division,                                                               
Department of Revenue, directed  the committee's attention to the                                                               
fiscal note  with the component labeled,  "Commissioner's Office"                                                               
[affecting  the  Department  of   Revenue].    She  reminded  the                                                               
committee that testimony  had been given at  the previous hearing                                                               
on HJR  31 [on March 19,  2004], stating that the  Permanent Fund                                                               
Dividend  Division  would  be  phased out,  but  there  would  be                                                               
continuing work  that would  be picked  up by  the Office  of the                                                               
Commissioner [in  the Department  of Revenue].   She  listed that                                                               
continuing work as:   formal appeals and court  appeals of denied                                                               
decisions;  collections  of  dividends fraudulently  received  or                                                               
paid in error; continuing work  regarding the 18-year-old filers;                                                               
and  fraud investigation.   She  stated that  because the  stakes                                                               
would be so high, it would  be expected that fraud would possibly                                                               
increase; therefore, a fraud investigator  would [work] for three                                                               
years.   Because  of the  increase  in the  formal hearings,  she                                                               
said, another  hearing examiner  would be hired,  as well  as two                                                               
legal  office  assistants.   The  other  position that  would  be                                                               
maintained  for quite  awhile would  be  an Administrative  Clerk                                                               
III, which would  deal with the 18-year-old filers  and work with                                                               
anyone on repayment plans.                                                                                                      
Number 0250                                                                                                                     
CHAIR WEYHRAUCH announced  that public testimony was  closed.  He                                                               
offered  his understanding  that [CSHJR  31(W&M)] was  before the                                                               
Number 0303                                                                                                                     
REPRESENTATIVE HOLM  moved to  adopt Amendment  1, which  read as                                                               
follows [original punctuation provided]:                                                                                        
      Pg. 2, line 12, after the word "dividend."  Insert:                                                                       
     Payments under this subsection shall be distributed by                                                                   
     April 1, 2005.                                                                                                           
     This amendment  is a  practical fix  to the  problem of                                                                    
     moving billions of dollars out  of the market and other                                                                    
     investments  of the  fund without  negative effects  to                                                                    
     the fund value or the  markets.  The Fund managers have                                                                    
     said that this date will be sufficient.                                                                                    
CHAIR WEYHRAUCH objected for discussion purposes.                                                                               
Number 0375                                                                                                                     
REPRESENTATIVE  LYNN suggested  that making  the payout  over two                                                               
years,  instead of  one, might  be an  advantage, because  people                                                               
wouldn't have such a large tax [amount].                                                                                        
REPRESENTATIVE  HOLM  responded  that the  tax  implications  are                                                               
considerably  better for  a lump  sum than  they actually  are in                                                               
small  amounts.   He  illustrated that  a tax  of  23 percent  on                                                               
$20,000  would leave  $15,400.   He said,  "That amount  invested                                                               
identically  to  the permanent  fund  is  projected to  return  8                                                               
percent,  and if  it  did, it  would create  $1,232  per year  of                                                               
income on  that amount, and you  still would have the  $15,400 of                                                               
capital left in  your own account.   And so, I think  it's a moot                                                               
point as  to whether or not  you break it apart  in little pieces                                                               
...."    Furthermore, he  observed  that  $1,100  per year  at  a                                                               
conservative 2-percent  inflation would result  in a net  loss of                                                               
$3,233, if  taxes don't go  up and  a majority of  15-percent tax                                                               
brackets stay the  same.  He added,  "It will also be  a net loss                                                               
of $2,354."   He concluded, "So, your net money,  after 18 years,                                                               
is still only worth $14,412, which is an interesting anomaly."                                                                  
Number 0500                                                                                                                     
CHAIR WEYHRAUCH  removed his  objection.  He  asked if  there was                                                               
further objection to Amendment 1.   There being none, Amendment 1                                                               
was adopted.                                                                                                                    
Number 0518                                                                                                                     
REPRESENTATIVE HOLM  moved to  adopt Amendment  2, which  read as                                                               
     Page 2, line 12, following "dividend":                                                                                     
     Insert ", unless a written rejection of the payment is                                                                     
     provided to the State"                                                                                                     
CHAIR WEYHRAUCH objected for discussion purposes.                                                                               
REPRESENTATIVE HOLM  explained that Amendment 2  responds to some                                                               
of  the discussion  that took  place during  the [March  19, 2004                                                               
meeting on  HJR 31], regarding  those folks who might  lose their                                                               
hold harmless provisions.   He said, "We put this  forth to offer                                                               
to those  that didn't want to  lose their ability to  get welfare                                                               
payments, the ability to (indisc.  - coughing) of the $20,000, if                                                               
they so desire.  So, it's just choice."                                                                                         
Number 0538                                                                                                                     
CHAIR  WEYHRAUCH noted  that  since Amendment  1  was adopted,  a                                                               
technical  amendment  to Amendment  2  was  necessary to  replace                                                               
"dividend" with "2005".                                                                                                         
REPRESENTATIVE HOLM  said he would  accept that.   [The technical                                                               
amendment to Amendment 2 was treated as adopted.]                                                                               
Number 0571                                                                                                                     
REPRESENTATIVE SEATON said  he knows that "in  some provision the                                                               
State of Alaska  has the ability to apply for  dividends, even if                                                               
people  don't  want  them."    He  asked,  "The  effect  of  this                                                               
provision, does  it allow  a participant to  not receive  it, and                                                               
... also ... prevent the State  of Alaska from receiving that for                                                               
child support enforcement?"                                                                                                     
REPRESENTATIVE HOLM  responded that he would  doubt that, because                                                               
"it would  be no different  than if someone was  incarcerated and                                                               
chose not to do it."                                                                                                            
REPRESENTATIVE  SEATON clarified  that  he wants  to ensure  that                                                               
[Amendment  2,  as  amended]  would  not  be  putting  in  a  new                                                               
statutory  provision  that  would  allow someone  to  reject  the                                                               
payment "and that has some impact on that."                                                                                     
REPRESENTATIVE HOLM  stated for  the record  that he  agrees with                                                               
Representative Seaton.                                                                                                          
Number 0657                                                                                                                     
CHAIR WEYHRAUCH  removed his  objection.  He  asked if  there was                                                               
further  objection to  Amendment  2 [as  amended].   There  being                                                               
none, Amendment 2 [as amended] was adopted.                                                                                     
Number 0688                                                                                                                     
REPRESENTATIVE HOLM  moved to report  HJR 31, as amended,  out of                                                               
committee  with individual  recommendations and  the accompanying                                                               
fiscal notes.                                                                                                                   
Number 0720                                                                                                                     
CHAIR WEYHRAUCH objected for discussion purposes.                                                                               
Number 0728                                                                                                                     
REPRESENTATIVE SEATON  stated that he appreciates  the resolution                                                               
as a means to look at the  state fiscal plan; however, he said it                                                               
seems that  it would be  transferring from future  generations to                                                               
the current  participants what  was envisioned  to be  an ongoing                                                               
distribution of  permanent funds through  dividends.  He  said he                                                               
would not support the resolution.                                                                                               
Number 0760                                                                                                                     
REPRESENTATIVE  BERKOWITZ stated  that  he likes  the title,  but                                                               
does not like  the concept of hashing out the  dividend.  He said                                                               
it   seems   like   a  surrender   strategy;   surrendering   the                                                               
responsibility to  keep the permanent  fund permanent as  well as                                                               
the  idea that  a  solution to  the fiscal  gap  can be  achieved                                                               
without going to excessive means.                                                                                               
REPRESENTATIVE BERKOWITZ, regarding the  reason that he likes the                                                               
title, observed  that [legislators] spend  a lot of  time talking                                                               
about  the  fiscal  gap  and   outflow  of  the  permanent  fund,                                                               
regarding whether  there will be  percent of market  value (POMV)                                                               
or  a dedicated  amount  to  dividends, for  example.   With  the                                                               
existing title, he said, "We can  start talking a little bit more                                                               
about what's  coming in."   He mentioned the "Cremo  plan" [after                                                               
Roger Cremo].   He announced  that he  will not object  to moving                                                               
HJR  31 out  of committee,  because he  thinks it's  important to                                                               
"carry the  conversation further  into the  building than  we are                                                               
right now," but he  will be voting "do not pass."   He stated his                                                               
intention  to  propose  amendments  based upon  the  Cremo  plan.                                                               
Representative Berkowitz concluded,  "I think we can  do a better                                                               
job   about  filling   Alaska's  coffers   into  the   future  by                                                               
structurally  changing the  fiscal system  than [by]  just simply                                                               
cashing out today."                                                                                                             
Number 0853                                                                                                                     
REPRESENTATIVE LYNN  stated that he  thinks this resolution  is a                                                               
good  example  of  thinking  outside  the  box.    He  said  that                                                               
obviously a  payout of  this type would  benefit anyone  over 60,                                                               
because  "one would  have to  gamble  on living  until you're  80                                                               
years old" to  receive that amount if it were  paid over the next                                                               
20 years.   He said others have expressed concern  to him that if                                                               
people are  paid $20,000 all at  once they might blow  the money.                                                               
He said he  thinks it isn't anybody's business  what other people                                                               
do with their  own money.  He indicated that  such a payout would                                                               
be an  economic boon to  Alaska.  He said  he thinks [HJR  31] is                                                               
worthy of  debate, and  he stated  his intent to  vote it  out of                                                               
committee, with "no recommendation," because  he wants to see the                                                               
resolution debated further along with other alternatives.                                                                       
Number 0968                                                                                                                     
CHAIR   WEYHRAUCH  characterized   the   permanent   fund  as   a                                                               
conceptualization of a shining city on  a hill.  He spoke of vast                                                               
oil wealth  put into  a permanent  fund and  of giving  an annual                                                               
payout  to people  so they  would ensure  that politicians  would                                                               
stay  honest with  the state's  money.   He  recollected that  in                                                               
1982, when  the "permanent  fund payout"  was being  debated, the                                                               
state hired high-priced experts from  around the world to look at                                                               
the  influx  of  vast  amounts of  capital  into  countries  like                                                               
Nigeria,  where money  came in  and  was simply  squandered.   He                                                               
related that those  experts said [the state] would  be better off                                                               
making statues  out of gold  that could  be melted down  and used                                                               
later,  rather  than  "building other  kinds  of  monuments  that                                                               
simply  do the  public no  good."   He  said that  as oil  prices                                                               
declined, the  tenor of debate  has become quite uncivil  and has                                                               
frozen the  ability of the  public and  legislators to look  at a                                                               
long-term fiscal solution.                                                                                                      
CHAIR WEYHRAUCH  said it  will be with  some resignation  that he                                                               
will support moving  [HJR 31] out of committee, because  it is an                                                               
acknowledgement that "maybe,  ... instead of a  permanent fund to                                                               
guide  our  state  into  the  future,  we've  got  a  $28-billion                                                               
millstone  around our  collective  necks; that  we've frozen  our                                                               
ability to come up with  long-term reasoned solutions to problems                                                               
in the  state."  He observed  that the government is  a different                                                               
entity  than   the  private  sector   and  the   individual,  and                                                               
government can't and  should not operate the same  as the private                                                               
sector.  He said that rather  seeing [HJR 31] as an abrogation of                                                               
[the legislature's] responsibility, he sees  a "payout of a large                                                               
sum now."   He said  he thinks  Representative Holm has  made the                                                               
case that this  is a way to capitalize  individual initiative and                                                               
dreams and  perhaps put wheels  under people who would  have left                                                               
the state  anyway, and "to  finance that aspect of  this payout."                                                               
He  said  he   certainly  sees  [HJR  31]  would   be  keeping  a                                                               
significant amount  of money available  for the  state government                                                               
to operate itself in the future.   He said, "And to that respect,                                                               
we do honor  our future generations of Alaska that  rely on state                                                               
government,  and the  present  generations that  may  be able  to                                                               
build certain needs of future  generations through private sector                                                               
initiative."     He  said  he  wants   to  follow  Representative                                                               
Berkowitz's suggestion  regarding the  Cremo plan  and structural                                                               
changes  to  deal   with  finances,  and  he   agrees  with  both                                                               
Representatives Lynn  and Berkowitz that this  debate should move                                                               
forward.  He stated his intention to vote "do pass."                                                                            
Number 1174                                                                                                                     
REPRESENTATIVE  HOLM thanked  his  fellow  committee members  for                                                               
their deliberation on  the issue.  He  agreed with Representative                                                               
Berkowitz that  there are  structural problems  regarding wanting                                                               
to have  a perfect government,  in the sense that  the government                                                               
and the people respond appropriately  regarding what is demanded,                                                               
received, and paid for.  He  clarified that there is a disconnect                                                               
in Alaska  between "those  of us  who ask  for services  from the                                                               
government  and  those  of  us  who  pay  for  services  for  the                                                               
government."   He said he  thinks [HJR  31] would settle  part of                                                               
that problem by  putting into perspective that there  is going to                                                               
be only so  much money available from the permanent  fund that is                                                               
left for  government to utilize.   The resolution would  not take                                                               
away the  need for  the legislature to  be careful  regarding how                                                               
the state's assets are spent.                                                                                                   
REPRESENTATIVE HOLM  stated his  belief that it's  important that                                                               
the  people  of  Alaska  understand that  [$28  billion]  of  the                                                               
state's assets  are in the  New York Stock Exchange,  and because                                                               
they're there,  they do absolutely  nothing to create  the wealth                                                               
in Alaska.   He noted that  $700 million dollars coming  back out                                                               
of [$28 billion]  is a small amount.  Taking  $10 billion to give                                                               
to the  people of Alaska, he  said, is putting that  capital into                                                               
the  people of  Alaska's  pockets.   He  asked  the committee  to                                                               
consider what  effect it would have  on a person to  have his/her                                                               
mortgage cut from 30 years to  15 years, for example.  He offered                                                               
more examples of how [the  $20,00 payout] could benefit Alaskans.                                                               
He said,  "This is not  a perfect scenario,  it is just  an idea.                                                               
But  we could  retain  over  half of  it  and  still have  enough                                                               
earnings  to  provide  for  the  governmental  needs  of  Alaska,                                                               
without  fighting  the  process  that we're  doing  today."    He                                                               
remarked  that under  any  other kind  of  scenario, the  problem                                                               
would still  have to  be solved.   He opined that  [HJR 31]  is a                                                               
structural  fix  that will  solve  the  dilemma of  Alaska  [not]                                                               
having enough money.   He asked the committee  to remember, "When                                                               
you have  [$16 billion]  left ...,  8 percent  of that  amount of                                                               
money is enough  money to pay for  all of the needs  of the State                                                               
of Alaska's government."  He  indicated that there would still be                                                               
money to put back into the CBR.                                                                                                 
Number 1393                                                                                                                     
CHAIR WEYHRAUCH removed his objection.                                                                                          
Number 1397                                                                                                                     
REPRESENTATIVE COGHILL objected.                                                                                                
Number 1400                                                                                                                     
A roll  call vote  was taken.   Representatives  Berkowitz, Holm,                                                               
Lynn,  and Weyhrauch  voted  in  favor of  reporting  HJR 31,  as                                                               
amended, with individual recommendations  and the attached fiscal                                                               
notes, out of committee.   Representatives Gruenberg, Seaton, and                                                               
Coghill voted against it.   Therefore, CSHJR 31(STA) was reported                                                               
out of  the House State Affairs  Standing Committee by a  vote of                                                               

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