Legislature(2003 - 2004)
03/24/2004 08:03 AM STA
* first hearing in first committee of referral
= bill was previously heard/scheduled
= 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 committee. 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 follows: 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 4-3.