Legislature(2003 - 2004)

01/23/2004 08:04 AM W&M

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HJR 31-CONST AM: PERMANENT FUND                                                                                               
                                                                                                                                
Number 0115                                                                                                                     
                                                                                                                                
CHAIR HAWKER announced  that the only order of  business would be                                                               
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.                                                                                                             
                                                                                                                                
CHAIR HAWKER stated that Representative  Holm, sponsor of HJR 31,                                                               
could not be present in  person, but is testifying from Fairbanks                                                               
via teleconference.                                                                                                             
                                                                                                                                
Number 0226                                                                                                                     
                                                                                                                                
BARBARA COTTING,  Staff to Representative Jim  Holm, Alaska State                                                               
Legislature,  presented  the  sponsor  statement for  HJR  31  on                                                               
behalf of Representative Holm.                                                                                                  
                                                                                                                                
MS. COTTING explained  HJR 31 by first pointing  out that Section                                                               
2, page  2, adds a new  section to the constitution  which leaves                                                               
15 billion  dollars in  the principal of  the permanent  fund and                                                               
distributes the  rest equally to  all qualified Alaskans.   After                                                               
that, no  more dividends are  paid out,  she added.   To qualify,                                                               
individuals  must be  eligible for  the  permanent fund  dividend                                                               
distributed this  year, 2004,  which means  that they  were legal                                                               
Alaskan  residents in  2003.    At the  fund's  current value,  a                                                               
couple of  days ago, the  fund was at  27 billion, so  that would                                                               
mean that  $12 billion  or more would  be distributed,  she said.                                                               
That would be  about $20,00 per person.  At  the current level of                                                               
payout, that  would be about  20 years of dividends  people would                                                               
receive in a lump sum, she added.                                                                                               
                                                                                                                                
MS.  COTTING referred  to Section  1 of  HJR 31  to explain  that                                                               
after the  payout, 75 percent  of the [realized income  from the]                                                               
fund each year  would be available to the  legislature to provide                                                               
services and  programs, and the  remaining 25 percent  would stay                                                               
in the fund and remain untouchable.                                                                                             
                                                                                                                                
Number 0450                                                                                                                     
                                                                                                                                
REPRESENTATIVE JIM  HOLM, Alaska State Legislator,  explained the                                                               
reason  he is  proposing  HJR 31.   He  stated  that the  current                                                               
percent  of market  value  (POMV) proposal  may  not gain  enough                                                               
support to pass.  He said  that a solution is needed soon because                                                               
of  the  CBR  [Constitutional  Budget Reserve]  draw.    He  also                                                               
believes that a population increase clause is needed.                                                                           
                                                                                                                                
REPRESENTATIVE  HOLM  stated  that  he has  resurrected  an  idea                                                               
similar  to  the one  then-Senator  Mackie  formerly proposed  in                                                               
1999.   He reviewed  the history  of the  permanent fund  plan by                                                               
referring to  1959, when  the format  to statehood  was partially                                                               
dictated  by the  federal  government.   He  stated that  because                                                               
[Alaska] lacked  a taxable  economy and  a population  that could                                                               
support it, it was determined  that all subsurface rights for the                                                               
potential resources,  - oil and gas,  gold, and so forth  - would                                                               
be reserved  to the state  in lieu of granting  standard property                                                               
rights to individuals.  The State  of Alaska was to hold in trust                                                               
all subsurface  resources for the  people's collective good.   He                                                               
strongly  believes that  the people's  resources were  taken from                                                               
citizens at  statehood.  He  said that  "we" might own  the land,                                                               
but not the resources underneath it.                                                                                            
                                                                                                                                
Number 0648                                                                                                                     
                                                                                                                                
REPRESENTATIVE  HOLM  stated that  Alaskans  are  accused of  not                                                               
paying their  fair share because  they do not pay  federal income                                                               
tax.   Approximately $1.7 billion  derived from  royalty payments                                                               
in  fiscal year  '03  are a  percentage of  a  resource that  was                                                               
reserved for the  collective good of its citizens.   He suggested                                                               
that if [Alaska]  owned the resources, then 100  percent of value                                                               
is  being taxed  away  for government  use.   In  return for  the                                                               
royalty  or tax,  as Representative  Holm perceives  it, Alaskans                                                               
received  government services  and  the dividend  check equal  to                                                               
plus or minus $20,000 from 1982 to date.                                                                                        
                                                                                                                                
Number 0730                                                                                                                     
                                                                                                                                
REPRESENTATIVE HOLM suggested that HJR  31 will allow Alaskans to                                                               
receive  another  $20,000 and  then  the  dividend program  would                                                               
cease to exist, as Alaskans know  it today.  This would use about                                                               
$12 billion of  the corpus of the fund, leaving  $15 billion left                                                               
to  be earning  money as  before.   Citizens of  Alaska who  have                                                               
lived  here  for the  past  20  years  will have  received  about                                                               
$40,000 from  the subsurface resources, he  said.  Representative                                                               
Holm called this  a prepayment plan, a prepayment of  20 years of                                                               
dividend checks.                                                                                                                
                                                                                                                                
REPRESENTATIVE HOLM  questioned what would happen  if the current                                                               
dividend plan  continues over time  and the population  of Alaska                                                               
increases.  He suggested that  yearly dividend payments would not                                                               
buy  anything significant;  however, with  a lump  sum of  around                                                               
$20,000, Alaskans  could pursue  many life-altering options.   He                                                               
suggested many options.                                                                                                         
                                                                                                                                
REPRESENTATIVE HOLM repeated  the idea that all  Alaskans own the                                                               
subsurface rights collectively and stated  that what HJR 31 would                                                               
do  is  fund  government  with  the  earnings  remaining  in  the                                                               
permanent  fund and  increase the  ability of  Alaskans to  build                                                               
their own  future.   He stated  that the  $15 billion  left would                                                               
earn approximately  $1.2 billion per  year at 7.6 to  7.8 percent                                                               
interest.   After  the proposed  75 percent  cap with  25 percent                                                               
going back  in to be  reinvested in  the $15 billion  fund, there                                                               
would have been,  this year, $875 million  available in earnings,                                                               
plus the  $1.7 billion of  royalties and corporate taxes.   There                                                               
would  have been  roughly $2.57  billion in  the general  revenue                                                               
fund to be  used for government functions, which  would have been                                                               
$300  to $400  million more  than  was actually  needed for  this                                                               
year.  That money,  he said, could have been put  into the CBR to                                                               
be used when the price of oil drops.                                                                                            
                                                                                                                                
Number 1043                                                                                                                     
                                                                                                                                
REPRESENTATIVE HOLM spoke  about the downside of HJR  31, in that                                                               
some may say it may overheat  the economy.  He believes it won't.                                                               
He described his bill as  a reorganization of the permanent fund.                                                               
He called  it "a recapturing of  the New York Stock  Exchange and                                                               
bringing  it  to  the  people  of Alaska."    He  disputed  other                                                               
imagined negatives.                                                                                                             
                                                                                                                                
REPRESENTATIVE  HOLM  also  offered several  positives  such  as:                                                               
people could  pay off student  loans, buy a home,  pay mortgages,                                                               
pay  credit card  debt,  or invest  the money.    He envisions  a                                                               
private corporation in  Alaska owned by its citizens  and not the                                                               
government, always investing  in Alaska.  He believes  that $2 to                                                               
$4 billion of the $12 billion would be returned to Alaska.                                                                      
                                                                                                                                
REPRESENTATIVE  HOLM spoke  of the  possibilities venture-capital                                                               
businesses could have for Alaskans who  might buy stock in such a                                                               
business.   He gave the  example of  a chemical plant  that would                                                               
generate jobs  and income for Alaskans  for decades to come.   He                                                               
stated that $12  billion of resource revenues  should be returned                                                               
to the people  of Alaska, the result of which  would provide far-                                                               
reaching economic benefits for generations to come.                                                                             
                                                                                                                                
REPRESENTATIVE  WILSON  commented  about the  similarity  between                                                               
Representative Holm's words  and those of Paul Harvey.   She said                                                               
that these  ideas are a new  way of thinking and  a new direction                                                               
to pursue.                                                                                                                      
                                                                                                                                
Number 1730                                                                                                                     
                                                                                                                                
REPRESENTATIVE WEYHRAUCH  questioned whether HJR 31  is different                                                               
from the  Mackie plan in that  it does not distribute  all of the                                                               
permanent fund  to the people.   He also asked  for clarification                                                               
about  whether or  not  HJR 31  distributes only  a  part of  the                                                               
permanent fund to the people.                                                                                                   
                                                                                                                                
REPRESENTATIVE  HOLM  answered both  of  these  questions in  the                                                               
affirmative.                                                                                                                    
                                                                                                                                
REPRESENTATIVE  WEYHRAUCH asked  for what  purpose the  remaining                                                               
amount is to be used.                                                                                                           
                                                                                                                                
Number 1820                                                                                                                     
                                                                                                                                
REPRESENTATIVE  HOLM explained  that the  $15 billion  would keep                                                               
earning as  it has  in the  past and  would provide  roughly $1.2                                                               
billion per year at 8 percent  interest.  He said that 75 percent                                                               
of  that could  be used  for government  purposes and  25 percent                                                               
would  be reinvested  in  the  permanent fund  and  also used  to                                                               
inflation-proof it.                                                                                                             
                                                                                                                                
REPRESENTATIVE  WEYHRAUCH asked,  if this  bill were  adopted, if                                                               
POMV could also be on the ballot.                                                                                               
                                                                                                                                
REPRESENTATIVE  HOLM  replied  that   POMV  is  a  very  positive                                                               
approach and could be "married with this quite easily."                                                                         
                                                                                                                                
Number 1915                                                                                                                     
                                                                                                                                
REPRESENTATIVE  WEYHRAUCH  questioned  whether,  if  HJR  31  was                                                               
adopted, the permanent fund division would be eliminated.                                                                       
                                                                                                                                
REPRESENTATIVE HOLM responded in the affirmative.                                                                               
                                                                                                                                
REPRESENTATIVE  WEYHRAUCH asked  if  the analysis  of the  fiscal                                                               
impact of  HJR 31 included the  impact of the elimination  of the                                                               
entire permanent fund division.                                                                                                 
                                                                                                                                
REPRESENTATIVE  HOLM stated  that  he had  only  seen the  fiscal                                                               
notes about three minutes ago and did not know the answer.                                                                      
                                                                                                                                
Number 2000                                                                                                                     
                                                                                                                                
REPRESENTATIVE  SAMUELS  asked what  would  happen  if the  stock                                                               
market  took a  downturn.   He stated  the consequences  would be                                                               
similar  to  what  is  in  place  now  and  that  the  structural                                                               
financing problems would not be fixed by HJR 31.                                                                                
                                                                                                                                
REPRESENTATIVE  HOLM respectfully  disagreed and  explained again                                                               
how the  deficit would  be made  up.  He  believes that  there is                                                               
plenty of money  extra in this bill to not  only fund the deficit                                                               
spending Alaskans have  been accustomed to, but also  to shore up                                                               
the CBR,  which could be  used when the price  of oil falls.   He                                                               
also  explained how  Alaska does  not get  much corporate  income                                                               
tax,  but if  the money  was given  back to  Alaska and  put into                                                               
corporations that  are taxed for  their efforts and  energies, he                                                               
thinks  there would  be a  far better  return on  the investments                                                               
than from the New York Stock Exchange.                                                                                          
                                                                                                                                
CHAIR HAWKER  stated that there  was a problem with  the realized                                                               
income structure  of the POMV  plan, which means that  there only                                                               
is  income if  a  gaining investment  has been  sold.   He  asked                                                               
Representative  Holm whether  he has  given any  thought to  that                                                               
concern  that has  been so  well stated  by the  Alaska Permanent                                                               
Fund Corporation  board and has  been manifested in  the proposed                                                               
POMV  amendment.   He  asked  whether  Representative Holm  would                                                               
consider  working  this  idea into  his  proposed  constitutional                                                               
amendment.                                                                                                                      
                                                                                                                                
Number 2420                                                                                                                     
                                                                                                                                
REPRESENTATIVE HOLM  answered that he  would, but added  that the                                                               
stock portfolio would change.   For example, real estate would no                                                               
longer  be a  part  of  the portfolio,  but  the more  aggressive                                                               
investments would be  kept.  He said that the  issue of liquidity                                                               
of the permanent fund would need to be addressed.                                                                               
                                                                                                                                
REPRESENTATIVE  OGG  reviewed  the history  of  the  Constitional                                                               
Convention  and  questioned  the restriction  of  the  subsurface                                                               
rights, whether it  was enacted by the federal  government or the                                                               
State of Alaska, and when that policy came into effect.                                                                         
                                                                                                                                
REPRESENTATIVE HOLM answered that he did not know.                                                                              
                                                                                                                                
REPRESENTATIVE OGG stated  it would be helpful to  know and would                                                               
make a difference if it  was the federal government or [Alaska's]                                                               
Founding  Fathers.   He continued  his review  of the  intent and                                                               
purpose of the setting up of  the permanent fund, stating that it                                                               
was  a   constitutional  amendment  that  set   up  the  original                                                               
permanent fund.                                                                                                                 
                                                                                                                                
REPRESENTATIVE  HOLM stated  that it  was his  understanding that                                                               
the  permanent  fund  was  generated   for  the  purpose  of  the                                                               
continuation  of government  and the  ability to  fund government                                                               
for  generations  to come.    He  said,  at its  conception,  the                                                               
permanent  fund plan  was not  a dividend  plan.   That was  done                                                               
later, he added.   He didn't know if the  dividends were meant to                                                               
be given  back to the people  in the form of  goods and services,                                                               
government services, or  for people to create  their own economic                                                               
engines in Alaska.   He believes that the people  would do a much                                                               
better job investing than the government would.                                                                                 
                                                                                                                                
REPRESENTATIVE OGG referred to an  excerpt from the 1976 election                                                               
pamphlet and a statement in  favor of Proposition 2, the creation                                                               
of the  permanent fund.   [Upon hearing that  Representative Holm                                                               
did not  have a copy  of that pamphlet,  he decided to  deal with                                                               
that subject at another time.]                                                                                                  
                                                                                                                                
Number 3013                                                                                                                     
                                                                                                                                
REPRESENTATIVE GRUENBERG asked what  the federal tax implications                                                               
of HJR  31 would be.   He questioned if  there is $27  billion in                                                               
the  fund and  $15 [billion]  is left  in, that  would mean  that                                                               
there is a $12 billion payout, and  if the average tax rate is at                                                               
25  percent,  that would  mean  about  $3  billion going  to  the                                                               
federal government.                                                                                                             
                                                                                                                                
REPRESENTATIVE HOLM agreed.                                                                                                     
                                                                                                                                
REPRESENTATIVE GRUENBERG said that was  money that would be taken                                                               
away  from  the  taxpayers  and given  directly  to  the  federal                                                               
government.                                                                                                                     
                                                                                                                                
Number 3149                                                                                                                     
                                                                                                                                
REPRESENTATIVE WEYHRAUCH  questioned if the annual  payment would                                                               
have a  significant impact on rural  areas and if there  had been                                                               
any thought of  a five-year "payout phase-out" with  the value of                                                               
the payout locked in to the value on January 1, 2004.                                                                           
                                                                                                                                
REPRESENTATIVE  HOLM answered  that  there was  thought given  to                                                               
this topic, but the reason that it  was not stated is that all of                                                               
the payout options could be considered at a later date.                                                                         
                                                                                                                                
REPRESENTATIVE  WEYHRAUCH said  a  recent legal  analysis on  the                                                               
POMV,  the payout,  and the  impact of  the federal  laws on  the                                                               
permanent  fund, implied  that the  permanent fund  would not  be                                                               
subject  to federal  taxation with  the POMV  or dividend  locked                                                               
into the constitution.  He  questioned whether, with such a large                                                               
check  cut,  the  legal analysis  would  change,  subjecting  the                                                               
remainder of the fund to taxation.                                                                                              
                                                                                                                                
Number 3340                                                                                                                     
                                                                                                                                
REPRESENTATIVE HOLM  said he  has not looked  at that  issue, but                                                               
that analysis which  he has heard said that was  probably not the                                                               
case.  He suggested that a  corporation could be created so there                                                               
would be no tax implications.                                                                                                   
                                                                                                                                
CHAIR HAWKER  stated that Representative  Weyhrauch had  to leave                                                               
momentarily during the last response.                                                                                           
                                                                                                                                
Number 3500                                                                                                                     
                                                                                                                                
REPRESENTATIVE SEATON  questioned the  philosophy behind  the 102                                                               
million acres  given to  Alaska at  statehood and  the subsurface                                                               
rights'  going to  the state.   He  said the  permanent fund  has                                                               
given the state  resources more liquid [assets] than  at the time                                                               
of the statehood  Act and said it seems that  50 million acres of                                                               
the  surface   rights  should  be  distributed   to  the  current                                                               
residents of  Alaska.  He said  the only reason that  idea wasn't                                                               
incorporated  into the  current  fund was  because the  permanent                                                               
fund  deals   with  liquid   assets.     He  asked   for  further                                                               
clarification of this idea in terms of HJR 31.                                                                                  
                                                                                                                                
REPRESENTATIVE  HOLM stated  that  those ideas  were  not in  his                                                               
philosophy and  added that  when the  federal government  did not                                                               
give [the people] 50  percent of the land, he was  not happy.  He                                                               
does  not think  that, at  this point  in time,  the transfer  of                                                               
subsurface rights  to the  people would be  possible.   He thinks                                                               
the idea has  merit and could be changed, depending  on the views                                                               
of the people.   He said that  he was willing to  listen to these                                                               
new ideas.                                                                                                                      
                                                                                                                                
Number 3700                                                                                                                     
                                                                                                                                
REPRESENTATIVE SEATON  said that many  bonds have been  passed in                                                               
the state  and that the  purpose of the  bonds was to  spread the                                                               
cost of capital expenses to future  generations.  He asked if the                                                               
dividend accomplished  the same thing, spreading  the recovery of                                                               
the capital resources extracted now to future generations.                                                                      
                                                                                                                                
REPRESENTATIVE  HOLM  said he  doesn't  think  that there  was  a                                                               
relationship and he does think that  bonds are a bad idea because                                                               
they are a way to shift responsibility on others.                                                                               
                                                                                                                                
Number 3858                                                                                                                     
                                                                                                                                
CHAIR HAWKER had  a question about Section 30, [Section  2 of HJR                                                               
31]  page 2,  second  sentence, "All  provisions  of statute  and                                                               
regulation that  are both applicable to  permanent fund dividends                                                               
for 2004  and in  effect on  January 1,  2004, apply  to payments                                                               
under  this  subsection  except provisions  that  relate  to  the                                                               
amount of  the dividend and the  date the dividend is  paid."  He                                                               
asked if all  of the current hold harmless provisions  in the law                                                               
are kept in place.                                                                                                              
                                                                                                                                
REPRESENTATIVE  HOLM referred  Chair  Hawker back  to the  Mackie                                                               
proposal to look for that information because he was not sure.                                                                  
                                                                                                                                
Number 4047                                                                                                                     
                                                                                                                                
CHAIR HAWKER  asked if the intention  of the bill is  to preserve                                                               
hold harmless provisions.   He gave as an example  a situation of                                                               
a family  on public  assistance who  would lose  their assistance                                                               
based  on  increased revenue  after  receiving  the payout.    He                                                               
questioned whether  it was the  intention of HJR 31  to reimburse                                                               
the family  for the public benefits  lost or not to  pay the hold                                                               
harmless benefits.                                                                                                              
                                                                                                                                
REPRESENTATIVE HOLM  said that the second  statement was correct,                                                               
to not pay the hold harmless  benefits.  He referred to March 22,                                                               
2000,  when  then-Senator  Mackie   addressed  this  issue  after                                                               
talking to Margaret Pugh, then  commissioner of the Department of                                                               
Health and Social  Services, and was told that this  could be the                                                               
best public assistance  program ever to get people  off of public                                                               
assistance and self-supporting.                                                                                                 
                                                                                                                                
Number 4330                                                                                                                     
                                                                                                                                
STEVEN PORTER,  Deputy Commissioner, Office of  the Commissioner,                                                               
Department  of  Revenue,  gave highlights  and  examples  of  the                                                               
effect HJR 31 would have  on the Permanent Fund Dividend Division                                                               
(PFDD).  He stated that PFDD  would, in effect, be closed out and                                                               
it would receive about $1 million  worth of benefits in the first                                                               
year by  reducing positions.   He said  that in fiscal  year 2006                                                               
and  beyond,  the  total  program savings  would  be  about  $5.3                                                               
million,  the  cost   of  the  whole  division.     The  appeals,                                                               
collection, and fraud  divisions would be retained  and the fraud                                                               
division  would   increase  in  size  to   manage  the  potential                                                               
problems.                                                                                                                       
                                                                                                                                
CHAIR  HAWKER  questioned the  figure  $5.3  million because  the                                                               
Permanent Fund Dividend Division fiscal note shows $950,000.                                                                    
                                                                                                                                
MR. PORTER replied  that Chair Hawker was correct  and the figure                                                               
would have  to be corrected.   He also added that  amendments [to                                                               
the fiscal note] would be made after today's hearing.                                                                           
                                                                                                                                
MR. PORTER  spoke about the  Child Support  Enforcement Division,                                                               
which has  a unique  situation.   He said  that there  were about                                                               
$500 million in  arrearages and that the infusion  of $12 billion                                                               
into the  economy in  one day would  pay down  approximately $240                                                               
million of  those arrearages  in a  single event.   Some  of that                                                               
money is  owed to the  state, and some  is owed to  the custodial                                                               
parents,  he said.   There  would be  both positive  and negative                                                               
ramifications, he  said.  In  the short term, Alaska  would excel                                                               
for one  year and pick  up $6.4 million in  collection incentives                                                               
from the  federal government.   In the other years,  Alaska would                                                               
no longer be  able to garnish permanent fund  dividends and would                                                               
lose about $9.3  million a year and probably  lose about $500,000                                                               
of incentives a year from the federal government.                                                                               
                                                                                                                                
TAPE 04-3, SIDE B                                                                                                             
Number 4649                                                                                                                     
                                                                                                                                
MR.  PORTER said  that individual  taxpayers would  pay about  50                                                               
percent more  in taxes to  the federal government for  a one-time                                                               
payment than they would if they  received the same amount over 20                                                               
years.  The  federal government would receive  about $2.1 billion                                                               
or  20 percent  of the  dividend payment  from individual  income                                                               
taxes.  Individuals in the  lower income bracket are eligible for                                                               
certain credits and  would lose about $112 million  in credits as                                                               
a  group, he  said.   He paraphrased  statute AS  43.23.085 which                                                               
states, "A  program administered by the  state or municipalities,                                                               
the eligibility  for which  is based on  financial need,  may not                                                               
consider  a  permanent  fund dividends  as  income  or  resources                                                               
unless required  to do so  by federal  law or regulation."   That                                                               
provision  would need  to be  changed  for Representative  Holm's                                                               
proposed amendment, he said.                                                                                                    
                                                                                                                                
Number 4500                                                                                                                     
                                                                                                                                
MR. PORTER  also summarized AS 43.23.075  as saying, "Individuals                                                               
who are  denied assistance under  certain federal  programs based                                                               
solely on the  basis of receipt of a permanent  fund dividend are                                                               
eligible for state  assistance."  That provision,  as well, would                                                               
need to be changed.                                                                                                             
                                                                                                                                
MR. PORTER explained  that a $12 billion payout  equals the total                                                               
cost of building  a gas pipeline from the North  Slope to Valdez,                                                               
including a  gas treatment plant,  a liquefaction plant,  and the                                                               
purchases of several LNG [liquefied natural gas] tankers.                                                                       
                                                                                                                                
MR. PORTER said that any department  in the State of Alaska could                                                               
get  together and  discuss the  impacts of  infusing the  economy                                                               
with $12  billion.  He  said the departments will  find potential                                                               
for many  impacts, both positive and  negative, and it will  be a                                                               
challenge and an opportunity to identify them all.                                                                              
                                                                                                                                
Number 4337                                                                                                                     
                                                                                                                                
REPRESENTATIVE GRUENBERG stated that  child support collection is                                                               
a major  problem and he fears  that a lot of  children will never                                                               
see the support unless something  is done to ensure child support                                                               
collection in the future, possibly [as money] put in trust.                                                                     
                                                                                                                                
MR. PORTER agreed  that it is an important issue  and stated that                                                               
under the  current law there is  no opportunity for a  trust, but                                                               
that an  amendment should be considered  to capture opportunities                                                               
to ensure that the children in Alaska are protected over time.                                                                  
                                                                                                                                
REPRESENTATIVE  GRUENBERG stated  that he  didn't want  an answer                                                               
today, but  that there are provisions  in Title 25 for  the court                                                               
to sequester funds for the future  payments of child support.  He                                                               
invited the  [Department of  Revenue] to  examine that  issue and                                                               
said his office would be interested in helping.                                                                                 
                                                                                                                                
REPRESENTATIVE WILSON  asked about the ramifications  of Alaska's                                                               
owning a natural gas pipeline.                                                                                                  
                                                                                                                                
MR. PORTER  replied that  the projections on  the revenue  from a                                                               
natural gas  pipeline are between  $400 million and $1  billion a                                                               
year.  What has not been  calculated yet is the cost of servicing                                                               
debt,  he said.   If  one  pays cash  for an  asset, one  doesn't                                                               
service  debt,  so  that  would  be  an  additional  benefit,  he                                                               
explained.   He said  he does  not have the  exact number  on the                                                               
debt service.                                                                                                                   
                                                                                                                                
REPRESENTATIVE WILSON  suggested the  committee needs  to rethink                                                               
all of this.                                                                                                                    
                                                                                                                                
Number 3850                                                                                                                     
                                                                                                                                
JAMES  BALDWIN,  Senior  Assistant  Attorney  General,  Opinions,                                                               
Appeals, & Ethics, Office of  the Attorney General, Department of                                                               
Law,  spoke   about  legal   issues  involving   HJR  31.     Tax                                                               
consequences  are worth  exploring  further, he  said, since  the                                                               
payments are  so different  from those  in the  past.   He stated                                                               
that  if HJR  31 were  to  become law  there would  be a  lawsuit                                                               
because of the amounts that are  at stake.  The Department of Law                                                               
has been  successful in turning back  equal protection challenges                                                               
to the permanent fund dividend  program because the court has not                                                               
applied  the strictest  scrutiny  that can  be  applied in  equal                                                               
protection analysis.   It has been  found that the state  has two                                                               
interests,  he said.    One  is to  encourage  the permanence  of                                                               
residents, and the second is  to encourage those residents in the                                                               
maintenance of  the permanent  fund.  He  speculated that  if the                                                               
dividend program  went away then  perhaps the second leg  of that                                                               
justification would  also go away.   He said that  thought should                                                               
be given to what might happen  if this second basis for defending                                                               
the permanent fund no longer exists.                                                                                            
                                                                                                                                
MR.   BALDWIN  stated   that  he   agreed  with   Chair  Hawker's                                                               
interpretation of  the realized  versus unrealized  income issue.                                                               
He  said that  currently the  permanent fund  necessitates having                                                               
two sets  of books.   He believes that it  is preferred to  go to                                                               
the market-valuation  approach for all  things.  He said  that if                                                               
management is not prudent or  honest, the fund could realize more                                                               
income than the  market value would permit.   This language would                                                               
allow  that to  be  a distribution,  in  that case.    That is  a                                                               
downside of  the "realized  income" term's  being used  and being                                                               
grafted into the constitution, rather  than into the statutes, he                                                               
said.  He stated that it is a problem.                                                                                          
                                                                                                                                
MR. BALDWIN said  that the amendment to Section 15  [Section 1 of                                                               
HJR 31]  says that the 25  percent that does not  get distributed                                                               
should  be retained  in the  fund, but  it does  not say  in what                                                               
status, because  this amendment [HJR 31]  retains the distinction                                                               
between  principal and  income, whereas  the POMV  amendment does                                                               
not.   [The  POMV  amendment] eliminates  the difference  between                                                               
principal and income.   The question is whether  [the 25 percent]                                                               
is retained  as principal  or income,  he said,  and needs  to be                                                               
cleared up.                                                                                                                     
                                                                                                                                
Number 3425                                                                                                                     
                                                                                                                                
MR. BALDWIN stated  that in order to mesh with  existing law, the                                                               
term "net  income" rather  than realized  income should  be used,                                                               
because net  income gives  the corporation  the ability  to cover                                                               
its costs  of investing,  which are substantial,  out of  its own                                                               
funds.   The way it is  stated in HJR 31  [the corporation] would                                                               
be left  to seek a general  fund appropriation to cover  the cost                                                               
of investing.                                                                                                                   
                                                                                                                                
MR. BALDWIN said  that in Section 30 [Section 2  of HJR 31] there                                                               
is a  date certain when valuation  is to take place  for purposes                                                               
of determining  distribution.  He  suggested that  whenever there                                                               
is a date certain,  it is always the wrong date,  in terms of the                                                               
stock market  or conditions.   He stated that  it is wise  to let                                                               
experts determine  the date  rather than  just choosing  one, one                                                               
day after  the certification date,  which is sometime  in January                                                               
2005.                                                                                                                           
                                                                                                                                
Number 3243                                                                                                                     
                                                                                                                                
MR. BALDWIN agreed that if  committee members don't want the hold                                                               
harmless  to apply,  those  provisions should  be  exempted.   He                                                               
stated  that there  were other  agencies that  would have  fiscal                                                               
impacts from HJR 31, as well.                                                                                                   
                                                                                                                                
REPRESENTATIVE  WILSON   said  that   because  of   the  previous                                                               
discussion about POMV, it would be  very prudent to be looking at                                                               
some changes to make HJR 31 set  up like a POMV, instead of based                                                               
on the interest earned.                                                                                                         
                                                                                                                                
Number 3054                                                                                                                     
                                                                                                                                
CHAIR  HAWKER concurred  with Representative  Wilson's suggestion                                                               
and  asked Representative  Holm to  consider what  has been  said                                                               
today in working on a second generation  of HJR 31.  He summed up                                                               
the  discussions of  this hearing  and mentioned  that there  are                                                               
three  permanent   fund  proposals   before  the   House  Special                                                               
Committee on Ways & Means this session.  [HJR 31 was held over.]                                                                
                                                                                                                              

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