Legislature(2003 - 2004)

02/04/2004 08:00 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 0139                                                                                                                     
                                                                                                                                
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.   He mentioned  that the  proposed committee                                                               
substitute,  Version  U,  would  be  presented  by  the  sponsor,                                                               
Representative Holm.                                                                                                            
                                                                                                                                
Number 0202                                                                                                                     
                                                                                                                                
REPRESENTATIVE  WEYHRAUCH  moved   to  adopt  proposed  committee                                                               
substitute (CS)  for HJR 31, Version  23-LS1282\U, for discussion                                                               
purposes.   There being  no objection, Version  U was  before the                                                               
committee.                                                                                                                      
                                                                                                                                
CHAIR HAWKER  welcomed Representative  Holm and said  there would                                                               
be neither public testimony nor amendment proposals today.                                                                      
                                                                                                                                
Number 0310                                                                                                                     
                                                                                                                                
REPRESENTATIVE  JIM HOLM,  Alaska State  Legislature, sponsor  of                                                               
the  bill, presented  the changes  made to  HJR 31.   He  said in                                                               
Version U, $20,000 is the  absolute number [of the payout], which                                                               
should simplify the bill.                                                                                                       
                                                                                                                                
CHAIR HAWKER  asked if the  $20,000 was  just an estimate  in the                                                               
prior version of the bill, but now is a sum certain.                                                                            
                                                                                                                                
REPRESENTATIVE HOLM  said that it  is.  He mentioned  a provision                                                               
in  the bill  that  attaches  a percent  of  market value  (POMV)                                                               
approach to  the balance of  the permanent fund when  the payment                                                               
has been  made.  He  said he thinks  the POMV is  the appropriate                                                               
approach to balance out the fund forever.                                                                                       
                                                                                                                                
REPRESENTATIVE  HOLM said  another addition  to the  bill was  to                                                               
incorporate AS  43.23.075 and  AS 43.23.085,  which are  the hold                                                               
harmless agreements in  state law.  He said if  a person receives                                                               
[the  $20,000 payment],  and is  taken  off of  a subsistence  or                                                               
welfare program, the state is not liable.                                                                                       
                                                                                                                                
CHAIR HAWKER  announced the  arrival of  Representative Rokeberg,                                                               
and he explained, again, the purpose of today's hearing.                                                                        
                                                                                                                                
Number 0609                                                                                                                     
                                                                                                                                
REPRESENTATIVE WILSON  referred to Section 15,  subsection (a)[of                                                               
the  constitution], where  it mentions  that 25  percent [of  the                                                               
earnings]  are  placed  in  the  fund,  and  she  asked  if  this                                                               
[process] is happening now.                                                                                                     
                                                                                                                                
REPRESENTATIVE HOLM  said that it  is.   He pointed out  that the                                                               
payment of  $20,000 would be coming  from the "top of  the well."                                                               
He  said [the  payment] would  come off  of the  reserve and  the                                                               
permanent fund would be finished,  leaving nothing in the reserve                                                               
account.  The corpus of the fund would remain.                                                                                  
                                                                                                                                
Number 0719                                                                                                                     
                                                                                                                                
CHAIR HAWKER  asked if the language  on page 2, line  19 [Section                                                               
3, subsection (b)], triggers the  mechanism whereby income in any                                                               
account of the permanent fund  is used for the [$20,000] payments                                                               
[as mentioned  in] Section 30.   He asked  if, when that  fund is                                                               
depleted, any  additional amounts needed would  be withdrawn from                                                               
the existing principal.                                                                                                         
                                                                                                                                
REPRESENTATIVE HOLM said he believes so.                                                                                        
                                                                                                                                
CHAIR  HAWKER stated,  "In theory,  when  the income  of the  sub                                                               
account is gone, and there  remains a principal balance, it would                                                               
then   be  operated   under  the   POMV  concept   for  endowment                                                               
management."                                                                                                                    
                                                                                                                                
REPRESENTATIVE HOLM said it would.                                                                                              
                                                                                                                                
Number 0808                                                                                                                     
                                                                                                                                
CHAIR HAWKER asked  if Section 3, subsection  (a), paragraph (2),                                                               
the two  references to statutes,  received Legislative  Legal and                                                               
Research Services  and were  the only  two hold  harmless clauses                                                               
needing consideration.                                                                                                          
                                                                                                                                
REPRESENTATIVE HOLM said they were.                                                                                             
                                                                                                                                
REPRESENTATIVE WILSON asked if whatever  is left in the permanent                                                               
fund is  set up and  run under the  POMV, what that  amount might                                                               
be.                                                                                                                             
                                                                                                                                
REPRESENTATIVE HOLM  opined that  [the amount] will  vary because                                                               
the fund will change between now and  when it is voted in, a year                                                               
from now.  Whatever the amount  of money left, say $15 billion to                                                               
$17 billion dollars,  the projected return on  investment is 7.6-                                                               
7.8  percent, he  added.   He  said he  uses 8  percent, an  easy                                                               
number to  work with; so  then $1.2  billion is generated  as the                                                               
return of the investment of the  permanent fund.  Of that number,                                                               
if a POMV approach  is used, 5 percent of the  8 percent would be                                                               
used for  government purposes and  3 percent would remain  in the                                                               
fund.    That  leaves  $800   million  available  for  government                                                               
services, which  would not all have  to be spent.   He said there                                                               
is  a  $400 million  shortfall,  which  leaves $400  million,  he                                                               
suggested, to be  put in the Constitutional  Budget Reserve (CBR)                                                               
to buffer the peaks and valleys of oil production.                                                                              
                                                                                                                                
REPRESENTATIVE WILSON said if  that happens, deferred maintenance                                                               
items could be worked on.                                                                                                       
                                                                                                                                
REPRESENTATIVE  HOLM agreed  with  Representative Wilson's  idea.                                                               
He said money was also  needed for Medicare, Teachers' Retirement                                                               
System  (TRS), Public  Employees' Retirement  System (PERS),  and                                                               
appropriately funding education.   He said those  are issues that                                                               
are difficult to solve under the current scenario.                                                                              
                                                                                                                                
Number 1121                                                                                                                     
                                                                                                                                
CHAIR HAWKER  asked about the intent  of the language on  page 2,                                                               
lines  3-5, [Section  2, subsection  (b)] paraphrasing,  "that an                                                               
appropriation from  the fund may  be made for any  public purpose                                                               
except for future  dividends."  He said it would  be a matter for                                                               
complete legislative  judgment, as  today, all of  the [permanent                                                               
fund] earnings are subject to legislative judgment.                                                                             
                                                                                                                                
REPRESENTATIVE HOLM said that is correct.                                                                                       
                                                                                                                                
REPRESENTATIVE  ROKEBERG  cautioned  Representatives  Wilson  and                                                               
Holms  that,  even  with  up to  $800  million  [possible],  [the                                                               
legislature] shouldn't  be looking  to spend that  much, because,                                                               
depending on the price  of oil, it may not be  enough to fill the                                                               
gap.                                                                                                                            
                                                                                                                                
CHAIR HAWKER concurred with Representative Rokeberg's comments.                                                                 
                                                                                                                                
Number 1238                                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG  explained  that,   twice  in  the  last                                                               
decade,  there  has been  over  $1  billion  per fiscal  year  in                                                               
shortfall  in the  availability  of funding.    Under this  bill,                                                               
under  the 5  percent drawdown,  there would  be upwards  to $800                                                               
million,  which, obviously,  would be  short.   So,  he said,  it                                                               
might not  be feasible to  meet revenue needs, and  other methods                                                               
of  revenue enhancements  might be  needed in  order to  meet the                                                               
gap, depending on the price of oil.                                                                                             
                                                                                                                                
CHAIR HAWKER  suggested, "Don't count  your chickens  before they                                                               
hatch."                                                                                                                         
                                                                                                                                
REPRESENTATIVE HOLM said  that is why he is  presenting the bill.                                                               
He said  it is the  only program he has  seen so far  that allows                                                               
for  flexibility  without  taxation  or  other  form  of  revenue                                                               
enhancement.   He opined  it is the  only inducement  that people                                                               
would support  that would allow  the legislature to do  its work.                                                               
This bill would provide a buffer zone, he said.                                                                                 
                                                                                                                                
CHAIR  HAWKER  thanked  Representative Holm  and  announced  that                                                               
public testimony would be scheduled in the future.                                                                              
                                                                                                                                
Number 1503                                                                                                                     
                                                                                                                                
REPRESENTATIVE HOLM thanked the committee.   He said, "We are all                                                               
Alaskans,  and we  all  have  the opportunity  now  to make  some                                                               
significant changes if we will do it."                                                                                          
                                                                                                                                
[HJR 31 was heard and held over.]                                                                                               
                                                                                                                                

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