Legislature(2003 - 2004)
04/07/2004 09:06 AM Senate FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SENATE BILL NO. 374 "An Act relating to calculation of the amount to offset the effect of inflation on the principal of the Alaska permanent fund, and to transfers of money from the earnings reserve account; and providing for an effective date." This was the second hearing for this bill in the Senate Finance Committee. Co-Chair Wilken explained that after Permanent Fund Dividends (PFDs) were paid, the Alaska Permanent Fund was inflation-proofed, and a $250 million balance was maintained in the Earnings Reserve Account (ERA), any excess monies would be transferred to the Constitutional Budget Reserve (CBR) fund. Senator B. Stevens, the bill's sponsor, explained to Members that the Permanent Fund Corporation's financial market activity analysis titled "Alaska Permanent Fund Updated Financial Projections 2004- 2014, as of February 29, 2004" [copy on file] is the most recent projection. ROB CARPENTER, Fiscal Analyst, Legislative Finance Division, stated that the primary change reflected in the February 29, 2004 market analysis is the amount of realized earnings that occurred as the result of new asset allocations. This portfolio re-balancing resulted in additional realized gains as depicted by the substantially larger payout in fiscal year 2005 in the FY 05 column, on page three, line 30 of the Legislative Finance Division spreadsheet titled "SB 374 Model" [copy on file], dated April 6, 2004. The $2,103,000,000 figure reflected on the April sixth spreadsheet is "considerably higher" than the previous projection of $1,100,000,000 as reflected on the Division's spreadsheet dated March 22, 2004 [copy on file] which was based on the Permanent Fund Corporations' Financial Projections 2004 - 2014 as of December 31, 2004 [copy on file]. A two-year extension on the sustainability of the CBR would result from this increase. Senator B. Stevens affirmed that, in comparison with the previous financial model for this legislation, this is the major change resulting from the Permanent Fund market analysis input. The impact on the CBR balance is reflected on line 13 of the spreadsheet. The assumption is that "when the CBR runs out, the only place left to get money to balance the gap in spending verses revenues is from the ERA, because under the current status, that's the only place left with additional funds." Senator B. Stevens stated that the Legislative Finance Division spreadsheet titled "Status Quo" [copy on file] has been developed to reflect the status quo, and the affects on it after the dividend transfer and inflation proofing obligations are fulfilled. The end result would be that the CBR funds would terminate in FY 08 and the ERA fund would terminate in FY 13. The proposed legislation "would stretch" the CBR out five more years to FY 13. Senator Hoffman noted that another significant point in the model is that, as reflected in the FY 14 column, the ending Market Value Balance of both models would decrease by approximately $1.2 billion. Senator B. Stevens responded that change is a function of the realized/unrealized earnings in the formula, or input, rather than being a function of the structure. He further explained that when comparing the February Permanent Fund Market Analysis to the previous one, a large amount of money was left in unrealized earnings rather than, as exercised at the discretion of the Permanent Fund Board of Trustees, being moved to the realized earnings category. Senator Hoffman noted that, in addition, the life of the CBR would be extended. Senator B. Stevens affirmed. Co-Chair Wilken ordered the bill HELD in Committee.