Legislature(2003 - 2004)
06/22/2004 03:08 PM Senate FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SENATE JOINT RESOLUTION NO. 101 Proposing amendments to the Constitution of the State of Alaska relating to and limiting appropriations from the Alaska permanent fund based on an averaged percent of the fund market value. SENATE JOINT RESOLUTION NO. 102 Proposing amendments to the Constitution of the State of Alaska relating to and limiting appropriations from the Alaska permanent fund based on an averaged percent of the fund market value and relating to permanent fund dividend payments. SENATE JOINT RESOLUTION NO. 103 Proposing amendments to the Constitution of the State of Alaska relating to an appropriation limit. SENATE BILL NO. 1003 "An Act relating to the income of and appropriations from the Alaska permanent fund under art. IX, sec. 15(b), Constitution of the State of Alaska, and making conforming amendments; relating to permanent fund dividend payments of at least $1,000; relating to the determination of net income of the mental health trust fund; and providing for an effective date." SENATE BILL NO. 1004 "An Act providing for and relating to the issuance of general obligation bonds for the purpose of paying the cost of design, construction, and major maintenance of facilities at the University of Alaska; and providing for an effective date." SENATE BILL NO. 1005 "An Act providing for and relating to the issuance of general obligation bonds for the purpose of paying the cost of state surface transportation projects; and providing for an effective date." This was the first hearing for these bills in the Senate Finance Committee. GOVERNOR FRANK MURKOWSKI stressed that this special session was necessary in order to further efforts to resolve the State's fiscal dilemma. While there are differing opinions about how to address the State's fiscal crisis, it could be agreed upon that Alaskans are looking for and expect a solution from the Legislature. He recounted that today's Anchorage Daily News newspaper contains an editorial titled "Let's see some action" as well as an advertisement from the Conference of Alaskans urging consideration be given to their recommendations regarding how to remedy the fiscal situation. Governor Murkowski stated that one of the "paramount" issues of this deliberation would be the decision regarding whether or not to authorize that no more than five-percent of the value of the Permanent Fund could be spent in support of State government. Were this Percent of Market Value (POMV) proposal supported, the next decision would entail how that process should be implemented. The State has been dealing with its fiscal situation for more than a decade. He urged that a bipartisan solution be developed. Governor Murkowski stated that the convening of the Conference of Alaskans this year was a different approach to addressing the State's fiscal dilemma. The Conference Delegates recognized that there is a problem and developed recommendations through which to address the fiscal issue. In addition, the Legislature listened to presentations from national bond rating agencies that portrayed that the State's "bond rating is in jeopardy." The Committee would be discussing, today, bond proposals amounting to $76 million dollars for transportation enhancements as well as approximately $36 million in University of Alaska bond authorizations. Governor Murkowski reiterated that the State's citizens want a resolution to the State's fiscal dilemma. In addition to the $410 increase that the Legislature authorized for the Student Foundation Funding Formula this year, additional monies would be required to appropriately fund education. The Constitutional Budget Reserve (CBR), the Permanent Fund's Earnings Reserve Account (ERA) and other funding sources could be utilized to support education. He reminded the Committee of his support for establishing a minimum CBR balance in order to address cash flow needs and to recognize that the price of crude oil "would eventually go down." In addition, he cautioned that State communities, especially Rural communities, would also require assistance, particularly for expenses such as fuel. He provided a detail sheet titled "Examples of community dividend distribution:" [copy on file] that depicts the various components of the allocation distributions proposed in SJR 102. This proposal would allocate approximately $70 million to communities by distributing, for example, $25,000 to each small community plus $87 per resident. Large communities such as Anchorage would receive $24 million and Fairbanks would receive seven million dollars. Governor Murkowski stated that this Special Session was called because the Legislature did not develop a fiscal solution during the Twenty-Third Alaska State Legislature. The Conference of Alaskans adopted recommendations. The House of Representatives adopted a Percent of Market Value (POMV) proposal and the Senate did not. Governor Murkowski stated that his Administration has developed legislation that would meet the needs of most Alaskans: The terms proposed in SB 1003 are simple; the State's citizens must be assured that they would receive a dividend. The proposal would guarantee a minimum Dividend of $1,000 or 50-percent of the five percent of the value of the Permanent Fund (PF), whichever is greater. The dividend would grow with the PF over time. He noted that when the gas pipeline and other resource developments come to fruition, the State would not require money from the PF. However, this "bridge" would be required until those supplemental revenue sources become available. Forty-five percent of the fifty-percent balance of the five percent of the value of the PF would be used to support education and five-percent of the amount would provide dividends to local governments. Governor Murkowski also stated that a Constitutional Spending Limit must be implemented in order to limit or reduce government spending. In 18 months, State spending was reduced $245 million, and, even thought the education budget was increased $88 million this year, the overall FY 05 budget only increased by $17 million. State government staffing positions have been reduced by approximately 400 positions. He thanked the Legislators for their efforts in reducing the rate of State government growth. Governor Murkowski stated that efforts must be made over the next decade to increase oil production, construct a gas line, extent the Alaska Railroad lines, open new mines, grow the economy, and develop new revenue streams. This is the time frame designated in SB 1003: the plan would be enacted for 10 years and then terminate. The dividend component would not be enshrined in the Constitution and would terminate at the end of ten years. The proposal would be accommodated by "modernizing the Fund as an endowment and spending a limited amount of its income." This would guarantee dividends, guarantee funding for education, and guarantee assistance for local governments. Through modernizing the Fund's management and spending five-percent of its income, the Fund would continue to grow. The Fund earned $4.1 billion dollars the previous year. This 50/45/5 percent split proposal would cost approximately $1.3 billion. Governor Murkowski declared that a long-term fiscal plan would assist the State in increasing job opportunities and would assure the business community that the State is a good place to invest. It would continue the State's excellent credit rating, and thereby allow for bonds to be available at good interest rates to support State projects. Governor Murkowski urged the Legislators to address these proposals and allow the State's citizens to vote on them. The alternate choice would be to raise revenue or deplete the Earnings Reserve Account after the CBR were depleted. Let the public vote on these issues and make the decision. Polls reflect that 71-percent of Alaskans feel they have the right to vote on whether or not to utilize Permanent Fund earnings. 59-percent of those polled would support a minimum $1,000 Dividend. Governor Murkowski remarked that the Administration's proposals are "just a plan" that was drafted to address Alaskans' concerns. They could be altered. He urged that through compromise, the issues could be resolved. In addition to the fiscal proposals he highlighted, there is also a proposal through which to address workers' compensation issues that would reduce expenses to small businesses and a proposal to increase the tobacco tax in order to address health issues. Governor Murkowski concluded his remarks. Senator Dyson expressed concern with the proposal to utilize the principal of the Permanent Fund even were a ten-year provision included. In addition, the funding priorities specified in the proposal appear to place more importance on the specified components and his concern is that funding for such things as law enforcement, which is not an identified component, would be jeopardized. Governor Murkowski acknowledged the concern, but pointed out that, the protection of the PFD is paramount to the public's "prevailing attitude." Education is their second highest priority. Public health and safety are among the top five public concerns. He noted that the number of Alaska State Troopers has increased and attempts have been made to further health care concerns such as prescriptive medication expenses. The proposal before the Committee would allow for the amount of the PFD to be declared each year based on a five- year average of the value of the Fund. The proposal would guarantee that the Dividend would be paid as supported by the citizens. The process would be re-evaluated at the end of the ten-year period. This is an effort to address the public's position in this regard. He emphasized that rather than abandoning this issue were this proposal unacceptable, Legislators could approach it differently. He urged them to address it. Senator Dyson addressed the comment that, were a spending plan not adopted, the choices would be to either utilize the CBR and the ERA or increase taxation. However, a third option, which would be a further reduction in State spending, was not addressed. Therefore, he asked what efforts are being taken by the Administration, and in particular the Department of Health and Social Services, to streamline operations and further contain spending. Further reductions in State spending are his top priority. He pointed out that the fact that the FY 05 overall budget is only $17 million more than FY 04, even with the $88 million increase for education, signifies the efforts made by the Legislature to reduce spending. Further cooperation with the Administration in this regard would be beneficial. He opined that even were the Administration's Spending Limit, POMV, and the 50/45/5 proposals adopted, without an increase in revenues through taxation, funding from the CBR and eventually the ERA would be required next year. A "disservice" would continue to be provided to education, as, in order to adequately fund it were the price of oil to decline, funding from the CBR would be required. In conclusion, he asked whether further reductions to State government would be required in order to address the State's fiscal situation. Governor Murkowski stated that he would welcome recommendations from the Legislature in this regard. Senator Bunde asked the Governor's response were the Legislature to address these proposals in a Statutory manner rather than to further them via a statewide ballot proposal process. He warned that a vote of the people might preclude the Legislature from utilizing Permanent Fund earnings for an extensive period of time rather than allowing them to use it. Governor Murkowski expressed that he is aware that the Legislature has this authority. That right would not be challenged. However, he communicated the belief that a vote of the people should be allowed when a change in the Permanent Fund is being proposed. Co-Chair Wilken thanked the Governor for his comments. Co-Chair Wilken announced that Ms. Frasca would be presenting brief overviews on the bills. CHERYL FRASCA, Director, Office of Budget and Management, Office of the Governor, stated that SJR 101 mirrors the HJR 26-CONST. AM: PERMANENT FUND P.O.M.V legislation that passed the House of Representatives at the end of the second session of the Twenty- Third Alaska State Legislature. It proposes that five percent of the value of the Permanent Fund could be appropriated. Ms. Frasca stated that SJR 102 is the Constitutional distribution legislation that would specify that fifty-percent of the five- percent of Fund Value POMV proposal allotment would support a minimum $1,000 PFD and the fifty-percent balance of that allotment would be divvied up with 45-percent going to support education and five-percent going to support local communities. Ms. Frasca stated that SB 1003 would mirror SJR 102 with the exception being that the provisions would be enacted Statutorily rather than Constitutionally. This approach would address Senator Bunde and Senator Dyson's concerns. Ms. Frasca stated that the level of the Permanent Fund, as it is currently formulated, could be very volatile in the future. Were SJR 102 enacted, the PFD amount declared in October 2005 would be $1,000. At status quo, there is a 24-percent chance that it would be at that level. This would be further addressed in forthcoming testimony from the Permanent Fund Corporation Executive Director, Robert Storer. Ms. Frasca stated that the 45-percent to education proposal would assist in addressing future Public Employee Retirement System (PERS) and Teacher Retirement System (TRS) obligation expenses to school districts. The FY 05 obligation is projected to amount to $39 million with another $130 million projected for the following three years. This would be a challenge. The 45-percent to education proposal would provide a solid funding base through which to support the K-12 student foundation funding formula and the University of Alaska. In FY 05, $970 million would be provided to support the K-12 formula and the University. Ms. Frasca stated that the five-percent to local governments would provide funding to State communities. She referenced a Department of Community and Economic Development handout, titled "Examples of community dividend distribution" [copy on file] that depicts various community allocations, but noted that the Legislature would have the final determination in this allocation. In addition to the challenge of funding fuel expenses, local communities must also provide an estimated $22 million in PERS expenses in FY 05 and $61 million over the following three years. Ms. Frasca clarified that while SJR 102 contains a ten-year Constitutional termination date, SB 1003 does not, as changes in Statute could be made by a majority vote. In response to a question from Senator Bunde, Ms. Frasca stated that were SJR 102 enacted, its provisions would terminate in ten years. The Legislature at that time could introduce a new proposal or ask voters to re-ratify the existing proposal. Ms. Frasca informed that SJR 103 proposes a Constitutional Spending Limit this mirrors the legislation adopted by the Senate Finance Committee this past Session. Ms. Frasca stated that SB 1005 is a $77 million Transportation Bond package that addresses congestion issues, primarily in Anchorage. Other projects that would be addressed by this bond package are located in Fairbanks, the Mat-Su valley, the Yukon-Kuskokwim transportation corridor, and other areas. Ms. Frasca explained that SB 1004 would provide approximately $39 million for the University of Alaska system Statewide. Ms. Frasca stated that these two bond packages would not transpire were a fiscal plan not authorized as the goal is to not to further burden the State's bond rating. Co-Chair Wilken announced that the bills would now be discussed individually. [NOTE: Co-Chair Green chaired this portion of the meeting.] SENATE JOINT RESOLUTION NO. 102 Proposing amendments to the Constitution of the State of Alaska relating to and limiting appropriations from the Alaska permanent fund based on an averaged percent of the fund market value and relating to permanent fund dividend payments. Ms. Frasca stated that this proposal is a new approach in that it would incorporate into the State's Constitution an appropriation distribution plan. Senator Hoffman asked the reason a ten-year termination date pertaining to the Permanent Fund Dividend was incorporated into the proposal. He argued that eliminating that termination clause might make the proposal more acceptable to voters. Commissioner Corbus responded that it is included to address concern about enshrining the Dividend in the Constitution. This would provide an opportunity to review the decision in ten years. Ms. Frasca noted that projections indicate that new resource revenues would be realized in approximately ten years. Therefore the ten-year timeframe would provide a temporary bridge until that time. It would allow an opportunity to re-evaluate the State's finances in ten years. Senator Hoffman stated that it might be more advantageous to specify now that the Permanent Fund Dividend would be permanent rather than allowing this issue to become a political issue in ten years. Senator Bunde commented, "or the reverse is that we will opt to enshrine any entitlement and it'll be permanent." Senator Hoffman stated that no one would campaign to lower the percent allotted to the Permanent Fund Dividend program. Senator Bunde countered that this would be avoided were the Dividend not enshrined in the Constitution. Senator B. Stevens opined that the times of campaigning "on the Dividend are over."