Legislature(2003 - 2004)

06/22/2004 03:08 PM Senate FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= 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                                                            
     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                                                            
     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                                                            
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                                                            
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                                                            
[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                                                                  
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                                                            
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."                                                                                                             

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