Legislature(2003 - 2004)

02/27/2004 08:00 AM Senate JUD

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
CHAIR  RALPH   SEEKINS  called  the  Senate   Judiciary  Standing                                                             
Committee  meeting  to order  at  8:03  a.m.   All  members  were                                                               
present. Chair  Seekins announced that  he planned to  review all                                                               
four resolutions before taking any  action of them today and that                                                               
SJR 24 would be heard first.                                                                                                    
         SJR 24-CONST AM: GUARANTEE PERM FUND DIVIDEND                                                                      
SENATOR OGAN,  prime sponsor of  SJR 24, told members  he decided                                                               
to introduce this legislation because  of his sincere belief that                                                               
the voters  will not allow  any other  use of the  permanent fund                                                               
until the  permanent fund  dividend program  is protected  in the                                                               
Alaska Constitution. SJR 24 contains  a provision that delays its                                                               
effective  date   until  the  voters  approve   a  constitutional                                                               
amendment related to an appropriation limit. He explained:                                                                      
     I feel  if - even with  constitutionally protecting the                                                                    
     permanent  fund  dividend  that if  it  was  protected,                                                                    
     let's  say tomorrow,  that a  lot of  legislators would                                                                    
     perceive that  the rest of  the money is  available for                                                                    
     appropriation and  there would  be a feeding  frenzy. I                                                                    
     have a personal belief  that government generally grows                                                                    
     in direct  proportion to the amount  of money available                                                                    
     to  spend  and  so  I   think  we  should  protect  the                                                                    
     dividend, put  a spending  cap in  place and  then, and                                                                    
     only then,  discuss some of  the excess earnings  to be                                                                    
     used for some  of the critical needs that we  have as a                                                                    
     As  we  all  know,  oil   prices  have  been  high  but                                                                    
     production  will continue  to decline  in the  near and                                                                    
     far term  and, even with  the gas pipeline, we  are not                                                                    
     going to  have adequate revenues to  balance the budget                                                                    
     in  a few  short years.  I think  this is  an important                                                                    
     first step.                                                                                                                
He  explained that  SJR 24  essentially  enshrines the  permanent                                                               
fund dividend program, as it exists in current statute.                                                                         
SENATOR  FRENCH asked  if SJR  24 would  put the  entire earnings                                                               
reserve  account inside  the permanent  fund  itself, instead  of                                                               
leaving it as a separate account.                                                                                               
SENATOR OGAN said it would.                                                                                                     
SENATOR  FRENCH   asked  if  the  distribution   methodology  for                                                               
dividends would  remain the  same, that being  21 percent  of the                                                               
net income for the last five years.                                                                                             
SENATOR OGAN  said it would and  explained that Section 3  of SJR
24 enshrines  the existing dividend  formula. He said at  the end                                                               
of  the day,  if  the  percent of  market  value  (POMV) plan  is                                                               
adopted, SJR  24 would have to  be amended to use  that approach.                                                               
He said he does not believe the  POMV is a bad thing on its face,                                                               
but if  it is adopted  he believes  the dividend should  still be                                                               
SENATOR FRENCH asked how inflation  proofing would work under SJR
SENATOR OGAN deferred to Mr. Storer for an answer.                                                                              
MR.  ROBERT STORER,  Executive Director  of the  Alaska Permanent                                                               
Fund  Corporation  (APFC),  told  members as  he  reads  SJR  24,                                                               
inflation  proofing  would  remain  by  statute.  Currently,  the                                                               
dividend  formula  takes   precedence  over  inflation  proofing,                                                               
although both are appropriated annually.  He said if the existing                                                               
statute  were  memorialized  in the  Constitution,  the  dividend                                                               
would again take precedence over inflation proofing.                                                                            
SENATOR FRENCH  asked if SJR 24  requires that 50 percent  of the                                                               
income  available  for  distribution   be  transferred  from  the                                                               
earnings reserve account and used for the dividend program.                                                                     
SENATOR OGAN said that is correct.                                                                                              
SENATOR FRENCH asked how that  compares with the current dividend                                                               
MR. STORER said they are the same.                                                                                              
SENATOR  OGAN  explained  that  SJR 24  would  put  the  existing                                                               
statute in the Constitution, verbatim.                                                                                          
CHAIR SEEKINS announced that he  would take testimony on all four                                                               
resolutions before  the committee  simultaneously. He  then asked                                                               
for a motion to adopt version  H [SJR 24] as the working document                                                               
before the committee.                                                                                                           
SENATOR OGAN so moved.                                                                                                          
CHAIR  SEEKINS announced  the motion  carried without  objection;                                                               
therefore Version H was before  the committee. He then designated                                                               
a proposed amendment distributed to members as Amendment 1.                                                                     
SENATOR  OGAN moved  to adopt  Amendment  1 [for  the purpose  of                                                               
discussion], which reads as follows.                                                                                            
                      A M E N D M E N T  1                                                                                  
OFFERED IN THE SENATE                                                                                                           
     TO:  SJR 24                                                                                                                
Page 2, lines 14 - 15:                                                                                                          
     Delete "a new section"                                                                                                     
     Insert "new sections"                                                                                                      
Page 2, following line 18:                                                                                                      
          "Section 31.  Suspension and Repeal of amendments. (a)                                                              
     Notwithstanding  Section   1  of  Article  XIII,   the  2004                                                               
     amendments to Section 15 of  Article IX are suspended on the                                                               
     date  of an  initial determination  by the  Internal Revenue                                                               
     Service  that all  or a  portion  of the  permanent fund  is                                                               
     subject to  federal taxation.  The  suspension is terminated                                                               
     on the  date the amendments  are repealed under (b)  of this                                                               
     section  or one  hundred eighty  days  after the  date of  a                                                               
     final, nonappealable  judgment or  order by a  federal court                                                               
     deciding  that no  portion of  the permanent  fund would  be                                                               
     subject to federal  taxation as a result  of the amendments.                                                               
     During  the  period  of suspension  under  this  subsection,                                                               
     Section  15  of  Article  IX  shall  apply  as  it  read  on                                                               
     January 1, 2003.                                                                                                           
          (b) Notwithstanding Section 1 of Article XIII, the                                                                    
     2004 amendments  to Section  15 of  Article IX  are repealed                                                               
     one  hundred  eighty  days  after   the  date  of  a  final,                                                               
     nonappealable judgment or order  by a federal court deciding                                                               
     that all  or a portion of  the permanent fund is  subject to                                                               
     federal taxation.  Upon repeal  of the 2004 amendments under                                                               
     this  subsection, Section  15 of  Article IX  is amended  to                                                               
     read as it read on January 1, 2003."                                                                                       
CHAIR  SEEKINS noted  without objection,  Amendment 1  was before                                                               
the committee.                                                                                                                  
SENATOR TOM WAGONER  told members that he has  had great concerns                                                               
about enshrining the permanent fund  dividend in the Constitution                                                               
since before he took office  because of the differing opinions on                                                               
whether  or  not  doing  so  would enable  the  IRS  to  tax  the                                                               
permanent fund.  People knowledgeable  about tax  law say  if the                                                               
permanent  fund dividend  is enshrined  in the  Constitution, the                                                               
IRS's ability to  tax the permanent fund  becomes tenuous because                                                               
that money would no longer  be available for government services.                                                               
Amendment 1 contains  a safety valve so that if  the IRS attempts                                                               
to  tax  the permanent  fund,  the  dividend  would revert  to  a                                                               
statutory  mandate,  not a  constitutional  mandate.  He said  he                                                               
believes Amendment  1 should  be attached  to any  permanent fund                                                               
dividend bill because it gives the legislature final control.                                                                   
SENATOR  THERRIAULT felt  adopting Amendment  1 would  be prudent                                                               
because the  IRS will  not guarantee  that any  interpretation of                                                               
the tax  code and case  history is  correct.  He  noted, however,                                                               
that SJR 24  is structured so that the earnings  reserve is still                                                               
maintained and can  be used for a public  purpose, which probably                                                               
mitigates the threat of taxation by the IRS.                                                                                    
SENATOR ELLIS raised a point of  order and asked Chair Seekins to                                                               
clarify  whether   the  motion  involving  Amendment   1  was  to                                                               
introduce it for discussion.                                                                                                    
CHAIR  SEEKINS clarified  it was  to  adopt Amendment  1 for  the                                                               
purpose of discussion and not to incorporate it into SJR 24.                                                                    
SENATOR ELLIS noted  it is atypical to ask if  there is objection                                                               
to introducing an  amendment for discussion and  wanted to affirm                                                               
that the  committee did  not adopt the  amendment. He  then asked                                                               
Senator Wagoner  if he has  read the legal opinion  that Attorney                                                               
General Renkes solicited on the  taxation issue and, if so, asked                                                               
him  to comment  on it.  He maintained  that the  legislature has                                                               
spent  some money  to  get to  the heart  of  the taxation  issue                                                               
because it  has been a point  of debate for years.  Senator Green                                                               
introduced  a  bill years  ago  to  enshrine the  permanent  fund                                                               
dividend  but  it received  a  lot  of  criticism that  it  would                                                               
trigger unfavorable  IRS action  toward the  State of  Alaska. He                                                               
asked if  Senator Wagoner  has read those  materials but  did not                                                               
find those opinions definitive.                                                                                                 
SENATOR  WAGONER said  he  has  read a  couple  of opinions  that                                                               
contradict each  other or take  different approaches  toward what                                                               
the IRS can and cannot do.  He said Amendment 1 provides him with                                                               
a higher comfort level than any of the opinions he has read.                                                                    
CHAIR SEEKINS asked  if the IRS has ever been  constrained by the                                                               
opinion of a state attorney general.                                                                                            
SENATOR WAGONER  said the only  entity that can restrain  the IRS                                                               
is Congress.                                                                                                                    
SENATOR ELLIS  requested that Attorney  General Renkes  provide a                                                               
position  on the  need  for  Amendment 1.  He  said the  attorney                                                               
general  went  through the  time  and  expense of  soliciting  an                                                               
opinion from a  Washington, D.C. law firm so  he would appreciate                                                               
hearing his opinion.                                                                                                            
SENATOR WAGONER  said he didn't  think what the  attorney general                                                               
said would  matter because Amendment  1 provides a  comfort level                                                               
that he  wants anyway for himself  and a lot of  other people who                                                               
distrust  the IRS.  He  said he  feels  it would  be  a waste  of                                                               
Attorney General Renkes' time.                                                                                                  
CHAIR SEEKINS  asked if Attorney  General Renkes' opinion  was in                                                               
SENATOR WAGONER said if it is,  he would get a copy for committee                                                               
members.  He repeated  that he  feels  Amendment 1  is a  prudent                                                               
safety valve.                                                                                                                   
SENATOR  OGAN noted  the only  opinion that  really counts  is of                                                               
"the  guys that  wear  the robes  in the  U.S.  Supreme Court  so                                                               
everybody  else has  got an  opinion  about it."  He agreed  that                                                               
Amendment 1 is a circuit  breaker if an adversarial opinion kicks                                                               
in and removes the dividend program from the Constitution.                                                                      
SENATOR  THERRIAULT pointed  out that  the language  contained in                                                               
Amendment 1  is identical  to Section  3 of  SJR 19  that Senator                                                               
Ellis cosponsored.                                                                                                              
SENATOR  ELLIS  told  members  he was  not  arguing  against  the                                                               
inclusion of Amendment 1. He  maintained, "I was asking about the                                                               
attorney general  - the time  and expense we  went to as  a state                                                               
and that might be a legitimate  part of the committee record. I'd                                                               
hate for Senator Therriault to mischaracterize my...."                                                                          
CHAIR SEEKINS asked Senator Wagoner to  get a copy of the written                                                               
opinion to insert in the record.                                                                                                
SENATOR WAGONER offered to do so today.                                                                                         
SENATOR OGAN said one reason he  introduced SJR 24 was because of                                                               
a  lengthy discussion  he  had with  constituents  in the  Mat-Su                                                               
Valley  during  the interim  about  the  fact that  the  founding                                                               
fathers of Alaska decided the  state should retain the subsurface                                                               
rights  to land  in Alaska.  All residents  collectively own  the                                                               
subsurface mineral estate, with the  exception of the lands owned                                                               
by  Native  corporations  and lands  patented  before  statehood.                                                               
Additionally,  the Alaska  Constitution  declares the  subsurface                                                               
rights as dominant  so that a surface owner must  allow access to                                                               
the subsurface. That  is also included in  the Statehood Compact.                                                               
According to  Section (6)(i) of  that Compact, the  U.S. attorney                                                               
general  is  specifically  instructed  to litigate  in  the  U.S.                                                               
district  court  to  procure  those  subsurface  rights  for  the                                                               
federal government if the state  conveys the subsurface rights to                                                               
anyone else.  He feels  very strongly  that the  dividend program                                                               
needs to  be protected because  it represents the  people's share                                                               
of the collectively owned subsurface mineral rights.                                                                            
CHAIR  SEEKINS   announced  that   with  no   further  objection,                                                               
Amendment 1 was adopted.                                                                                                        
SENATOR  FRENCH said  he is  curious  about the  language in  the                                                               
appropriation  limit that  is currently  working its  way through                                                               
the legislature.                                                                                                                
SENATOR OGAN said no one  knows whether the legislature will have                                                               
an appropriation  limit at the  end of the  day, and how  it will                                                               
work, but SJR  24 will not take  effect without one.   He said he                                                               
believes they should all be linked. He added:                                                                                   
     And then we  get into the discussion of  whether or not                                                                    
     it's a revision  and I gotta put that on  the record. I                                                                    
     mean - and  it's a little risky, and at  the end of the                                                                    
     day we might wish to just  take that out and let it fly                                                                    
     on its  own. It could  be viewed  as a revision  and we                                                                    
     have to be honest with  people that's a possibility. Of                                                                    
     course they  may view this  as a revision  because this                                                                    
     effective  date affects  more than  one section  of the                                                                    
     Constitution and I think the  best case to address that                                                                    
     and - so  the committee needs to be  cognizant of that.                                                                    
     I don't want to try to hide it from anybody.                                                                               
CHAIR SEEKINS  pointed out, under  Bess v. Ulmer, any  section of                                                               
the  Constitution that  affects  too many  other  sections is  no                                                               
longer an amendment; it would be a revision.                                                                                    
SENATOR  OGAN   said  he  is  unsure   whether  a  constitutional                                                               
amendment  with   an  effective  date  contingent   upon  another                                                               
[constitutional amendment]  has ever  been put before  the voters                                                               
so it is an untested section of law.                                                                                            
CHAIR  SEEKINS  noted  that  according   to  Bess  v.  Ulmer,  an                                                               
amendment to the Constitution is  a clarification; a major change                                                               
is a revision.                                                                                                                  
SENATOR ELLIS asked whether the  governor has taken a position on                                                               
SJR 24.                                                                                                                         
SENATOR  OGAN  said  he  has   not  had  a  discussion  with  the                                                               
administration about it.                                                                                                        
SENATOR ELLIS asked if he plans to do so.                                                                                       
SENATOR  OGAN replied,  "I don't  think  it's a  function of  the                                                               
executive branch to - it's nice  when they support your work but,                                                               
frankly,  the separation  of powers,  I think  it's something  we                                                               
should  - it'd  be nice  to have  but isn't  required to  have to                                                               
consider an amendment."                                                                                                         
SENATOR ELLIS  agreed but said  the majority  frequently solicits                                                               
the  governor's position,  as  it  is important  to  the way  the                                                               
majority views various pieces of legislation.                                                                                   
CHAIR SEEKINS  asked Senator  Ellis to  restrict his  comments to                                                               
his  own conversations  with the  governor. He  expressed concern                                                               
that the  term "you all"  is inclusive  and other people  are not                                                               
available to defend their positions.                                                                                            
SENATOR  ELLIS asked  the chair  why  he wanted  to restrain  his                                                               
right  to speak  on  the issue.  He then  clarified  that he  was                                                               
referring to the Republican Majority when he said "you all."                                                                    
CHAIR SEEKINS  said the Republican  Majority was not  present and                                                               
he did not want Senator Ogan to answer for him.                                                                                 
SENATOR  ELLIS said  he would  ask the  chair separately  and was                                                               
only interested in Senator Ogan's position.                                                                                     
SENATOR  OGAN repeated  that he  has  not discussed  SJR 24  with                                                               
anyone in the governor's office.                                                                                                
SENATOR THERRIAULT pointed out that  SJR 24 prioritizes dividends                                                               
over inflation  proofing. He cautioned  that the state  could pay                                                               
dividends during  a down  market and give  the next  generation a                                                               
diminished asset. He views the  permanent fund as a mechanism for                                                               
taking a one-time asset and  making it multi-generational so that                                                               
possibility weighs heavy on his mind.                                                                                           
CHAIR SEEKINS  noted that with  no further discussion on  SJR 24,                                                               
he would set it aside until the end of the meeting.                                                                             
        SJR 32- CONST AM: PERM FUND INCOME FOR DIVIDENDS                                                                    
SENATOR KIM  ELTON, sponsor of  SJR 32, described the  measure as                                                               
"if POMV, then  SJR 32."  The  intent of SJR 32 is  to codify one                                                               
of  the  recommendations  of  the   Conference  of  Alaskans:  to                                                               
constitutionally protect the permanent fund  dividend. He said in                                                               
response  to  Senator  Therriault's  concern  about  prioritizing                                                               
inflation  proofing  over  dividends,  SJR 32  follows  the  POMV                                                               
method,  which does  just  that.  SJR 32  also  provides that  80                                                               
percent  of  the  earnings  from  the  POMV  would  be  used  for                                                               
dividends. He stated:                                                                                                           
     It would  probably be fair  to point out  that the                                                                         
     sharpest  minds  at  the [Alaska]  Permanent  Fund                                                                         
     Corporation  have, when  they look  out ahead  and                                                                         
     they compare  this recipe  to the  existing recipe                                                                         
     that's  in statute,  they  would suggest  that...a                                                                         
     return   that  would   probably  most   equal  the                                                                         
     existing  statutory  dividend   would  be  in  the                                                                         
     neighborhood  of  about  60-40 -  60  percent  for                                                                         
     dividends,  40 percent  for other  purposes to  be                                                                         
     determined by the legislature.  But, Mr. Chair, if                                                                         
     you   look   back  to   1990   and   you  take   a                                                                         
     retrospective look,  the formula,  if we  had been                                                                         
     operating  under a  POMV,  the  formula that  most                                                                         
     closely  would  replicate the  existing  statutory                                                                         
     language  would be  in the  neighborhood of  about                                                                         
     76-24 so  this errs  just slightly to  the benefit                                                                         
     of the dividend program, 80-20 does.                                                                                       
SENATOR ELTON  said he firmly  believes the  legislature has                                                                    
been able to protect the  growing pool of the permanent fund                                                                    
because  of the  nexus between  the permanent  fund and  the                                                                    
dividend  program. He  repeated that  SJR 32  is written  so                                                                    
that its enactment is contingent  upon legislative and voter                                                                    
approval of the POMV methodology.                                                                                               
SENATOR  OGAN moved  to adopt  Version H  of SJR  32 as  the                                                                    
working document before the committee.                                                                                          
CHAIR SEEKINS  announced that without objection,  the motion                                                                    
SENATOR  FRENCH  said  his  greatest  concern  is  inflation                                                                    
proofing and  that is protected  fairly well under  the POMV                                                                    
scheme.  He  said  he  tries  to  work  backwards  from  the                                                                    
election in  November to  figure out a  plan that  will gain                                                                    
favor with the  public to provide a dividend  and allow some                                                                    
earnings to  be used  for essential government  services. He                                                                    
believes SJR 32 goes a long  way toward doing that. He asked                                                                    
Senator  Elton if  he has  received feedback  about how  the                                                                    
public will receive this resolution.                                                                                            
SENATOR ELTON  said one reason  he introduced SJR 32  was to                                                                    
make sure  the legislature had  all of the  pieces necessary                                                                    
to accomplish the  goals of the Conference  of Alaskans. The                                                                    
one piece he  found missing was a mechanism  that provides a                                                                    
fairly simple and easily understood  division of the earning                                                                    
stream for dividends  and government services. He  has had a                                                                    
considerable  amount  of  discussion   with  people  in  his                                                                    
district and  also with people  at the conference.  He noted                                                                    
one way to accomplish policy,  especially when a revision of                                                                    
the  Constitution  is  required,  is  to  include  a  market                                                                    
component.    The    legislature    must    structure    the                                                                    
constitutional amendment  so that people can  understand its                                                                    
benefits. He believes  the POMV approach will  be adopted if                                                                    
the  citizens understand  its effect  on the  permanent fund                                                                    
CHAIR SEEKINS asked  Senator Elton if he has  any letters of                                                                    
support  or e-mail  messages showing  support that  could be                                                                    
inserted into the record.                                                                                                       
SENATOR  ELTON  said  that  SJR   32  closely  reflects  the                                                                    
Conference of Alaskans' recommendations.                                                                                        
CHAIR SEEKINS asked  Senator Elton to show a  nexus. He said                                                                    
he  read   the  Conference  of  Alaskans'   report  but  the                                                                    
recommendations were  not supported by enough  of a majority                                                                    
that the  legislature would have  passed them as  a proposed                                                                    
constitutional amendment.                                                                                                       
SENATOR ELTON said  it is unusual that a  bill he introduces                                                                    
is  heard within  10 days  so he  does not  have letters  of                                                                    
CHAIR SEEKINS  asked how many  bills he has had  referred to                                                                    
the Senate Judiciary Committee.                                                                                                 
SENATOR ELTON  said none. He then  indicated the suggestions                                                                    
from  the   Conference  of   Alaskans  were   not  supported                                                                    
unanimously but 37 of the  55 delegates suggested enshrining                                                                    
the dividend in the Constitution.                                                                                               
CHAIR  SEEKINS said  he  is  not aware  of  anything in  the                                                                    
conference report that suggested an 80/20 split.                                                                                
SENATOR  ELTON  said  the Conference  of  Alaskans  did  not                                                                    
identify  an appropriate  split for  earnings and  dividends                                                                    
but  SJR 32  comes  closest to  matching  what the  existing                                                                    
program has  provided over  the last  15 years.  He repeated                                                                    
that  despite  the fact  that  this  recommendation was  not                                                                    
approved  unanimously  by  the   conferees,  37  out  of  55                                                                    
delegates  did  suggest the  dividend  be  protected in  the                                                                    
Constitution.  He pointed  out that  kind of  a margin  in a                                                                    
legislative race would be considered as overwhelming.                                                                           
CHAIR SEEKINS  repeated [that margin] would  not suffice for                                                                    
a constitutional amendment to come from the legislature.                                                                        
SENATOR  ELTON  argued  that  would   if  the  threshold  is                                                                    
considered to be  what it would take to pass  on the general                                                                    
election ballot in November.                                                                                                    
CHAIR  SEEKINS  asked  if  he  believes  the  55  conference                                                                    
delegates were representative of the people of the state.                                                                       
SENATOR ELTON  said he does  not. The conferees were  from a                                                                    
much   higher  socio-economic   stratum  than   the  average                                                                    
Alaskan.  He   added  that   two-thirds  of   the  conferees                                                                    
indicated they earned over $100,000 per year.                                                                                   
SENATOR FRENCH  commented that the various  proposals before                                                                    
the committee  represent a  struggle between  the government                                                                    
and the people  for the earnings of the  permanent fund. The                                                                    
people  have repeatedly  expressed their  will to  get their                                                                    
share  of the  fund's earnings.  SJR 32  embodies that  will                                                                    
most closely.                                                                                                                   
CHAIR SEEKINS  asked Senator Elton  if he recalled  what top                                                                    
two funding sources the  conferees suggested the legislature                                                                    
look at.                                                                                                                        
SENATOR ELTON replied a unique  voting system was applied at                                                                    
the  Conference.  When  the  conferees  were  able  to  vote                                                                    
anonymously,  there was  a weighted  average. The  conferees                                                                    
were   asked  to   decide  on   their   top  three   revenue                                                                    
enhancements. The weighted average  showed an income tax was                                                                    
the  preferred method,  by a  very slight  margin, over  the                                                                    
earnings  of  the permanent  fund,  which  had a  relatively                                                                    
small margin over  natural resource taxes. He  said he would                                                                    
characterize the top two as  a virtual dead heat between the                                                                    
income tax and the permanent fund earnings.                                                                                     
CHAIR  SEEKINS responded,  "All  of which  are the  people's                                                                    
money, correct?"                                                                                                                
SENATOR ELTON agreed.                                                                                                           
SENATOR  THERRIAULT  asked Senator  Elton  why  he chose  an                                                                    
80/20  split rather  than  a  ratio that  is  closer to  the                                                                    
status quo.                                                                                                                     
SENATOR  ELTON  repeated  that the  sharpest  minds  at  the                                                                    
Alaska Permanent Fund Corporation  (APFC) did projections to                                                                    
the  year 2010  and  suggested that  to  best replicate  the                                                                    
statutory  dividend  formula,  60 percent  of  the  earnings                                                                    
stream  would be  necessary.  Because  many variables  could                                                                    
occur in that timeframe,  he personally took a retrospective                                                                    
look to  1990, had the  POMV methodology been in  place. The                                                                    
split  of earnings  would  have been  about  76 percent  for                                                                    
dividends and 24  percent for government. He  said he picked                                                                    
an 80/20 split in favor of the dividend.                                                                                        
SENATOR  THERRIAULT   said  if   the  POMV   methodology  is                                                                    
established,  the  earnings reserve  will  no  longer be  in                                                                    
existence. He  asked Senator Elton  to elaborate on  how the                                                                    
20 percent would be used.                                                                                                       
SENATOR ELTON said  the 20 percent is  unallocated and would                                                                    
be  available  for  government   spending,  which  would  be                                                                    
codified by the legislature and the budget process.                                                                             
SENATOR THERRIAULT noted  that under POMV, 80  percent of up                                                                    
to  5   percent  would  be   used  for  dividends.   If  the                                                                    
legislature uses 3 percent instead  of 5, 80 percent of that                                                                    
amount will be used for dividends.                                                                                              
SENATOR ELTON explained that SJR 32  is based on a 5 percent                                                                    
return from  POMV. If  the return is  less, the  80/20 ratio                                                                    
remains the same  but a lower amount would  be available for                                                                    
SENATOR THERRIAULT asked Senator Elton:                                                                                         
     Even though  it doesn't  say it  here, the  use of                                                                         
     the other 20 percent, it's  your intent that it be                                                                         
     available for appropriation and,  in fact, you say                                                                         
     here   at  least   80   percent   of  the   amount                                                                         
     appropriated  so   that  20  percent  has   to  be                                                                         
     appropriated for something.  You have appropriated                                                                         
     it  from  the  earnings   and  whatever  you  have                                                                         
     appropriated  out,  80  percent   shall  go  to  a                                                                         
     dividend but  you have appropriated that  other 20                                                                         
     percent  too and  you can't  get  to the  dividend                                                                         
     unless you appropriate that 20 percent.                                                                                    
SENATOR  ELTON said  he thinks  all  legislators would  view                                                                    
this as a revenue source in  the same way that an income tax                                                                    
or additional resource taxes would  provide an income stream                                                                    
available for  appropriation. This  constitutional amendment                                                                    
provides that  80 percent  of this  revenue stream  would be                                                                    
preserved  for the  dividend program.  The other  20 percent                                                                    
would be available for government spending.                                                                                     
SENATOR ELTON  said he appreciates  the fact that SJR  32 is                                                                    
linked  with  the  POMV.  He believes  there  is  a  growing                                                                    
realization that the POMV truly is  the best way to make the                                                                    
permanent fund permanent.                                                                                                       
TAPE 04-10, SIDE B                                                                                                            
SENATOR  FRENCH   maintained,  regarding  what   split  more                                                                    
accurately reflects  the current system, there  is no bright                                                                    
consensus. The  APFC board has  said a 60/40  split produces                                                                    
the  current  dividend.  However, Sharman  Haley,  from  the                                                                    
Institute of  Social and Economic Research  at UAA, recently                                                                    
wrote an article [in the  Anchorage Daily News] in which she                                                                    
said  the  appropriate split  is  70/30.  He indicated  that                                                                    
trying  to replicate  what is  basically an  earnings driven                                                                    
system  under  the  current  value  driven  system  is  like                                                                    
comparing apples to oranges. He  commended Senator Elton for                                                                    
erring on the side of caution.                                                                                                  
CHAIR SEEKINS indicated the discussion  is not about whether                                                                    
the POMV  system is a good  one but about how  much would be                                                                    
given to whom.                                                                                                                  
SENATOR ELTON agreed and pointed  out that during his tenure                                                                    
in the  legislature, the  asset management  of the  fund was                                                                    
changed. He added:                                                                                                              
     All  of   those  changes,  what  happens   in  the                                                                         
     marketplace,  all of  these  things  make it  very                                                                         
     difficult to  say with any kind  of real authority                                                                         
     it is 61.3  percent to most closely  replicate - I                                                                         
     mean  you can't  do that.  We can  trust the  best                                                                         
     minds  that we  have down  at the  permanent fund,                                                                         
     and I  do trust  them but it's  kind of  a rolling                                                                         
     target that could change next year also.                                                                                   
SENATOR OGAN  asked Senator Elton  how much new  money would                                                                    
be available to  spend on government services  with an 80/20                                                                    
SENATOR ELTON  estimated about $260  million, based on  a 20                                                                    
percent of the  5 percent return from the  POMV, which would                                                                    
be $1.3 billion this year.                                                                                                      
SENATOR  OGAN  said  he believes  offering  80  percent  for                                                                    
dividends is  very generous, but  his concern is that  a new                                                                    
$275  million funding  source for  government services  will                                                                    
cause government to  grow and the state will be  in the same                                                                    
situation  that it's  in today  in five  years. He  noted he                                                                    
wants to see a constitutional spending limit enacted first.                                                                     
SENATOR ELTON  commented that the  legislature has  acted in                                                                    
an  extremely  responsible  way regarding  the  use  of  the                                                                    
permanent  fund earnings.  Regarding Senator  Ogan's concern                                                                    
about new  money being available for  appropriation, he sees                                                                    
any new revenue stream  as backfilling deficit spending that                                                                    
will allow the  legislature to draw down  the budget reserve                                                                    
at a slower rate.                                                                                                               
CHAIR SEEKINS asked if all  of the earnings of the permanent                                                                    
fund  have been  available to  the legislature  for spending                                                                    
since the beginning of the dividend program.                                                                                    
SENATOR  ELTON said  they have  and because  the program  is                                                                    
statutory and not constitutional,  it only requires a simple                                                                    
majority vote.                                                                                                                  
SENATOR  OGAN expressed  concern that  SJR 32  means to  him                                                                    
that the  remaining budget gap  will have to be  filled with                                                                    
an income or sales tax to lock in the 80/20 split.                                                                              
SENATOR  ELTON agreed  but  noted  that additional  spending                                                                    
cuts are possible.  He said the discussion  is moving toward                                                                    
a philosophical  one and his  view is that  SJR 32 is  not a                                                                    
fiscal plan. It could be one component of a fiscal plan.                                                                        
CHAIR  SEEKINS asked  Senator Elton  if he  believes in  the                                                                    
need  for  an income  tax  before  looking at  spending  the                                                                    
permanent fund earnings.                                                                                                        
SENATOR ELTON  said his position  is most  closely reflected                                                                    
by that of  the fiscal policy caucus, a group  made up of 28                                                                    
members of  the legislature.  Its package included  a cruise                                                                    
ship tax, alcohol  tax, oil industry tax and  a small income                                                                    
tax. He  pointed out  that none of  the 28  members believed                                                                    
that plan was  a perfect one, however they agreed  it was as                                                                    
close as  they could  come to one.  On an  individual basis,                                                                    
they all preferred a different plan.                                                                                            
CHAIR SEEKINS announced a recess.                                                                                               

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