Legislature(1995 - 1996)
02/14/1995 03:40 PM STA
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SSTA - 2/14/95 SB 51 DISPOSITION OF PERMANENT FUND INCOME SENATOR SHARP brings up SB 51 as the next order of business before the Senate State Affairs Committee and calls the first witness. Number 560 SENATOR RIEGER, prime sponsor of SB 51 reads his sponsor statement. Number 515 SENATOR RIEGER states the Legislative Budget & Audit Committee (LB&A) hired Ibbotsen & Associates to look at the asset allocation of the Alaska Permanent Fund Corporation. Their report prescribed a change in asset allocation. Senator Rieger has noticed that the corporation is moving in the direction the Ibbotsen report recommended. He thinks this will improve the longer term investment performance of the permanent fund, and in turn, improve the real earnings of the fund. SENATOR RIEGER says he will answer questions and urges the committee's favorable consideration. Number 505 SENATOR LEMAN asks Senator Rieger if he thinks the consumer price index (cpi) should continue to be used to value the permanent fund earnings, or if there is a better index that could be used. SENATOR RIEGER replies since the actual use of permanent fund earnings is not spelled out anywhere, there is no right answer as to which index should be used. Since the only prescribed use of earnings right now are for dividends, which go to consumers, he supposes that the consumer price index is as good an index to use as any. Number 470 SENATOR RIEGER points out that the concept contained in SB 51 was recommended in the Governor's Transition Report. Number 465 CHAIRMAN SHARP wants a clarification on whether SB 51 would set in statute that inflation-proofing of the fund would continue to be appropriated by the legislature. SENATOR RIEGER responds that the wording in the constitutional amendment basically says: the returns on the permanent fund shall be deposited in the general fund, unless otherwise provided by law. It has been argued that language would allow a way to inflation- proof the fund automatically, and bypass the legislative appropriation process. He does not think the constitutional language is clear. The legislature might put it in the front section anyway. But the idea is to not create a mistaken impression that there is more money available in any given fiscal year than there really should be. Senator Rieger thinks as money continues to get tight, there will be proposals to not inflation- proof the fund. Number 443 JIM KELLY, Research & Liaison Officer, Alaska Permanent Fund Corporation, states the board has not yet discussed SB 51, but plans to meet on February 24, at which time they will review the bill. Historically, the board is in favor of any proposal which would protect the principal of the permanent fund. Mr. Kelly thinks the board would certainly support the portion of SB 51 which specifies inflation proofing the fund. However, he does not think the board would take any position one way or the other on the other portion of the bill. Mr. Kelly discusses the financial projections he submitted to the committee and says that the only way the amount of money the fund earns will be larger is if one, the fund earns more money, or two, the permanent fund gets larger. The only way the permanent fund will get larger is if an appropriation is made to the permanent fund. Number 410 MR. KELLY states inflation proofing used to be automatic, but that changed during the Cowper administration. Also, the corporation likes to use the cpi because it is a number people can understand. As for using an average balance on which to measure earnings, Mr. Kelly would just as soon use an average balance of the fiscal year, rather than the calendar year. Number 395 CHAIRMAN SHARP asks Mr. Kelly if he is referring to the cost or the market value of measuring the average balance. MR. KELLY responds that at this time, it is done in cost. Number 390 SENATOR RANDY PHILLIPS asks Mr. Kelly if the board is going to look at SB 51 and make a recommendation. MR. KELLY says he expects the board to make a recommendation. SENATOR RANDY PHILLIPS asks Mr. Kelly if the board will make a formal endorsement. MR. KELLY responds that they will. CHAIRMAN SHARP says the committee will hold the bill until next week to wait for information from the Alaska Permanent Fund Corporation's board and to get input from all members of the committee. Number 343 SENATOR RIEGER comments it would probably be good to switch to fiscal year from calendar year for measuring earnings. That is something no one has ever thought of before. CHAIRMAN SHARP states his gut feeling is to deposit as large an amount as is possible into the corpus of the fund. Number 310 CHAIRMAN SHARP adjourns the Senate State Affairs Committee meeting at 4:56 p.m.