Legislative Research Services

LEGISLATIVE RESEARCH SERVICES Alaska State Legislature (907) 465‐3991 phone Division of Legal and Research Services (907) 465‐3908 fax State Capitol, Juneau, AK 99801 [email protected]

July 6, 2010

Memorandum

TO: Representative Anna Fairclough FROM: Chuck Burnham, Legislative Analyst RE: Summary of Selected Fiscal Policy Planning Efforts in Alaska LRS Report 10.283

You asked about previous efforts to develop long‐range fiscal policy for Alaska. Specifically, you wanted summaries of the organization, processes, planning efforts, and associated reports published by the following groups:

 Long Range Financial Planning Commission (1995‐1996);  State of the Economy Forum (1999);  Fiscal Policy Caucus (2001‐2002); and  Conference of Alaskans (2004).

Long Range Financial Planning Commission—March 1995 to January 1996

Appointing Authority

Legislative Resolve 6 (HCR 1, Attachment A1), which directed the following composition:  Nine members of the public, not to include members of the legislative, executive, or judicial branches; the Speaker of the House of Representatives, the President of the Senate, and the Governor shall each appoint three of these members;  Two members of the House of Representatives appointed by the Speaker of the House; one member shall be a member of the majority and one a member of the minority;  Two members of the Senate appointed by the President of the Senate; one member shall be a member of the majority and one a member of the minority; and  Two members of the executive branch appointed by the Governor. Chair(s) The Honorable Brian Rogers, Chair; Judy Brady, Vice‐Chair Participants Lee Gorsuch, Sen. Georgianna Lincoln (D), Robert W. Loescher, Bruce Ludwig, Annalee McConnell, the Honorable Hugh Motley, Rep. Mike Navarre (D), Mary Nordale, Mike O’Connor, Rep. Sean Parnell (R), the Honorable Pat Pourchot, Sen. Steve Rieger (R), and Marie Westfall. In addition, the Commission took testimony and counsel from the public and private sectors. Public members served without compensation save for per diem and travel expenses.

LEGISLATIVE RESEARCH SERVICES JULY 6, 2010 — PAGE 1

Political Composition of Government Governor: Tony Knowles (D) Senate President: Drue Pearce (R) House Speaker: Gail Phillips (R) House of Representatives: 22 Republicans, 17 Democrats, 1 Independent. Four Democrats caucused with the Republicans, bringing the majority coalition to 26 members. Senate: 12 Republicans, 8 Democrats Process An estimated 300 hours of preliminary research, meetings, public testimony, and work sessions were held throughout the summer and fall of 1995. A preliminary report, "Alaska's Growing Fiscal Gap," (Attachment A2) detailing the state's financial challenges was published in August. Regional public meetings and intensive work sessions in Anchorage were conducted throughout September. The Commission's Final Report and long range plan (Attachment A3) was published in October. Hundreds of pages of minutes from five meetings in late September are available on BASIS, the Legislature's online public information database. Audio recordings of at least ten earlier meetings are available in the Legislative Library. Motivation / Objective The term “fiscal gap” first appeared in Alaska Newspapers in 1989 and quickly became the economic catch phrase to describe the state’s onrushing financial challenges. Put simply, the “gap” was the revenue deficit caused by a combination of increased government spending and falling oil revenues as the Prudhoe Bay field went into decline. Economists such as Dr. Scott Goldsmith of the University of Alaska’s Institute of Social and Economic Research estimated that, barring dramatic changes in Alaska’s budget and finances, the roughly $500 million budget shortfall of fiscal year (FY) 1995 would grow to a deficit of over $1.3 billion in FY 2005. Although opinions of the severity of the problem varied among economists and policymakers, there was general consensus that the fiscal gap was a real and challenging problem. Legislative leadership and the Governor agreed that a commission should be formed to address the issue. Leg. Resolve 6 outlined numerous fiscal challenges faced by the state including spending outstripping revenue, declining revenue streams, and problematic budgeting processes. The measure established the Commission and directed it to "develop and recommend to the Governor and the Legislature a long range financial plan for the state." Specific directives from the Legislature included the following: (1) Review and evaluate state fiscal policy and strategy recommendations and assumptions from reports and publications from similar efforts in the past made by the executive branch, the legislative branch, the University of Alaska, nonprofit organizations, and private individuals and organizations; (2) Identify and evaluate all current state income sources and assets, including recurring revenue, reserves, physical resources, and investments; (3) Identify and prioritize systemic changes to stabilize the state’s revenue; (4) Identify and prioritize major reductions in state expenditures, to include formula and nonformula programs, and to include proposed consolidation, transfer, or elimination of governmental services or programs; the reductions identified and prioritized under this paragraph must at least equal the current fiscal gap between recurring revenue and recurring expenditures; (5) Evaluate forward funding of the budget; (6) Identify and prioritize new sources of revenue;

LEGISLATIVE RESEARCH SERVICES, LRS 10.283 JULY 6, 2010 — PAGE 2 SUMMARY OF SELECTED FISCAL POLICY PLANNING EFFORTS IN ALASKA (7) Project a sustainable long‐range financial plan for the next three years, five years, and 10 years, based on a stable revenue stream; (8) Evaluate constitutional, statutory, and regulatory language relating to the budget process and recommend changes; (9) Consider the division of responsibility for providing services and raising revenue between the state and local governments and evaluate the effect of the long‐range financial plan on local governments; (10) Submit a preliminary report to the Governor and the Legislature by July 15, 1995; (11) Disseminate information and solicit public comment; and (12) Submit a final report to the Governor and the Legislature by October 1, 1995, recommending a long‐ range financial plan for the state, including specific actions and legislation needed to implement and monitor the plan. Recommendations The Commission’s plan—dubbed “An Endowment for Alaska’s Future”—proposed sweeping changes to the state’s fiscal systems and institutions. According to its Executive Summary, implementing the plan would accomplish the following:  Make the Permanent Fund the cornerstone of Alaska’s fiscal future;  Close the fiscal gap in five years;  Ensure growth of the Permanent Fund to offset declining oil and gas revenues;  Stabilize and diversify revenues;  Control state general fund spending;  Maintain a reserve to dampen the effect of oil price swings; and  Decrease dependence on volatile oil revenues. The plan, as directed by Leg. Resolve 6, contained recommendations for action over three, five, and ten years; however, only the three‐year plan provided specific, detailed recommendations. Foreseeing significant changes due to the impact of implementing its own three‐year recommendations, and the potential of developing oil in the Arctic National Wildlife Refuge and a gas pipeline from the North Slope, the Commission recommended that a follow‐up review be completed in early 1999 to determine how best to then proceed. The Commission did, however, recommend imposition of a personal income tax to take effect in 2002. The key elements of the three‐year plan included the following:  Cut general fund spending by $100 million over the next three fiscal years and reduce per capita spending from $4,020 to $3,692 over four years;  Increase revenues by $144 million per annum through increased tobacco, alcohol, motor fuel, vehicle licensing, tourism, and fisheries taxes and fees;  Convert the Permanent Fund to an endowment model that makes available for general fund spending up to four percent of the Fund’s five‐year average market value. Include a long‐term inflation protection mechanism in the endowment model;  Increase Permanent Fund earning power by making additional annual and special deposits, transferring $600 million from the Constitutional Budget Reserve Fund (CBRF) in FY 1996 and the entirety of the Permanent Fund Earnings Reserve (approx. $1.2 billion), and increasing to 50 percent the minimum contribution to the Permanent Fund from certain oil, gas, and mineral leases;

LEGISLATIVE RESEARCH SERVICES, LRS 10.283 JULY 6, 2010 — PAGE 3 SUMMARY OF SELECTED FISCAL POLICY PLANNING EFFORTS IN ALASKA  Cap Permanent Fund dividends by reducing the total amount allocated by $50 million in each of the following three years;  Maintain the CBRF at $1.5 billion and clarify its use and repayment through a constitutional amendment; and  Reform the budget process by scrutinizing all spending rather than just general funds, annual progress reports to the public, and focusing on necessary, effective, and cost‐effective programs (i.e., “performance‐based budgeting”). Recommended Legislation1 The Commission recommended the following legislation and budget actions for the three fiscal years following the publication of its plan: Year 1: Recommended Legislation and Corresponding Introduced Measures with (Session Law)  Resolution approving Commission’s financial plan HCR 23 and SCR 23;  Permanent Fund endowment constitutional amendment placed before voters HJR 55 and SJR 34;  Constitutional Budget Reserve amendment placed before voters HJR 56, SJR 30, and SJR 33;  Retirement Incentive Program HB 270 and SB 137;  Tier III retirement plan SB 148;  Geographic pay differential for state employees not represented by a union HB 304 and SB 1003 (ch 4 FSSLA 96);  Fuel tax increase HB 443 and SB 236;  Senior/veteran’s property tax exemption becomes local option HB 444 and SB 233;  Tobacco and alcohol tax increase HB 96, HB 97, HB 441, and SB 235 (alcohol); HB 431, HB 442, SB 210, SB 234, and SB 1007 (tobacco);  New oil and gas property tax with 50 percent deposited into Permanent Fund; and  Road/harbor responsibilities transferred to local government Year 1 Recommended Budget Action  Cut $40 million from previous year general fund spending;

1 Due to the time constraints for this report we were able to review legislation only from the Legislature that occurred immediately subsequent to the organizations in this report making their recommendations. Please note that, as a consequence, we may have missed some recommendations that initially failed to gain approval but were enacted by subsequent Legislatures.

LEGISLATIVE RESEARCH SERVICES, LRS 10.283 JULY 6, 2010 — PAGE 4 SUMMARY OF SELECTED FISCAL POLICY PLANNING EFFORTS IN ALASKA HB 100—Governor Knowles’ original version cut $35 million from previous year  Report all funds in state spending plan, including Permanent Fund earnings and dividends;  Transfer $1.5 billion from CBRF to the Permanent Fund; HB 54 (Called for a transfer of $500 million)  Consolidate administrative functions/agencies;  Develop six‐year capital budget plan;  Target budget for maintenance and deferred maintenance;  Use performance‐based budgeting;  Reduce growth rate of Medicaid and other entitlements. In addition to the introduced measures listed above, Governor Knowles put forth HB 1010 and SB 1012 in a 1996 special session. Those bills made appropriations from the CBRF, but also carried extensive legislative intent language that essentially laid out the Commissions’ recommendations. Both of those measures failed. Year 2 Recommended Legislation  New fisheries and resources taxes;  Tourism tax or self‐support of industry promotion;  Additional deposit from CBRF to the Permanent Fund;  New fees/increases/indexing to raise an additional $3 million. Year 2 Recommended Budget Action  Cut $70 million from FY 1996 general fund budget amount. Year 3 Recommended Legislation  Resolution creating new Financial Planning Commission to review progress and make new recommendations. Year 3 Budget Action  Cut $60 million from general fund budget amount. Opposition / Impediments Although the Commission approved its plan on a 10‐4 vote, the objections of the dissenters ultimately became the primary reasons behind the rejection of the plan by the Republican majority in the Legislature. Specifically, as then‐Representative and Commission member Sean Parnell put it in an interview with the Anchorage Daily News, “I don’t think the public buys into new taxes and dividend cuts and using the Permanent Fund earnings when there’s no guarantee of reductions in state spending.”2 Some Democrats were concerned that the cuts recommended by the Commission would ultimately fall disproportionately on the poor, seniors, and other vulnerable populations, while others shared Republican’s concern with tapping the Permanent Fund for state spending. In the end, as Commission Chair Brian Rogers put it, the plan contained something for everyone to hate, and those objections could not be overcome.

2 Stan Jones, “Budget Plan Has Few Fans, No Lawmaker is Rushing to Cut Dividend, Levy Tax,” Anchorage Daily News, October 5, 1995, p. A1. We include copies of several ADN articles on the work of the Commission as Attachment A5.

LEGISLATIVE RESEARCH SERVICES, LRS 10.283 JULY 6, 2010 — PAGE 5 SUMMARY OF SELECTED FISCAL POLICY PLANNING EFFORTS IN ALASKA Governor Knowles offered a budget that cut $35 million from the previous year’s spending—nearly in line with the Commission’s recommendation of a $40 million reduction. He also introduced bills to implement portions of the Commission’s plan, including transferring funds from the Earnings Reserve to the Permanent Fund principal and a $1 per pack increase in cigarette taxes. Despite strong support of the plan from business groups like the Anchorage Chamber of Commerce and Commonwealth North, it quickly became clear at the outset of the 1996 legislative session that the plan would not be enacted en masse, and that even individual recommendations would be met with resistance. In addition to clear philosophical and policy differences between the Governor, his supporters, and the legislative leadership, the political timing of the Commission’s plan may have played a part in its demise. That 1996 was an election year was mentioned in several news media articles, and by at least a few legislators, as being a major obstacle. The plan may also have been impacted by the contentious political environment of the time. Following the previous session, Governor Knowles vetoed a number of bills that were priorities of the Republican majority. It is clear from news media of the day that both the Governor and the Legislature expected hard feelings to carry into the 1996 session. By the time serious budget negotiations got underway, it appears that the central pieces of the Commission’s recommendations—changing the Permanent Fund to an endowment, reducing dividends, and new revenues from taxes and fee—were no longer in play. Ultimately, the Republicans pushed through a $70 million budget cut in a special session.

LEGISLATIVE RESEARCH SERVICES, LRS 10.283 JULY 6, 2010 — PAGE 6 SUMMARY OF SELECTED FISCAL POLICY PLANNING EFFORTS IN ALASKA State of the Economy Forum—February 9, 19993

Appointing Authority Governor Tony Knowles (D), Senate President Drue Pearce (R), and House Speaker Brian Porter (R) invited presenters from government and industry to this one‐day forum they jointly hosted at Centennial Hall in Juneau. Participants Government Wilson Condon and Chuck Logsdon – Alaska Dept. of Revenue John Boucher – Alaska Dept. of Labor Rudy Tsukada – Alaska Dept. of Commerce The Honorable Mike Navarre – Council of Mayors U.S. Senator Ted Stevens General Tom Case – Alaska Command Oil and Gas Richard Campbell – BP Alaska Kevin Meyers – Arco Alaska Gary Carlson – Alaska Forcenergy Randy Newcomer – Williams Alaska Petroleum Bob Malone – Alyeska Pipeline Service Co. Bob Stinson – CONAM Construction Co. Transportation, Telecommunications and Tourism Jim Jansen – Lynden, Inc Ron Duncan – GCI The Honorable John Binkley – Alaska Riverways Banking, Construction and Service Industry Betsy Lawer – 1st National Bank of Anchorage Jim Fergusson – Fergusson and Assoc. Ben Williams – Alaskan & Proud Mike Powers – Fairbanks Memorial Hospital Resources: Mining, Timber, and Fishing Charlotte MacCay – Cominco, Ltd. John Sturgeon – KONCOR Forest Products Kris Norosz – Icicle Seafoods Political Composition of Government

3 We include a copy of the summary document from the Forum as Attachment B1.

LEGISLATIVE RESEARCH SERVICES, LRS 10.283 JULY 6, 2010 — PAGE 7 SUMMARY OF SELECTED FISCAL POLICY PLANNING EFFORTS IN ALASKA Governor Tony Knowles (D) Senate President Drue Pearce (R) House Speaker Brian Porter (R) Senate: 15 Republican, 5 Democrat House: 26 Republican, 14 Democrat Process Government authorities gave short presentations providing situational analyses of the state’s then‐current fiscal picture and economic outlook. Panelist from the state’s primary business sectors then provided 18 to 36 month forecasts of the condition of their respective industries, describing factors that might impact their operations, the role government played, taxes and fees to which they were subject, the number of jobs their industries provided, and the economic benefit to the state brought about by their activities. Motivation / Objective The Forum was prompted by a projected $1.1 billion shortfall in the state’s FY 2000 budget caused primarily by very low oil prices. At the time, there were significant excess supplies of oil worldwide. This glut forced prices down to an average of $12.70 per barrel for Alaska North Slope crude in 1998 and, at the time of the Forum, prices were hovering around $10 per barrel. This marked a 50% decline from the overall average of about $20 per barrel from 1990‐1997. Although the balance of the Constitutional Budget Reserve Fund was at an historical high of over $3.5 billion, many economists believed that oil prices could remain at relatively low levels for several years and that, without dramatic action from the Governor and the Legislature, the CBRF would be depleted in only a few fiscal years.4 Recommendations Speakers were discouraged from promoting or debating the merits of specific fiscal proposals, and instead were encouraged to provide information on the condition of their various sectors and forecasts for the future. Arguments for and against general approaches—warnings against severe budget cuts and increases in oil taxes, for example—were nonetheless offered. No formal recommendations were made in the published summary of the Forum. The event appears to have been primarily focused on providing information to policy makers and the public on the condition of the state’s economy. Legislation / Subsequent Impacts Although it is difficult to tie legislation directly to the Forum, it is clear that the circumstances that led to its being convened were the basis for a number of measures considered in 1999. The Governor sought to raise additional revenue through the imposition of a personal income tax and an increase in the gasoline tax. Those measures ultimately failed; however, consensus was ultimately reached on combining two state departments, reductions in state staffing and services, and other programmatic cuts totaling $66 million. In addition to budget cuts, political leaders sought to craft a long range fiscal plan. Those efforts were unsuccessful through the regular session, prompting the Governor to call a special session on the topic.

4 Oil prices are from Cheryl Nienhuis, Petroleum Economics Policy Analyst, Alaska Department of Revenue, Tax Division, (907) 269‐1019. Constitutional Budget Reserve Fund data are from Rob Carpenter, Fiscal Analyst, Legislative Finance Division, (907) 465‐3795. We include, as Attachment B1, articles from the Anchorage Daily News and the Juneau Empire discussing the circumstances surrounding the Forum.

LEGISLATIVE RESEARCH SERVICES, LRS 10.283 JULY 6, 2010 — PAGE 8 SUMMARY OF SELECTED FISCAL POLICY PLANNING EFFORTS IN ALASKA Ultimately, an agreement was forged through HB 1010 (1999[Attachment B3]) to hold a statewide advisory vote on a “Balanced Budget Plan” that included the following elements: 1) Spending Reductions: Continue state general fund budget reductions and commit to long‐ term budget discipline and efficiencies. 2) Permanent Fund Protection: Guarantee the Alaska permanent fund principal remains untouched. Inflation‐proof the permanent fund to protect its value for all Alaskans, including future generations. 3) Permanent Fund Dividends: Guarantee a dividend to eligible Alaskan residents at a minimum of $1,700 in 1999 and $1,700 in 2000. Thereafter, the dividend will be approximately $1,340 and will continue to grow with the value of the permanent fund. After accounting for inflation‐proofing, the dividend will be based on 50 percent of the annual earnings payment. 4) Funding for Essential Public Services: After payment of permanent fund dividends and inflation‐proofing the fund, prioritize the annual investment earnings payment for essential public services. 5) Accountability: Fully disclose expenditures from the permanent fund earnings with each annual permanent fund dividend. 6) Balanced Budget Task Force: Establish a Citizens Balanced Budget Task Force to present options to further reduce state spending and identify appropriate future revenue sources. 7) Income Tax: No personal income tax is enacted as part of this plan. In a September special election, 83 percent of voters rejected the plan. Significant debate followed regarding whether the proposal failed on its merits, due to process issues, because of well‐funded and organized opposition, or some combination of these and other factors. Opposition / Impediments Since no concrete recommendations came out of the Forum, there was little to oppose. Some legislators and members of the public were unhappy that only government, business, and industry leaders were invited to present, and felt that input should have been sought from a wider representation of Alaskans, including Native Corporations.

LEGISLATIVE RESEARCH SERVICES, LRS 10.283 JULY 6, 2010 — PAGE 9 SUMMARY OF SELECTED FISCAL POLICY PLANNING EFFORTS IN ALASKA Fiscal Policy Caucus, 2001‐2002 Appointing Authority Ad‐hoc committee organized by a bipartisan group of Legislators. Chair(s) Sen. Alan Austerman and Reps. John Davies and Bill Hudson, Co‐Chairs Participants Representatives: Senators: Ethan Berkowitz (D) Beth Kerttula (D) Alan Austerman (R) Mike Chenault (R) Ken Lancaster (R) Johnny Ellis (D) Sharon Cissna (D) Lesil McGuire (R) Kim Elton (D) Harry Crawford (D) Kevin Meyer (R) Ben Stevens (R) Eric Croft (D) Carl Moses (D) John Davies (D) Lisa Murkowski (R) Hugh Fate (R) Norm Rokeberg (R) Gretchen Guess (D) Gary Stevens (R) Andrew Halcro (R) Drew Scalzi (R) Joe Hayes (D) Peggy Wilson (R) Bill Hudson (R) Political Composition of Government Governor Tony Knowles (D) Senate President Rick Halford (R) House Speaker Brian Porter (R) Senate: 14 Republicans, 6 Democrats House: 27 Republicans, 13 Democrats (1 Democrat caucused with the majority) Process In total, eleven forums were held in Anchorage, Juneau, Kenai, Kodiak, Petersburg, Wrangell, and Sitka by the Caucus and its private‐sector supporters between late July and early November. The Department of Revenue made presentations on the state’s fiscal circumstances and Caucus members received public input on how to address the issue.5 In late November, Caucus members gathered in Anchorage to share their findings and policy approaches. On December 1, the group published “Facts and Findings for a Long‐Range Fiscal Plan for Alaska,” detailing the framework of its plan and specific legislation that it would support in the upcoming legislative session.6

5 The Caucus mentions Alaskans United, the Alaska Humanities Forum, and Commonwealth North as having provided budget‐oriented educational materials, planning workshops, and efforts to draft solutions to funding shortages during the planning process. We include, as Attachments C1 and C2, respectively, the Caucus’ 2001 long‐rage fiscal plan and a 1999 publication from Commonwealth North’s Permanent Fund Study Group advocating, among other issues, using Permanent Fund earnings to help fund state and local government. 6 The Caucus website, including links to a number of supporting documents, is still operational at http://www.akrepublicans.org/pastlegs/22ndleg/fiscalpolicy.shtml.

LEGISLATIVE RESEARCH SERVICES, LRS 10.283 JULY 6, 2010 — PAGE 10 SUMMARY OF SELECTED FISCAL POLICY PLANNING EFFORTS IN ALASKA Motivation / Objective According to Caucus documents, the “fiscal gap” for FY 2002 was $865 million and was projected to increase to $1.07 billion in FY 2003. Without some combination of spending cuts and additional revenues, the group estimated that the roughly $2.4 billion in the CBRF would be completely depleted by the middle of FY 2005. According to the Caucus’ fiscal plan, A long term plan for fiscal integrity is needed to provide a stable business climate and to ensure the citizens of necessary services. However, before long term considerations can be implemented, there is an immediate, emergency need to increase revenues and reduce spending in the least harmful way to the economy and the residents. If a satisfactory combination of reduced spending and increased revenues is not implemented in this legislature, the Permanent Fund Dividends, and eventually the Fund itself will be used for essential public services and the popular PFD program will be the loser.

Recommendations Key Components 1. Protect the Permanent Fund Principal 2. Retain the CBR at a minimum of $1.5 billion 3. Promote fiscal restraint/encourage governmental efficiencies 4. Diversify and identify new revenue sources 5. Maintain informed, open, honest fiscal policy discussions 6. Recognize effect/impact of unfunded mandates 7. Identify and respond to Alaska’s needs 8. Fair sharing of responsibility amongst all 9. Ascertain long term capital financing/acknowledgement of unmet needs 10. Spend only earnings from future non‐recurring revenues 11. Promote responsible resource management Goals 1. Ensure sustainable long‐term economic growth 2. Ensure Alaska’s competitiveness 3. Actions to have the least harm to the economy 4. Business and Industry Incentives for development 5. Seek Investment opportunities in under‐developed regions of the state 6. Connect economic growth and development with state revenues to meet increased expenses 7. Recognize unique characteristics and economic opportunities 8. Protect and enhance existing infrastructure 9. Develop a system of quality education, safety and other public services Legislation  HB 3 (passed House)—Limit to 25 percent the portion of federal mineral sharing revenue deposited into the Permanent Fund.  HB20 (passed House)—Grants to Municipalities from a portion of Permanent Fund earnings  HB 199 and HB 413—Levy Personal Income Tax

LEGISLATIVE RESEARCH SERVICES, LRS 10.283 JULY 6, 2010 — PAGE 11 SUMMARY OF SELECTED FISCAL POLICY PLANNING EFFORTS IN ALASKA  HB 225 (enacted, ch. 116 SLA 2002)—Alcohol Tax increase  HB 229 / SB 165—Education Tax on employment  HB 233—Levy State Sales Tax  HB 303 (passed house)—Levy Personal Income Tax  HB 304 (passed house)— Convert Alaska Permanent Fund payouts to an endowment model, in which no more than 5 percent of its five‐year average market value could be spent each year. Half would go toward Permanent Fund dividends and half to public education, while retaining enough earnings for inflation‐proofing.  HB 401—Motor Vehicle Fuel Tax increase  HJR 15/SJR 13, HB 35—Transfer a portion of Earnings Reserve Account surplus (after dividend and inflation‐proofing) to general fund

The above measures are those clearly supported by the Caucus. There may be other bills that would have served the goals of the Caucus that were not explicitly identified as doing so. Of these measures, only the alcohol tax increase of HB 225 (ch. 115 SLA 2002) was enacted. We include copies of each of the above bills as Attachment C3. Opposition / Impediments7 The Caucus was successful in getting important pieces of its plan through the House. Specifically, legislation to effect deposits into the Permanent Fund (HB 3), change the funding source of municipal grants from general funds to Permanent Fund earnings (HB 20), levy a personal income tax (HB 303), and change the Permanent Fund to an endowment, or “percent of market value,” (POMV) model (HB 304). The passage of these bills was hailed by Legislators, news media, and others as being an “historic” event. However, an increase on alcohol taxes of about $0.10 per drink (HB 225) was the only Caucus‐supported revenue bill to ultimately be enacted. The version of the income tax that cleared the House was designed to approximate the amount of taxes that would be raised under a statewide sales tax, which had been the preferred revenue measure of a number of Republicans. This unique design, which would have raised about $225 million in its first year, was intended to overcome Republican resistance to earlier proposals that were seen as “punishing success” by levying higher rates on the wealthy. The revised version passed despite Democrats’ displeasure at its “regressive” design, which would have levied the highest rates as a percentage of income on the middle class. The income tax was the only measure to receive a floor vote in the Senate, failing 18‐2. A number of reasons were offered by those in opposition to the bill. Democrats and some Republicans said they couldn’t support a regressive tax structure. Others, led by Finance Committee Co‐Chair, Sen. Dave Donley, rejected the imposition of new taxes unless structural reforms of government, including a tighter constitutional cap on spending (see SJR 23 [2001]), were enacted. Finally, Senate President Rick Halford and Finance Co‐Chair Pete Kelly believed that historical boom and bust cycles in the state illustrated that major revenue measures should not be enacted before allowing oil prices and the wider economy time to recover.

7 The information in this section was gleaned primarily from the legislation in question and from print news‐media articles of the day. We include a number of those articles as Attachment C4.

LEGISLATIVE RESEARCH SERVICES, LRS 10.283 JULY 6, 2010 — PAGE 12 SUMMARY OF SELECTED FISCAL POLICY PLANNING EFFORTS IN ALASKA Although Senators raised objections to specific elements of the POMV model in HB 304 (inflation‐proofing methods, the treatment of the Earnings Reserve Account and CBRF, for example), the Republican majority was simply opposed to tapping the Permanent Fund to pay for government activities. Sen. Robin Taylor, Chair of the Judiciary Committee, where the bill died, succinctly summed up the opposition’s position stating that the POMV model should be a “last resort” to be taken only after the state’s vast natural resources had been opened more fully for development and government spending had been substantially curtailed and controlled.8 Although Governor Knowles supported the income and alcohol tax measures, news media reported that he limited his support for tapping the Permanent Fund to $250 million per year from the earnings account. By contrast, HB 304 would have drawn about $350 million in the first year, after which the five percent POMV model would take effect, making an estimated $633 million available for government operations in FY 2004. Although we have been unable to find an instance of the Governor publicly stating his opposition to HB 304, House Speaker Brian Porter indicated in an April interview that he was under the impression that the Governor would veto any legislation that “significantly” drew from the Permanent Fund.9

8 Summary of Sen. Taylor’s May 8, 2002, testimony on HB 304 before the Senate Judiciary Committee. Linked from the bill’s legislative history online at http://www.legis.state.ak.us/basis/get_bill.asp?bill=HB%20304&session=22.

9 Bill McAllister, “State’s Fiscal Plan Faltering—Leaders Say Plan Isn’t Dead Yet,” Juneau Empire, April 22, 2002.

LEGISLATIVE RESEARCH SERVICES, LRS 10.283 JULY 6, 2010 — PAGE 13 SUMMARY OF SELECTED FISCAL POLICY PLANNING EFFORTS IN ALASKA Conference of Alaskans—2004

Appointing Authority

Governor Frank Murkowski

Chair(s)

Mike Burns, Convener Chair; the Honorable Brian Rogers, Facilitator

Participants

Mike Burns – Convener Chair Anne Kilkenny – Mat‐Su The Honorable Steve Frank – Convener Fairbanks Kristie Leaf – Kenai The Honorable Clark Gruening – Convener Juneau Martha Malavansky – Aleut Corp. Marc Langland – Convener Anchorage Reme Desmond (Desi) Mayo Helvi Sandvik – Convener Anchorage Dennis McMillian The Honorable Arliss Sturgulewski – Convener Anchorage Jason Metrokin – First Alaskans Institute Eric Wohlforth – Convener Anchorage The Honorable Mike Navarre The Honorable Al Adams Mark Neuman – Big Lake Lori Baker – Minto Victor Nicholas – Nulato Bob Bell Kris Norosz Carl Brady Tadd Owens – Anchorage Kelly Brown – Fairbanks Lisa Parker – Soldotna Lupe Chavez – Anchorage Gene Peltola – Bethel Carol Comeau Yohyon Pharr – Anchorage Craig Comeau – Fairbanks Jay Quakenbush – Fairbanks Charlie Curtis – Kiana Ed Randolph – Kodiak Sharon Gagnon The Honorable Steve Rieger Richard Glenn – Barrow Margaret Russell – Fairbanks Cliff Groh, Jr. Sarah Sherry – Fairbanks Glenn Hackney Stan Stephens – Valdez Jim Hayes Peg Tileston Lindsey S. Holmes – Anchorage The Honorable Clem Tillion Sue Hull Tim Towarak Theresa John Arevgaq – Nelson Island/Bethel Barbara Huff Tuckness Ken Johns – Copper Center Kathie Wasserman Wrynn Johnson – Anchorage Bob Weinstein Jewel Jones – Anchorage Thomas Williams

Ex Officio Members: Rep. John Coghill, Rep. Ethan Berkowitz, Sen. Ben Stevens, Sen Johnny Ellis

LEGISLATIVE RESEARCH SERVICES, LRS 10.283 JULY 6, 2010 — PAGE 14 SUMMARY OF SELECTED FISCAL POLICY PLANNING EFFORTS IN ALASKA Political Composition of Government

Governor Frank Murkowski Senate President Gene Therriault House Speaker Pete Kott Senate: 12 Republicans, 8 Democrats House: 26 Republicans, 14 Democrats. One Democrat caucused with the majority.

Motivation / Objective

A fiscal gap of around $500 million and the prospect of depleting the CBRF by 2007 were the primary motivating factors behind this attempt to craft a long range plan for Alaska’s finances. Multiple, largely failed, efforts by governors and legislators over the previous ten‐plus years appear to have convinced Governor Murkowski that a large convention of citizens, loosely modeled after the state’s constitutional convention, would provide a higher likelihood of success than would another effort strictly made by policy‐ makers.

Process

Governor Murkowski announced in his January 13, 2004, “State of the State” address that he would convene a panel of 55 Alaskans in a three‐day meeting, February 10‐12, on the campus of the University of Alaska Fairbanks to seek consensus on the following questions:  Should a portion of the income of the Permanent Fund be used for essential state services like education?  Should the use of income from the Permanent Fund be limited by the state constitution to 5 percent of the of the fund's value, as the Permanent Fund trustees have proposed?  Should the use of the income of the Permanent Fund for dividends and possibly for other purposes be determined annually by the Legislature, as is currently the case? Or should it be dedicated in the constitution?  Should the state maintain a minimum balance in the Constitutional Budget Reserve to stabilize state finances against fluctuation in oil production or prices? The Governor appointed seven conveners to select the remaining delegates and a conference facilitator— former Representative and Chair of the 1995‐1996 Long Range Financial Planning Commission, Brian Rogers. In his speech, the Governor indicated that he would ultimately introduce the recommendations of the Conference as bills in the current legislative sessions. Over the course of three long, busy and, by most accounts, productive days during which relatively little animosity was present, delegates discussed and debated the various policy options available to them, as outlined in the four questions asked by the Governor. In relatively short order, and largely due to the considerable influence of former Governor Jay Hammond, the Conference expanded the scope of its inquiry to include the possibility of levying a statewide income tax, which Governor Murkowski had repeatedly said was not an option under his administration. Under Governor Hammond’s “People’s Plan,” the entire annual earnings from Permanent Fund investments would be distributed to Alaskans, effectively doubling dividends. A portion of that money would then be “clawed back” through an income tax. In the end, however, the opposition to an income tax among the delegates was stronger than the support of those favoring the move. As a result, the Conference’s recommendations were largely in line with Governor Murkowski’s original questions, although the

LEGISLATIVE RESEARCH SERVICES, LRS 10.283 JULY 6, 2010 — PAGE 15 SUMMARY OF SELECTED FISCAL POLICY PLANNING EFFORTS IN ALASKA Conference did recommend consideration of “a personal income tax, other broad‐based taxes, and other alternative sources of income.” A number of news media reports point to the use of anonymous vote tallying technology, which allowed delegates to quickly carry out straw polls on given policy proposals, thereby confirming the level of interest or opposition to an approach, as vital to the ability of the Conference to focus its efforts and move along quickly.

Recommendations and Legislation

The Conference offered four resolutions, which we summarize as follows:

1. Change how earnings of Permanent Fund are calculated Legislature should propose a constitutional amendment to voters that would change the method of distributing money from the fund so that distributions are limited to 5 percent of market value (POMV) of the fund.  Passed unanimously by voice vote 2. Constitutional Budget Reserve Alaska should maintain a prudent balance in the Constitutional Budget Reserve fund.  Passed unanimously by voice vote 3. Let voters decide The Legislature should propose a constitutional amendment to voters at the November 2004 election that would protect Permanent Fund dividends and ensure they would continue to be paid to residents.  Passed with 37 yes votes 4. Permanent Fund income for state expenses After dividends are paid, some Permanent Fund income should be used for essential state services. The governor and legislature must act to balance the state's revenues and expenditures, considering a personal income tax, other broad‐based taxes, and other alternative sources of income.  Passed with two dissenting votes.10 Legislation11

HB 1003 and SB 1003—Establish a POMV model for Permanent Fund under which not more than 5 percent of earnings can be appropriated to municipalities, 45 percent to public education, and 50 percent to dividends; however, dividends could not be less than $1,000.

10 Delegates included with their recommendations a letter to all Alaskans further explaining their positions. We direct you to the article “Enshrine Fund, Conferees Say—Delegates Retreat on Tax, Support Use of Earnings,” which summarizes the events of the Conference and includes the text of the delegates’ letter. This, and a number of other articles regarding the Conference, we include as Attachment D1. 11 We include only legislation that reflects the recommendations of the Conference and that was introduced at the request of the Governor. We include copies of this legislation as Attachment D2. Several measures related to the Permanent Fund were introduced by legislators in 2004, a number of which may have been in line with the Conference’s wishes.

LEGISLATIVE RESEARCH SERVICES, LRS 10.283 JULY 6, 2010 — PAGE 16 SUMMARY OF SELECTED FISCAL POLICY PLANNING EFFORTS IN ALASKA HJR 101 and SJR 101—Constitutional amendment to create a POMV model of 5 percent for Permanent Fund earnings.

HJR 102 and SJR 102‐‐ Constitutional amendment to create a POMV model of 5 percent for Permanent Fund earnings under which not more than 5 percent of those earnings can be appropriated to municipalities, 45 percent for public education, and 50 percent for dividends; however, dividends could not be less than $1,000.

Opposition / Impediments

In addition to the long‐standing disagreements in the Legislature regarding the proper model for distributing Permanent Fund earnings and whether those moneys should be used to support government activities, a number of other challenges to implementing the recommendations of the Conference existed in 2004. The first, most obvious, impediment was the conferees’ lack of authority to directly propose legislation. Governor Murkowski did offer bills for introduction to address recommendations 1 and 3, respectively creating a POMV model for Permanent Fund earnings and placing a constitutional amendment before voters to guarantee future dividends. Recommendation 4 was only partially addressed with both bills and constitutional amendment proposals that would have made earnings available to fund government; however, the Governor offered no broad‐based taxes or other significant measures to help balance expenditures and revenues as the Conference had suggested. It does not appear that the Governor addressed recommendation 2—maintaining a prudent balance in the CBRF—through legislation.

The likelihood that any of these measures would gain legislative approval was reduced by ongoing strained relationships between members of the Legislature and Governor Murkowski. A number of legislators of both political parties were quoted in news media at the time complaining of the Governor’s lack of communication and cooperation. This became particularly evident when the Governor called the Legislature into special session to reconsider his fiscal measures. It was clear from the onset that the significant pieces of his plan would not gain approval and the session was widely viewed as a waste of time and money that could have been avoided had the Governor communicated his intentions more clearly. In the end, only an increase in tobacco taxes was approved (ch. 1 FSSLA 2004), mirroring the results of earlier efforts at crafting a fiscal plan, which ultimately produced an increase in “sin” taxes.

Another challenge was posed by the price of oil. For calendar year 2003, the average price of a barrel of Alaska oil was $29.63. This was the highest average annual price since 1981, and over 130 percent higher than the prices that motivated a previous major fiscal planning effort in 1999; however, oil production had dropped some 17 percent between 1998 and 2003. This production decline, coupled with substantial increases in overall state spending over the same time period, meant that oil would need to sell at approximately $35 per barrel in order to fully meet the projected budget requirements for FY 2005.12 Leading into the 2004 regular legislative session, at the time Governor Murkowski was making plans to call together the Conference, this price level seemed unlikely, with actual prices hovering below $30 per barrel in December 2003. At those levels, the budget shortfall for FY 2005 would have been roughly $500 million.

Beginning in late December, however, oil prices began a steady rise that lasted throughout the legislative session. A number of legislators believed that the Department of Revenue was too conservative in their oil price forecasts, which were around $28 per barrel for the short term and $22 for the long term. As events

12 According to sponsors of SCR 101, which was a measure by the Senate Finance Committee that sought to cover any budget shortfalls with an even combination of CBRF and Earnings Reserve Account funds.

LEGISLATIVE RESEARCH SERVICES, LRS 10.283 JULY 6, 2010 — PAGE 17 SUMMARY OF SELECTED FISCAL POLICY PLANNING EFFORTS IN ALASKA unfolded, it became clear that those legislators were correct. By the time the final debates on legislation representing the recommendations of the Conference were taking place in May, Alaska oil was selling for around $38 per barrel, and what was expected to be a $500 million budget deficit had become a (relatively small) potential surplus. Given the lack of consensus on how best to move forward with a long range fiscal plan, strained relationships between some in the Legislature and the Governor, and the sensitive political nature of making changes to the Permanent Fund, the relatively high price of oil appears to have reduced the sense of urgency to implement a sweeping fiscal plan.

I hope you find this information to be useful. Please do not hesitate to contact us if you have questions or require additional information.

LEGISLATIVE RESEARCH SERVICES, LRS 10.283 JULY 6, 2010 — PAGE 18 SUMMARY OF SELECTED FISCAL POLICY PLANNING EFFORTS IN ALASKA

Attachment A1

Legislative Resolve 6 (1995, HCR 1)

9-LS0021\O

SENATE CS FOR CS FOR HOUSE CONCURRENT RESOLUTION NO. 1(STA) am S

IN THE LEGISLATURE OF THE STATE OF ALASKA

NINETEENTH LEGISLATURE - FIRST SESSION

BY THE SENATE STATE AFFAIRS COMMITTEE

Amended: 2/10/95 Offered: 2/8/95

Sponsor(s): REPRESENTATIVES Phillips, B.Davis, Green, Rokeberg, Navarre, James, Williams, Bunde, Kohring

A RESOLUTION

1 Creating the Long Range Financial Planning Commission.

2 BE IT RESOLVED BY THE LEGISLATURE OF THE STATE OF ALASKA:

3 WHEREAS state spending has exceeded recurring revenue to the state; and 4 WHEREAS the state must eliminate the fiscal gap; and 5 WHEREAS the state is currently forced to deal with an unpredictable and declining 6 revenue stream; and 7 WHEREAS the state must find a means of stabilizing revenue and expenditures at a 8 sustainable level; and 9 WHEREAS the state’s system of budgeting and spending must be analyzed and 10 reevaluated by the legislature; and 11 WHEREAS the citizens of the state should have an opportunity to consider these 12 topics, offer comments, and participate in developing a long-range financial plan for the state; 13 and 14 WHEREAS it would be beneficial to the state and its citizens to implement a long- 15 range financial plan to promote economic stability by diversifying the state’s economy and 16 lessening dependence on oil revenue;

HCR001D-1- SCS CSHCR 1(STA) am S 1 BE IT RESOLVED that the Alaska State Legislature establishes the Long Range 2 Financial Planning Commission in order to develop and recommend to the governor and the 3 legislature a long-range financial plan for the state; and be it 4 FURTHER RESOLVED that the commission shall consist of the following voting 5 members: 6 (1) nine members of the public, not to include members of the legislative, 7 executive, or judicial branches; the Speaker of the House of Representatives, the President of 8 the Senate, and the Governor shall each appoint three of these members; 9 (2) two members of the House of Representatives appointed by the Speaker 10 of the House; one member shall be a member of the majority and one a member of the 11 minority; 12 (3) two members of the Senate appointed by the President of the Senate; one 13 member shall be a member of the majority and one a member of the minority; and 14 (4) two members of the executive branch appointed by the Governor; and be 15 it 16 FURTHER RESOLVED that the commission shall select a chair and vice-chair from 17 among the public members of the commission, shall meet as frequently as the commission 18 determines necessary to perform its work, may meet during the interim, and may meet and 19 vote by teleconference; and be it 20 FURTHER RESOLVED that the public members of the commission shall serve 21 without compensation but are entitled to travel expenses and per diem as authorized under 22 AS 39.20.180 for boards and commissions; and be it 23 FURTHER RESOLVED that the commission shall 24 (1) review and evaluate state fiscal policy and strategy recommendations and 25 assumptions from reports and publications from similar efforts in the past made by the 26 executive branch, the legislative branch, the University of Alaska, nonprofit organizations, and 27 private individuals and organizations; 28 (2) identify and evaluate all current state income sources and assets, including 29 recurring revenue, reserves, physical resources, and investments;

SCSCSHCR 1(STA) am S -2- HCR001D 1 (3) identify and prioritize systemic changes to stabilize the state’s revenue 2 stream; 3 (4) identify and prioritize major reductions in state expenditures, to include 4 formula and nonformula programs, and to include proposed consolidation, transfer, or 5 elimination of governmental services or programs; the reductions identified and prioritized 6 under this paragraph must at least equal the current fiscal gap between recurring revenue and 7 recurring expenditures; 8 (5) evaluate forward funding of the budget; 9 (6) identify and prioritize new sources of revenue; 10 (7) project a sustainable long-range financial plan for the next three years, five 11 years, and 10 years, based on a stable revenue stream; 12 (8) evaluate constitutional, statutory, and regulatory language relating to the 13 budget process and recommend changes; 14 (9) consider the division of responsibility for providing services and raising 15 revenue between the state and local governments and evaluate the effect of the long-range 16 financial plan on local governments; 17 (10) submit a preliminary report to the Governor and the Legislature by 18 July 15, 1995; 19 (11) disseminate information and solicit public comment; 20 (12) submit a final report to the Governor and the Legislature by October 1, 21 1995, recommending a long-range financial plan for the state, including specific actions and 22 legislation needed to implement and monitor the plan; and be it 23 FURTHER RESOLVED that the commission is authorized to begin work immediately 24 upon the appointment of its full membership or March 15, 1995, whichever date is earlier, and 25 is terminated upon the convening of the Second Regular Session of the Nineteenth Alaska 26 State Legislature.

HCR001D-3- SCS CSHCR 1(STA) am S

Attachment A2

“Alaska’s Growing Fiscal Gap: The Preliminary Report of the State of Alaska Long- Range Planning Commission,” August 12, 1995

Attachment A3

“An Endowment for Alaska: The State Long Range Financial Planning Commission Report,” October 1995

THIS PAGE LEFT BLANK INTENTIONALLY

Attachment B1

“State of the Economy Forum,” Centennial Hall, Juneau, AK, February 9, 1999

Attachment B2

Stan Jones, “Budget Has Few Fans: No Lawmaker is Rushing to Cut Dividend, Levy Tax,” Anchorage Daily News, October 5, 1995

Ralph Thomas, “Chamber OKs Plan to Cut Fiscal Gap,” Anchorage Daily News, October 21, 1995

Stan Jones, “Lawmakers Cast Cool Eye at State Finance Proposal,” Stan Jones, “ Anchorage Daily News, November 13, 1995

Ralph Thomas, “Capitol Storm Brewing: GOP Lawmakers Riled at Knowles,” Anchorage Daily News, January 7, 1995

Ralph Thomas, “Republicans Offer State Budget Plan Package—Aims to Bring Fiscal Gap Down to Zero,” Anchorage Daily News, February 13, 1996

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Back To Results Previous Article 8 of 9 Next Save this Article BUDGET PLAN HAS FEW FANS NO LAWMAKER IS RUSHING 0 Saved Articles TO CUT DIVIDEND, LEVY TAX this article Anchorage Daily News (AK) - Thursday, October 5, 1995 Email Author: STAN JONES Daily News reporter ; Staff Print The latest plan for balancing Alaska's budget has a couple of things in common with most of its predecessors: It calls for bringing back the state income tax and cutting the Bibliography (export) Permanent Fund dividend paid annually to each Alaskan.

Also like its predecessors, the new plan is getting a cold shoulder from some of the Quick Links lawmakers who will decide its fate in Juneau -- including the two Republican legislators Find articles by STAN JONES who sit on the panel that created the plan. Daily News reporter ; Staff Find more articles from page A1 Find more from section "Nation" ''We're just finding more sources of revenue to fuel this engine that we call state Find all articles from October 5, government,'' said Rep. Sean Parnell, R-Anchorage. ''I don't think the public buys into 1995 new taxes and dividend cuts and using Permanent Fund earnings when there's no guarantee of reductions in state spending.''

When the state's Long-Range Financial Planning Commission adopted the plan by a 10-4 vote on Sunday, Parnell was one of the nays. So was his fellow Anchorage Republican, Sen. Steve Rieger. The two Democratic lawmakers on the commission voted for the plan.

Rieger, who sits on the powerful Senate Finance Committee in the Republican-controlled Legislature, said he voted no because he felt the fiscal gap could be closed without bringing back the income tax.

''I want to be positive, but there are some things in there that are not called for,'' he said.

Even politicians who aren't talking against the plan are walking softly around the touchy issues of cutting Alaskans' Permanent Fund dividends and, for the first time in more than a decade, taxing their incomes.

Senate President Drue Pearce, for example, said she supports most of the plan, but doesn't see herself as the person who should lead the effort to sell it politically.

''I don't think a single legislator can be that evangelist,'' she said. ''I think that evangelist has to be the governor.''

Gov. Tony Knowles said he's willing to be the evangelist, but he needs time to study the plan. He said he will expect help from legislators.

''I'll sing the song, but everybody's got to sing in this choir,'' he said.

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The plan seeks to bring state spending in line with revenue. This year, the gap between the two is expected to run about $525 million. The difference will be made up by drawing money from a big state savings account called the Constitutional Budget Reserve.

Under the commission's plan, the fiscal gap would drop to zero by 2000. And by 2003, the state would be running a budget surplus of about $200 million a year.

To do this, the plan would stop the growth of the Permanent Fund dividend and -- over 15 years -- slice its value by more than two-thirds. From $990 this year the dividend would drop to $544 in 2010, according to the commission's projections. Under current law, the commission projects the dividend would grow to $1,788 in 2010.

The plan calls for the income tax -- repealed when the state was flush with oil money in the early 1980s -- to kick in again in 2002 and be raising $300 million a year by 2005.

In addition, the commission's plan would impose new or higher taxes on gasoline, boat fuel, tobacco and liquor. It would cut $100 million out of the state budget by 1999, then allow it to grow with inflation and population.

And it would divert more oil dollars into the Alaska Permanent Fund while allowing legislators to take a small percentage of the principal directly out of the fund for the first time since it was set up 19 years ago. Those changes would require constitutional amendments, which would have to be submitted to the voters, probably in next year's general election.

''We think it sort of spreads the pain,'' said Fairbanks resident Brian Rogers, the former legislator who chairs the financial commission. ''There should be something in the plan to offend everyone.''

But one of the biggest players in Alaska's economy and politics isn't likely to be offended at all. The plan doesn't call for any new taxes on the oil industry. To the contrary, the Legislature this spring -- with strong backing from Knowles -- voted to lower state levies on oil production from some oil fields.

Knowles budget chief Annalee McConnell, who serves on the commission, predicted oil companies and other firms would love its work because companies are wary of investing in a state with an unstable fiscal climate.

''Industry in Alaska has an enormous interest in seeing a plan put in place,'' McConnell said. ''They have a lot at stake.''

The plan would start the dividend cuts next year, while the income tax wouldn't begin until 2002. McConnell said some on the commission were concerned this would hit poor people harder than the rich. But the overwhelming feeling on the commission, she said, was that ''we should not implement an income tax until we look at things that are given out regardless of need.''

Policy pundits have been wringing hands over Alaska's fiscal gap for years, and countless politicians have won election by promising voters to go to Juneau and cut the state budget. Suggestions that the income tax should be resurrected or the Permanent Fund dividend trimmed have come from Alaska governors at least since the oil-price crash and economic slump of the mid-1980s.

In 1987, then-Gov. Steve Cowper called for reducing the Permanent Fund dividend and said Alaskans should vote to either give it up entirely or accept an income tax.

In the early 1990s, University of Alaska economist Scott Goldsmith published a series of papers warning that Alaska faced a budget crash if it didn't close the fiscal gap and stop living off savings.

In 1992, then-Gov. Wally Hickel convened the ''Alaska Economic Summit'' to deal with

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the fiscal gap. The recommendations included bringing back the income tax and capping or cutting the Permanent Fund dividend.

And just last year, Anchorage attorney Roger Cremo once again trotted out his decade- old plan to put all natural resource revenues into the Permanent Fund and allow the Legislature to withdraw money directly from the fund to finance state government.

So far, none of this has resulted in much action. The Permanent Fund dividend gets bigger every year, Alaska still has no income tax, and the operating portion of the state budget has been trimmed only around the edges.

Why, then, should the latest sheaf of computer spreadsheets make any difference in a state that's heard the same kind of talk for most of a decade?

Rogers and others involved say this plan has two things going for it. For one, it was created by a joint effort of the governor and the Legislature. For another, they say, it is at least a good starting point because it is a complete package.

''All of these things have been individually looked at,'' said Sen. Georgianna Lincoln of Rampart, one of the two Democratic lawmakers on the commission and one of the 10 members who voted for the plan. ''But I don't believe there has been a plan before to put this all together and look at it as one total pie and not just a bunch of pieces of the pie.''

Rogers thinks that, even if the plan doesn't propose new ideas, it could at least offer the political equivalent of a riot shield for nervous lawmakers.

''It's a wonderful opportunity for people to blame us,'' Rogers said. ''If there are any people who want to duck behind some cover, we provide some.''

But Parnell, the Anchorage state representative who voted against the plan, says that any politician who backs higher taxes or lower Permanent Fund dividends will be on his own at election time.

''I can't stand up in my district and say, 'Gee, I voted for this because a commission recommended it,' '' Parnell said. ''I'm the one hanging out there.''

Daily News reporter Ralph Thomas contributed to this story.

Edition: Final Section: Nation Page: A1 Record Number: 118094 Copyright (c) 1995, Anchorage Daily News To bookmark this article, right-click on the link below, and copy the link location: BUDGET PLAN HAS FEW FANS NO LAWMAKER IS RUSHING TO CUT DIVIDEND, LEVY TAX

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Back To Results Previous Article 6 of 29 Next Save this Article LAWMAKERS CAST COOL EYE AT STATE FINANCE 0 Saved Articles PROPOSAL this article Anchorage Daily News (AK) - Monday, November 13, 1995 Email Author: STAN JONES Daily News reporter ; Staff Print The legislative committees that control Alaska's finances will get their first official look Tuesday at an ambitious long-range plan for balancing the state checkbook. Bibliography (export)

And the early signs are, some of the top lawmakers on the House and Senate finance committees will be looking askance. Quick Links Find articles by STAN JONES Like most of its predecessors, the latest proposal for closing Alaska's fiscal gap calls for Daily News reporter ; Staff Find more articles from page A1 measures that could be political poison at election time. Measures like spending Alaska Find more from section "Nation" Permanent Fund money to keep state government afloat, bringing back the personal Find all articles from November income tax and carving a huge slice off the Permanent Fund dividend paid annually to 13, 1995 each Alaskan.

''I think the changes in the Permanent Fund are unnecessary and dangerous,'' said Rick Halford, the Chugiak Republican who co-chairs the Senate Finance Committee. ''They change the Permanent Fund from a savings account to a spending account and they change the benefits from the people of Alaska to the government of Alaska.''

Halford's committee and its counterpart from the state House of Representatives will meet jointly Tuesday at the Anchorage Legislative Information Office. They will hear a presentation on the plan from Brian Rogers, the former legislator who chaired the commission that drafted the plan this summer.

Rep. Mark Hanley, who co-chairs the House Finance Committee, said he wants to hear Rogers' pitch, but also has doubts about some aspects of the plan.

For one, he doesn't think it does enough to cut state spending. The plan calls for the state operating budget to drop by $100 million over three years, then to start expanding again with inflation and population increases.

''One of the assumptions is that government has to grow,'' Hanley said. ''It's faulty right off the bat, but that doesn't mean it can't be changed.''

Gov. Tony Knowles has been generally in favor of the plan, but even he has stopped short of wholesale endorsement. In a newspaper column last week,he said, ''It may not be perfect, and new ideas may come forward make the plan even better.''

Knowles' fellow Democrats in the Alaska Senate are having qualms about the plan, according to Senate Minority Leader Jim Duncan, D-Juneau. Duncan said they met with Knowles in Anchorage last month and let him know they weren't yet prepared to back the

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plan.

''It's going to take more thinking and discussion before we're ready to jump on that train,'' Duncan said.

The chief goal of the plan is to bring state spending in line with revenue. This year, the gap between the two is expected to run about $525 million. The difference will be made up by drawing money from a big state savings account called the Constitutional Budget Reserve.

Under the commission's plan, the fiscal gap would drop to zero by 2000. And by 2003, the state would be running a budget surplus of about $200 million a year.

The plan calls for the income tax -- repealed when the state was flush with oil money in the early 1980s -- to kick in again in 2002 and be raising $300 million a year by 2005.

The plan also would impose new or higher taxes on gasoline, boat fuel, tobacco and liquor.

And it would divert more oil dollars into the Permanent Fund while allowing legislators to take a small percentage of the principal directly out of the fund for the first time since it was set up 19 years ago. Those two changes would require constitutional amendments, which would have to be submitted to the voters, probably in next year's general election.

Rogers agrees that nearly everything in the commission plan is apt to make somebody mad, perhaps a lot of people mad. But he says the challenge for critics is to come up with an equivalent alternative -- a complete package of measures that will solve the state's budget problems.

''If they're saying 'No' to cutting the dividend . . . then they're saying 'Yes' to what?'' Rogers said. ''To more budget cuts? To more taxes? If the choice were to say 'No' to any piece, I think a lot of us would like to say 'No' to most of the pieces.''

A couple of new ideas have surfaced since Rogers' commission made the plan public last month. A few days ago, Knowles proposed that the question of cutting Permanent Fund dividends also be put to a vote of the people.

Hanley and Halford both said they could go along with the idea, but doubted the dividend cuts would pass unless the budget is slashed more deeply.

''Constituents that I hear from don't feel they would support the taxes or the new dividend caps,'' Hanley said.

Knowles was not available for an interview for this story. ''I'm afraid the governor is a little busy,'' said Knowles aide Bob King. ''He's enjoying some family time.''

But King said Knowles was confident Alaskans would approve the dividend cuts if they were part of a package that included budget cuts. ''If not,'' said King, ''he'll abide by the vote of the people.''

The other new wrinkle, also just out last week, came from Dave Rose, who was executive director of the Alaska Permanent Fund for 10 years ending in 1992. He proposes that the Permanent Fund be left untouched, but that an existing state savings account -- the Constitutional Budget Reserve -- be converted into a kind of separate mini-Permanent Fund.

The budget reserve would get some of the Permanent Fund's earnings, which would be

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invested. The legislature would be allowed to spend the income from those investments, but not the principal of the budget reserve itself.

Rose's plan would also trim the growth of the Permanent Fund dividend, but not as drastically as the commission's plan.

Rose estimates the overhauled budget reserve could produce $400 million or $500 million a year in earnings, enough to close most of the fiscal gap . The big advantage, he said, is that his plan would put a buffer between money-hungry legislators and the Permanent Fund itself.

''I think the people of Alaska want to keep the Permanent Fund as a savings account and that's really the purpose of this,'' Rose said.

Hanley said Rose's plan was at least simple, but did have one problem: By locking the principal of the budget reserve away from legislators, it could leave the state with no cushion in case a plunge in oil prices left a sudden hole of several hundred million dollars in the budget.

Rogers and Halford both said that having two permanent funds -- a big one and a little one -- might just confuse Alaskans.

''Why have two investment funds instead of one?'' Rogers asked.

Daily News reporter Ralph Thomas contributed to this story.

Edition: Final Section: Nation Page: A1 Record Number: 95007 Copyright (c) 1995, Anchorage Daily News To bookmark this article, right-click on the link below, and copy the link location: LAWMAKERS CAST COOL EYE AT STATE FINANCE PROPOSAL

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Back To Results Previous Article 95 of 95 Next Save this Article CAPITOL STORM BREWING GOP LAWMAKERS RILED AT 0 Saved Articles KNOWLES this article Anchorage Daily News (AK) - Sunday, January 7, 1996 Email Author: RALPH THOMAS Daily News reporter ; Staff Print Each year around this time, Alaska's tan-brick Capitol turns into a temple of tumult. But many longtime observers predict this year's legislative session, which begins Monday, will Bibliography (export) be particularly rancorous.

''It's going to be the ugliest session you've ever seen,'' said lobbyist Ashley Reed. Quick Links Find articles by RALPH Senate Minority Leader Jim Duncan, who was elected to the Legislature the same year THOMAS Daily News reporter ; Staff President Nixon resigned, agrees with Reed. ''I think it's going to be a bloodbath,'' the Find more articles from page A1 Juneau Democrat said. Find more from section "Nation" Find all articles from January 7, Duncan and Reed also agree on what will fuel much of the acrimony: The Legislature's 1996 Republican leaders have a whole carcass of bones to pick with Democratic Gov. Tony Knowles.

Republican lawmakers have been seething since June, when Knowles vetoed several of their top-priority bills from last session. And their anger only intensified in recent months when Knowles unveiled plans to push his own, slightly modified versions of some of the same measures.

''People are getting pretty peeved,'' said Rep. Mark Hanley, R-Anchorage. ''The governor appears to be trying to work everything to his benefit.''

GOP leaders in the House and Senate are also miffed at Knowles' tactics in pushing a proposal that calls for closing the state's ballooning budget deficit with a mix of spending cuts, new taxes and capping Permanent Fund dividends. Republicans say Knowles has been privately urging key business leaders to help pressure them into approving the plan.

''That's not how you work with the Legislature,'' said Senate President Drue Pearce, R- Anchorage. ''(The Legislature) is its own beast. It wants to be led to do things and help to do things. It just doesn't want to be told it has to do things.''

But Duncan, Reed and others believe what is really rankling the Republicans is Knowles' popularity, especially within business and industry circles.

''They're very upset that he's so high in the polls and has cut into their constituencies,'' Duncan said. ''They want to make him pay.''

Hanley said it's true Republicans are a bit unnerved by Knowles' popularity. But he said that won't be the driving force behind GOP opposition to the governor's initiatives.

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There are other reasons to expect a raucous session.

Knowles and the Republicans are almost sure to battle over divisive issues such as subsistence, public-employee pay raises and a controversial ''tort reform'' bill to revamp the state's civil liability laws.

The Legislature's Republican-led majorities will likely squabble internally over two measures generally loved by voters and disliked by the people they elect. One would limit legislators to 12 consecutive years in office; the other would sharply reduce the sums of money politicians can collect for their election campaigns.

''We've got a bunch of things that could cause some major harrumphs,'' Pearce said.

And, as was the case last year, the Legislature's Democratic minorities will likely wield great power over GOP budget writers. That's because balancing the budget will again require Republicans to tap the state's Constitutional Budget Reserve. That action takes three-fourths votes in the House and Senate, margins the Republicans can achieve only with help from the Democrats.

On top of all this, 1996 is an election year for half the Senate and everyone in the House. Of the 10 senators up for re-election, seven are Republicans.

Will the looming election cause GOP leaders to become more entrenched in their positions and less likely to compromise with Knowles and the Democrats? Some say it will.

Others, including Knowles, believe it could have the opposite effect. Neither side, they say, will come out ahead if all the voters hear out of Juneau is a lot of political bickering. The last thing the state needs, they say, is the sort of political standoff that has crippled the federal government in recent weeks.

''Never take Washington, D.C., as a role model,'' Knowles said. ''I think we ought to look at that as a ghost of Christmas future if we don't work together. . . . We have to work together.''

Lobbyists such as Reed and Jerry Reinwand said Knowles has a point. They said if Alaska's Republicans are reckless in their attacks on the governor, they could see their reputations sour the same way Newt Gingrich's has in Washington.

Likewise, they said, Knowles needs to be careful in how he responds. Said Reed, ''If somebody punches the choirboy in the nose and the choirboy whips out a switchblade, then he's not a choirboy anymore.''

But Senate Majority Leader Rick Halford said serious fights are unavoidable because there are significant ideological differences between the two sides. In fact, the Chugiak Republican said he believes voters asked for conflict when they elected a conservative Legislature and what he called a liberal governor.

''Being effective at compromise is a good attribute,'' Halford said. ''But when the positions are so far apart, it may be impossible to reach that compromise.''

And Hanley said a fight-filled session doesn't necessarily have to be unproductive.

''We could actually end up getting a lot accomplished this session and have it look like all we did was fight the whole time,'' Hanley said.

A START-TO-FINISH FIGHT? In a typical year, the big first-week events of the legislative session are the governor's State of the State and State of the Budget speeches. But this week, another event might overshadow Knowles' messages.

Republican leaders say they will convene a joint House-Senate floor session to try

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overriding some of Knowles' vetoes. By law, the Legislature has five days to act against any of last year's vetoes, and in most cases it takes a two-thirds vote of all 60 lawmakers to reject a veto.

It isn't clear yet which of Knowles' vetoes Republicans will try to override, but they've got plenty to choose from.

Shortly after last year's session, Knowles quietly shot down more than a half-dozen GOP- backed bills, including ones to reform the state's welfare system, extend the time it takes for teachers to earn tenure, and make first-time car thefts a felony. In addition, the governor used his veto pen to chop in half the Legislature's $1 billion deposit into the principal of the Permanent Fund.

Six months later, Knowles is pushing his own proposals to reform welfare, toughen teacher tenure and crack down on car thefts. And he has proposed an even larger deposit -- $1.2 billion -- to the Permanent Fund.

Knowles said that last year he warned that flaws in the GOP bills would force him to spike them. Knowles said his new versions fix the problems. But Halford called Knowles' proposals hypocritical and other Republicans have accused the governor of trying to steal their thunder.

''There's plenty of thunder for everybody,'' Knowles responded.

Any veto-override fights, however, will be mere warm-ups to the budget battles likely to rage all the way to adjournment night in May.

Knowles and the GOP leaders ended last year's session in agreement on one significant point: They must find some sort of long-term solution to the state's perennial budget deficit, expected to top $500 million this year. In recent years the state has spent reserves to fill the gap , but those reserves are expected to dry up as early as 1999.

Together, Knowles and the Republicans appointed the Long Range Financial Planning Commission. The 15-member panel worked through the summer and in October proposed sweeping changes to the way state government is financed.

The commission's plan, in part, calls for: cutting the state's $2.45 billion annual budget by $100 million over the next three years; steadily reducing Permanent Fund dividends; and imposing new or higher taxes on gasoline, boat fuel, tobacco and liquor.

It also calls for amending the state constitution to divert more oil dollars into the Permanent Fund and then allow lawmakers to skim off a small percentage of the principal to fund each year's budget. And, under the plan, the state would revive its personal income tax in 2002.

The proposal was quickly embraced by prominent business groups such as Commonwealth North and the Anchorage Chamber of Commerce. Knowles also praised the plan and last month proposed a budget for next year that would implement many of the commission's recommendations, including $35 million in spending cuts and nearly $90 million in new or increased taxes and user fees.

But Republican lawmakers say the commission's proposal and Knowles' budget fail to attack the state's main fiscal problem: excessive government spending. They say they will propose their own long-term solution -- one that relies on far deeper spending cuts up front, perhaps as much as $100 million this year.

Some Republicans contend voters will not tolerate new taxes or reduced dividends until government has been cut to the bare essentials and all of the reserves have been drained.

Translation, according to Hanley: If he and other Republicans go along with Knowles and the budget commission, they will be punished in next fall's election.

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Mike O'Conner, president of Peak Oilfield Services Co., figures he spent more than 300 hours in meetings last summer as one of the public members on the long-range budget panel. Now he's wondering whether his time was wasted.

O'Conner said he's ''extremely frustrated'' that some GOP leaders have all but scrapped the commission's proposal already. He said lawmakers should be willing to back the plan, even if it costs them their political careers.

''If the representatives are so afraid of getting run off that they won't put a plan forth, then I'd say we should run all 60 of them off,'' O'Conner said.

Knowles said his budget is ''not the only answer'' and that he's willing to discuss deeper cuts with the Republicans. But he said such cuts will be difficult to find, and Duncan said Democratic lawmakers are not likely to accept cuts deeper than those proposed by Knowles.

And Knowles does not dispute there is a risk of public backlash. He said that's why he asked a group of business leaders to look for ways to generate support for the long-range plan. The governor said he has met twice with the group -- which includes high-placed executives such as Anchorage businessman and real estate developer Robert Gott-

stein, BP Exploration president John Morgan, Key Bank president Mike Burns and Anchorage Daily News publisher Fuller Cowell.

Gottstein said the group, which calls itself ''Alaskans for a Plan,'' is on a mission to educate citizens about the severity of the state's fiscal gap . ''The whole state needs to come to grips with the problem,'' he said.

Gottstein said the group does not intend to push a specific long-term budget proposal, but added, ''It's our sense that a collection of tools has to be used.''

The group has already conducted a statewide poll and soon will begin raising money for an educational campaign. No fund-raising target has been approved by the group, but Gottstein said it would be ''in the hundreds of thousands of dollars.''

Knowles said the group's effort might give legislators political cover for supporting a budget solution that does more than just cut spending.

''I look upon it as I'm doing (legislators) a favor,'' he said. ''We need to get a lot of public support for some tough decisions that have to be made.''

But Pearce said she thinks Knowles has other motives.

''He wants to build pressure on the Legislature. . . . He wants to make us look bad if we don't do everything the commission wants us to do,'' Pearce said. ''I'm just not going to be put in that position.''

And other Republicans see it partly as an effort by business and oil industry leaders to keep their own taxes down by pushing a budget- gap fix that takes money from all Alaskans.

''The industry, I think, is being led astray,'' Halford said. ''What the industry needs is less government, not more government that somebody else is paying for.''

ILLUSTRATION SHOWS MEMBERSHIP OF LEGISLATURE AND BILLS VETOED BY KNOWLES

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Back To Results Previous Article 85 of 95 Next Save this Article REPUBLICANS OFFER STATE BUDGET PLAN PACKAGE 0 Saved Articles AIMS TO BRING FISCAL GAP DOWN TO ZERO this article Anchorage Daily News (AK) - Tuesday, February 13, 1996 Email Author: RALPH THOMAS Daily News reporter ; Staff Print Betting they know best what Alaskans want, the Republicans who control the state Legislature on Monday proposed a long-term, budget-balanc Bibliography (export)

ing act that calls for deep spending cuts and -- at least for now -- no new taxes. Quick Links Wearing blue buttons touting their new motto -- ''0 in 5'' -- House and Senate Republicans Find articles by RALPH promised their proposal would drag Alaska's so-called fiscal gap down to zero within five THOMAS Daily News reporter ; Staff years. Find more articles from page A1 Find more from section "Nation" Over those five years, the GOP plan would slice $250 million from the current spending Find all articles from February level of $2.5 billion. The proposal would also rely heavily on state reserves and assets, 13, 1996 spending more than $500 million next year alone. And for the future, it calls for a sprinkling of ''new revenues'' -- presumably taxes, though the plan doesn't say.

But what the plan won't do, Republicans stressed, is bring back the personal income tax or reduce Alaska Permanent Fund dividends.

''We think it's in line with what the people of Alaska want us to do,'' said Sen. Steve Frank, R-Fairbanks, co-chairman of the Senate Finance Committee.

House and Senate Democrats immediately attacked the GOP plan as unrealistic and warned that such deep spending cuts would ravage the state's economy -- a somewhat milder version of the mid-1980s recession caused by state spending cutbacks. Meanwhile, Democratic Gov. Tony Knowles and his budget writers said they need to see more details before they can comment on the proposal.

The Republican plan differs sharply from one adopted last fall by the Long Range Financial Planning Commission, a panel appointed by Knowles and GOP leaders to solve the state's budget woes. The shortfall between what the state earns and what it spends is expected to top $500 million next year and grow to $1 billion by the year 2000.

The commission's plan, in part, calls for: cutting the state spending by $100 million over the next three years; steadily reducing Permanent Fund dividends; imposing new or higher taxes on gasoline, boat fuel, tobacco and liquor; and, in 2002, reviving the income tax.

While GOP leaders quickly dismissed that plan, Knowles put many of its pieces in the budget he is proposing for next year. For instance, the governor called for $35 million in spending cuts and nearly $90 million in tax and user-fee increases. Gas taxes would go

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up 14 cents a gallon, cigarette taxes would rise $1 a pack, and liquor taxes would go up about 10 cents a drink.

The new Republican plan calls for twice as much in spending cuts next year, though GOP leaders offered no specifics Monday.

''We'll be cutting a little bit of a lot of things,'' Frank said.

And the plan includes no tax hikes for next year. ''We cut a lot more; therefore, we have to tax a lot less,'' said Rep. Mark Hanley, R-Anchorage, co-chairman of the House Finance Committee.

Democratic lawmakers said any long-term budget solution should include a balance of cuts and new taxes.

''We need to see more than just a one-legged stool,'' said Senate Minority Leader Jim Duncan, D-Juneau.

Rep. Mike Navarre said the $250 million in proposed cuts will be much harsher than they appear on paper, because the GOP plan does not allow for any spending increases caused by population growth and inflation. And he said sucking that much money out of the state's economy will take its toll.

''This is clearly voodoo economics,'' said Navarre, D-Kenai. ''This plan may be achievable, but it will throw the state's economy into a horrible downward spiral.''

Frank scoffed at that argument and said the GOP cuts will not be ''draconian by any stretch of the imagination.''

Besides the spending cuts, the Republican would:

Set aside the state's $2.2 billion Constitutional Budget Reserve as an endowment to be managed by the Alaska Permanent Fund Corp. About $1.2 billion would be drawn from the account's principal and earnings over the next four years. After that, only earnings would be spent to help balance the budget.

Draw about $100 million a year in excess earnings from the Alaska Housing Finance Corp. and the Alaska Industrial Development and Export Authority. Frank said the withdrawals would not hurt the agencies' ability to issue home mortgage and business loans.

Raise about $70 million a year in ''new revenues,'' starting with the 1998 fiscal year. Hanley said the new revenues might include new or increased taxes.

Edition: Final Section: Nation Page: A1 Record Number: 126602 Copyright (c) 1996, Anchorage Daily News To bookmark this article, right-click on the link below, and copy the link location: REPUBLICANS OFFER STATE BUDGET PLAN PACKAGE AIMS TO BRING FISCAL GAP DOWN TO ZERO

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Attachment B3

HB 1001 (1999)

1-LS1022\V.a

SENATE CS FOR CS FOR HOUSE BILL NO. 1001(FINANCE) am S

IN THE LEGISLATURE OF THE STATE OF ALASKA

TWENTY-FIRST LEGISLATURE - FIRST SPECIAL SESSION

BY THE SENATE FINANCE COMMITTEE

Amended: 5/25/99 Offered: 5/24/99

Sponsor(s): HOUSE RULES COMMITTEE BY REQUEST

A BILL

FOR AN ACT ENTITLED

1 "An Act relating to income of the Alaska Permanent Fund and authorizing an

2 advisory vote on a long-term financial plan for the state; and providing for an

3 effective date."

4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA:

5 * Section 1. ADVISORY VOTE. At a special election to be held on September 14, 1999, 6 in substantial compliance with the election laws of the state, including absentee voting and the 7 preparation, publication, and mailing of an election pamphlet under AS 15.58.010 - 15.58.090, 8 the lieutenant governor shall place before the qualified voters of the state a question advisory 9 to the legislature and the governor. The election pamphlet for the special election must 10 comply with AS 15.58.020(6), including the requirement that it contain statements that 11 advocate voter approval or rejection of the question. Notwithstanding AS 15.60.005 and other 12 laws relating to preparation of the ballot proposition, the question shall appear on the ballot 13 in the following form: 14 QUESTION

HB1001E -1- SCS CSHB 1001(FIN) am S New Text Underlined [DELETED TEXT BRACKETED] 1-LS1022\V.a

1 Preamble: The people of Alaska created the Alaska Permanent Fund to save 2 a portion of Alaska's petroleum revenue for the future. After investing those 3 savings, the original intent and purpose was to use the earnings from those 4 investments when Alaska s petroleum revenues declined. Petroleum revenues 5 have now declined substantially and are forecast to continue to decline. Our 6 reliance upon declining oil production and volatile oil prices constitutes an 7 unsustainable state budget system. The governor and state legislature seek the 8 public s judgment regarding a stable and sustainable long-term balanced budget 9 plan. 10 Balanced Budget Plan: This will preserve the permanent fund dividend, 11 inflation-proof the permanent fund, support public services, and establish a 12 Citizens Balanced Budget Task Force. 13 The Balanced Budget Plan will: 14 (1) Spending Reductions: Continue state general fund budget reductions 15 and commit to long-term budget discipline and efficiencies. 16 (2) Permanent Fund Protection: Guarantee the Alaska permanent fund 17 principal remains untouched. Inflation-proof the permanent fund to 18 protect its value for all Alaskans, including future generations. 19 (3) Permanent Fund Dividends: Guarantee a dividend to eligible Alaskan 20 residents at a minimum of $1,700 in 1999 and $1,700 in 2000. 21 Thereafter, the dividend will be approximately $1,340 and will continue 22 to grow with the value of the permanent fund. After accounting for 23 inflation-proofing, the dividend will be based on 50 percent of the 24 annual earnings payment. 25 (4) Funding for Essential Public Services: After payment of permanent 26 fund dividends and inflation-proofing the fund, prioritize the annual 27 investment earnings payment for essential public services. 28 (5) Accountability: Fully disclose expenditures from the permanent fund 29 earnings with each annual permanent fund dividend. 30 (6) Balanced Budget Task Force: Establish a Citizens Balanced Budget 31 Task Force to present options to further reduce state spending and

SCS CSHB 1001(FIN) am S -2- HB1001E New Text Underlined [DELETED TEXT BRACKETED] 1-LS1022\V.a

1 identify appropriate future revenue sources. 2 (7) Income Tax: No personal income tax is enacted as part of this plan. 3 Question: After paying annual dividends to residents and inflation-proofing the 4 permanent fund, should a portion of permanent fund investment earnings be 5 used to help balance the state budget? 6 Yes [ ] No [ ] 7 * Sec. 2. This Act takes effect immediately under AS 01.10.070(c).

HB1001E -3- SCS CSHB 1001(FIN) am S New Text Underlined [DELETED TEXT BRACKETED]

Attachment C1

“Facts and Findings for a Long-Range Fiscal Plan for Alaska,” Fiscal Policy Caucus, December 1, 2001

Fiscal Policy Caucus

Facts and Findings for a Long-Range

Fiscal Plan for Alaska December 1, 2001

1 The Plan The Vision Statement

Alaska will provide quality, cost-effective public services funded by a system of revenues that is reliable, fair and diverse.

The Gap – Status Quo Fiscal Year: 7-1-01/ 7-1-02 / 7-1-03 / 7-1-04 / 6-30-02 6-30-03 6-30-04 6-30-05 2002 2003 2004 2005 ($ Millions) General Fund Revenues 1,544 1,445 1,519 1,424 General Fund Expenses 2,409 2,523 2,523 2,523 Fiscal Gap (865) (1,078) (1,005) (1,099)

CBR—Budget Reserve Fund 2,399 1,452 535 (Projected to be gone by 12-1-04) Year-End Balance (used to fill fiscal gap)

Earnings Reserve Account 2,125 2,468 2,918 ?? Year-End Balance (included in tot. PF below)

Permanent Fund Year-end Market Value 24,168 25,374 26,769 ??

Permanent Fund Dividend Amount $1,710.00 $1,560.00 $1,430.00 ??

The Purpose

The Alaska Legislature must provide the framework for placing Alaska’s financial house in order with a long- term approach to funding the costs of public services.

The Problem

The State of Alaska provides a wide range of services to a diverse population spread over a logistically complex area. Providing these services currently costs more than the state is receiving in recurring revenue.

The state is spending more than it is receiving in all revenues. This means the “savings” which had been placed in a Constitutional Budget Reserve (CBR) is rapidly being depleted. Current projections show that fund almost completely eliminated in two fiscal years if nothing is done. The CBR currently has about $2.8 billion. The projected deficit of revenues minus expenses is projected to be about $865 million as of June 30, 2002. (See the chart above for further projections of the deficit).

A long-term plan for fiscal integrity is needed to provide a stable business climate and to ensure the citizens of necessary services. However, before long-term considerations can be implemented, there is an immediate, emergency need to increase revenues and reduce spending in the least harmful way to the economy and the residents. If a satisfactory combination of reduced spending and increased revenues is not implemented in this legislature, the Permanent Fund Dividends, and eventually the Fund itself will be used for essential public services and the popular PFD program will be the loser!

2 Holding back the Tide

Various attempts by individuals, groups, legislators, the executive and the legislature have been made in the last 8 or more years to fix the problem of expenses that were greater than income or revenues. Spending has been held nearly constant in spite of increased population and service needs as well as inflation in accord with the legislative leadership’s “Five-year Plan.” As a result, since 1996, Alaska has achieved the only real cut in general fund spending - a cut of more than 5% - while other states have increased spending by an average 22%.

This, and past failures to fund for the future, has resulted in deteriorating state assets, and large capital costs confronting the state, along with a potential reduction in services. Some reinvestment into the infrastructure of the state must be made even in these declining revenue times to avoid further loss of value and detriment to the economy. Further spending reductions must be made, but in a way that does not put the entire state’s economy into a tailspin.

Prior Efforts

There have been other plans to resolve these fiscal issues. One such plan would have only used the interest earned from revenue made available from non-renewable resources. Known as The Cremo Plan, a forward-thinking Alaskan tried for years to convince the Legislature to stop paying its expenses through the liquidation of its assets. Mr. Roger Cremo crusaded to change our patterns so that Alaska would treat the sale proceeds of our natural resources as capital (similar to the Permanent Fund), only distributing its earnings for sustaining public services and never the principle. Instead, Alaska treats the royalties and taxes from oil as income, spending every dime immediately. Thus resulting in the volatility and economic instability we face today! Had politicians reversed this practice years ago, the revenue stream would be stable.

This Planning Effort

After the failure of the ballot measure to use Permanent Fund earnings in 1999, most legislators continued to hold the line on spending and hoped for a windfall of revenue from new developments or discoveries. In fact, some small oil discoveries and increased life have kept the reductions of oil royalties much smaller than originally projected. Just as predicted however, oil and gas royalties are going down, overall production is decreasing and the price has fluctuated from $8 to $32/barrel. Large new discoveries in the Petroleum Reserve, or if ANWR’s Coastal Plain was opened, are too far in the future to save the state from this fiscal problem. So is the return from any natural gas pipeline or such large planned economic development.

Formation of the Fiscal Policy Caucus

Recognizing these important facts and realities, many newly elected representatives and senators along with others from the public and business sectors felt the need to renew the idea of engaging in long term financial planning for the state. Some ran for election on that premise and feel obligated to pursue such a plan. That incentive, coupled with the continued concern for reduced revenues, led to the formation of the Legislative Fiscal Policy Caucus. Last legislative session, the leadership of the House charged the Caucus with developing a plan that could be placed in front of the legislature for implementation to create such a long-term fiscal plan.

3 Eleven public forums sponsored by individual Fiscal Policy Caucus members have been held throughout the state during the interim to explain the problem to the public and to solicit their ideas for solutions. Also, different groups, e.g., Alaskans United, Commonwealth North, and the Alaska Humanities Forum in their Alaska 20/20 Series, have provided state budget oriented educational materials, planning workshops, and efforts to draft solutions to the shortage of funds in Alaska’s budget. All of these efforts were considered in this planning retreat which was the culmination of the previous events.

The Retreat

The Caucus used a facilitated process to review individual legislator’s expectations, baseline data including products of the public forums, previously introduced legislation, public interest group products, and budget projections. The twenty-four committed legislators in the Caucus met in a non-partisan, open, public work session to use that information to create a vision and the values, attributes, or components of a workable plan to get the state’s fiscal house in order for the future. This is that workable plan.

Key Components

These key components; the Essential Elements, the Caucus’ Goals, Identification of new Revenue Measures as well as Spending Constraints, and the Steps for Implementation for a Long-Term Fiscal Plan are for the entire period of the Plan. Although long-term in nature, many will be implemented as rapidly as possible. The overall purpose is to establish a stable, growing economy for Alaska, which provides fiscal security for the long term, while meeting the immediate needs of the citizenry.

1. Protect the Permanent Fund Principal 2. Retain the CBR at a minimum of $1.5 billion 3. Promote Fiscal Restraint/Encourage Governmental Efficiencies 4. Diversify and Identify New Revenue Sources 5. Maintain informed, open, honest fiscal policy discussions 6. Recognize effect/impact of unfunded mandates 7. Identify and Respond to Alaska’s Needs 8. Fair sharing of responsibility amongst all 9. Ascertain Long Term Capital Financing/Acknowledgement of Unmet Needs 10. Spend only Earnings from future non-recurring revenues 11. Promote responsible resource management

Goals 1. Ensure sustainable long-term economic growth 2. Ensure Alaska’s competitiveness 3. Actions to have the least harm to the economy 4. Business and Industry Incentives for development 5. Seek Investment opportunities in under-developed regions of the state 6. Connect Economic growth and development with state revenues to meet increased expenses 7. Recognize unique characteristics and economic opportunities 8. Protect and enhance existing infrastructure 9. Develop a system of quality education, safety and other public services

4 Spending Constraints

One way to effect the degree of the immediate gap is to further reduce the costs of public services. The following is a list of ideas offered by individual members of the Caucus. Although there was no consensus on endorsing any method in particular, it was acknowledged that these ideas should be ex- plored further, as indeed many of these methods for reducing spending are ongoing efforts in the Leg- islature.

¨ Cap or Restraint on Spending in some form ¨ Efficiency and Consolidations/Eliminate duplications ¨ Cut Administration/Management in the three branches of government by 10% ¨ Drug and Alcohol Rehabilitation [short term increase to avoid long term costs] ¨ Missions & Measures – Performance based budgeting ¨ Reduce “pork” – pet projects for legislator’s districts ¨ Procurement – Consolidation where appropriate ¨ Limit length of session, limit staff, limit travel of legislators ¨ Unicameral legislature ¨ Biennial budgeting ¨ Regulation reform & streamlining development ¨ Establish spending priorities ¨ Restructure all mid-management [too much of it now] ¨ Restructure Education administration [state versus local responsibility, and delivery] ¨ Eliminate “marginal” services ¨ What services should be performed where and by whom – what is bottom line? ¨ Consolidate School Districts ¨ Revamp & Upgrade technology

Revenue Increases

Regardless of the success of any of the possible cost reductions, it is recognized that there is a greater need for significant additional revenues. This is especially true, since there is no way to cut enough expenses to meet the immediate budget gap. See “Status Quo” graph, page 2. The Plan adopted by our Caucus is designed to provide enough revenue to keep a healthy CBR for the future, and to maintain the current level of services in the long term. Therefore, the following proposed conceptual options for obtaining necessary revenues are a starting point to be submitted with this Fiscal Plan to the legislature in January, 2002. The following page contains the Fiscal Policy Caucus’ recommendations on potential sources of increased revenue.

5 (after Dividend and Inflation Proofing Disbursement Recommended Mea Change in Permanent Fund Depo (w/ Triggers related to price/production of Possible New Income Sources Oil and Gas Production Tax I Earnings Reserve Account Surplus Education Tax on Employment Spending Constraints Fiscal Policy Caucus Cruise Ship Passenger Tax Cap Permanent Fund Dividend Motor Fuel Tax Increase Alcohol Tax Increase Personal Income Tax State Sales Tax (Change Formula) its

sures

)

(See Page 5)

Current Legislation HJR 15/SJR 13 (HB 10) HB 225 HB 233 HB 199 HB229 HB 35 None None None HB 3

$25 per passenger Transfer % to GF Gross Income .05 per gallon .05 per drink 3% Fed. Adj. $1,250.00 Detail 20% Yes Yes 2%

Annual $100 $127 $200 $270 $182 $33 $38 $17 $15 $15

million excl. food & medical 1% = $100 million; $70 5 cents per drink = $15 million $100 per person = $38 million $25 per passenger = $17 mi $175 to $300 million per year Approx. Calculations $22.5 million to $35.5 5 cents per gallon = $15 mi Approx. $90 million per year 10% increase = $50 million 1% of taxable income = lion per year lion per year per year per year per year

l- l-

Recommended FY 03 FY 03 FY 03 FY 03 FY 03 FY 03 FY 03 FY 03 FY 03 FY 03

6 Implementation

There is general agreement that the collective options are only a starting point, and this is a conceptual plan only. Also, the consensus of the Caucus is that simply criticizing this Plan or a particular revenue option is not acceptable; rather, alternatives to achieve a balanced budget are needed. The Caucus rec- ommends an open public discussion of this Plan and recognizes the role of the legislative process, committee hearings and the like and has no intention of infringing on that practice.

Steps

¨ Implementation will consist of public and legislative review of this draft Plan. ¨ The Plan will be finalized and adopted by the Legislature after public review and modification. ¨ The public and legislators will use the Plan Components to test various legislative proposals and amendments throughout this and future legislative sessions. ¨ Legislation to implement various options will be duly considered by the entire legislature in the regular order of business. ¨ The emergency nature of the fiscal crisis requires action as rapidly as possible and it is expected that will happen.

The long term goal is to keep an emergency reserve of $1.5 billion in the CBR, even though it will likely drop below that by FY 2003 or FY 2004. The CBR could likely fall to near zero before economic stimulates and diversity can produce new revenues such as ANWR or the gas pipeline to build it back up.

Shrinking the Gap - If FPC Measures Implemented FY 03 2002 2003 2004 2005 2006 2007 2008

($ Millions) General Fund Revenues 1,544 1,800 2,512 2,428 2,354 2,316 2,283

General Fund Expenses 2,409 2,571 2,623 2,675 2,729 2,783 2,839

Fiscal Gap (865) (771) (110) (247) (374) (468) (555)

Budget Reserve Fund Year-end 2,399 1,765 1,773 1,644 1,381 1,014 539 Balance (savings used to fill fiscal gap)

Permanent Fund Year-end Market 24,168 25,209 25,981 26,713 27,420 28,116 28,801 Value (including Earnings Reserve)

Permanent Fund Dividend Amount $1,710.00 $1,250.00 $1,250.00 $1,250.00 $1,250.00 $1,250.00 $1,250.00

7 Caucus Commitment

The legislators in attendance accepted their obligation as elected leaders to solve the state’s fiscal problems. Each member of the Caucus is committed to the success of this planning effort and in getting Alaska’s financial house in order.

Triggers

The Caucus endorsed trigger mechanisms that would scale back new taxes and/or restore PFDs to the current formula if new revenues are developed. For example if both a gas pipeline and ANWR or comparable revenue generating development were to happen, taxes and use of Permanent Fund earnings would not be necessary or justified.

Members of the Caucus Present:

Representatives: Senators:

Ethan Berkowitz Alan Austerman Mike Chenault Johnny Ellis (Fri) Sharon Cissna Kim Elton Harry Crawford Ben Stevens Eric Croft (Fri) John Davies Hugh Fate Gretchen Guess Andrew Halcro Joe Hayes Bill Hudson Beth Kerttula Ken Lancaster Lesil McGuire (Sat) Kevin Meyer Carl Moses Lisa Murkowski Norm Rokeberg (Fri) Gary Stevens Drew Scalzi Peggy Wilson

8 The Nature of the Problem Department of Revenue Synopsis

Alaskans have lived off the strong cash flow from North Slope oil fields beginning in the late 1970s and through the start of the 1990s. The annual tax and royalty revenues paid the bills for the public services that people had come to expect and enjoy.

Then, as oil production was in its downward slide by the early 1990s, Alaskans were able to enjoy the same services because we had the Budget Reserve Fund to pay the bills. Voters approved the Constitutional Budget Reserve fund in 1990 as a savings account for future oil and gas tax and royalty settlements. The state had accumulated a hefty number of disputed tax and royalty cases, and the legislature asked voters to amend the constitution to set up the fund to hold the anticipated settlements. The fund was established to cover fluctuating oil revenues, allowing the state to maintain public services in years of low prices.

As expected, the reserve fund has received several large deposits of tax and royalty settlements. Since its start a decade ago, the account has received $5.5 billion, of which Alaska has spent $4 billion. The result is we continued to live off oil money in the 1990s — we just did it differently. Instead of paying our bills from the cash of current year’s taxes and royalties, we spent our account receivables (our IOUs) as we collected them. But all of the large tax and royalty cases have been settled, which means there are no more big deposits to replenish the reserve fund, which means we’re running out of money and time, which means we have a problem.

The reserve fund started Fiscal Year 2002 (July 1, 2001) with about $3 billion. Our assumptions include a small increase in oil production over the next few years and a gradual return to historic average prices for Alaska North Slope crude. (The average daily production from the North Slope in Fiscal 2001 was 990,000 barrels, the lowest since the pipeline went into full production.)

No doubt Fiscal 2001 was a great year for oil prices, with North Slope crude averaging close to $28 a barrel — the highest in 17 years. But everyone knows the pains of price volatility. It was just two years ago, in Fiscal 1999, when oil averaged about $12 a barrel. That’s why the reserve fund is so important to Alaska. We need it as a cushion, a shock absorber in years of low prices. If we drain it to cover our lack of a fiscal plan, it will not be around to cover its original purpose of holding steady our budget for public services.

The numbers tell the story of the state’s reliance on oil revenues. In the 1980s, the state averaged about $3 billion a year in unrestricted revenue, of which $2.2 billion was from oil and gas. In the 1990s, the average revenues for a year dropped to $2.2 billion, of which $1.7 billion was oil and gas. In the first decade of the new century, we expect the average to fall even further, to $1.6 billion, with $1.2 billion of that from oil and gas. We just can’t maintain public services for a growing population from a falling revenue source.

In addition to fluctuating oil prices and lower production, a third factor contributes to the revenue decline. The Economic Limit Factor (ELF) is a multiplier of the state’s production tax rate designed to collect less tax on smaller, marginal fields, while maintaining a higher rate on larger fields. All of the new discoveries are being taxed at a lower rate than the declining fields at Prudhoe Bay and Kuparuk. Every barrel of “new” oil is taxed at a lower rate than the “old” oil it replaces in the pipeline. Even if total production

9 holds steady, or increases a bit, production tax revenue to the state will continue to decline.

Production from the National Petroleum Reserve-Alaska could reverse the decline in state revenues, as could a natural gas project or production from the Arctic National Wild- life Refuge. But any revenues from those possibilities are at least several years away. Without the reserve fund to fill the gap, choices would include drastic cuts in public services, dramatic increases in existing taxes, cutting back on the Permanent Fund dividends and/or spending Permanent Fund earnings.

The Department of Revenue believes the state needs to maintain a reserve fund balance of about $1.5 billion to protect Alaskans from periods of low oil prices. The challenge before Alaskans is to put together a fiscal plan based on new revenues and wise spending before the budget reserve drops below a safe level.

Department of Revenue, 9/01

Department of Revenue

December 7, 2001 Release 01-269

LOWER OIL PRICES WIDEN FISCAL GAP Return to average prices produces billion-dollar deficit in Fiscal Year 2003

The Department of Revenue projects North Slope oil prices will hover close to their historical average of around $18 a barrel after two years of higher-than-average prices. The price shift will add to the state's fiscal gap, with expected draws on the state savings account of $906 million in Fiscal 2002 and $1.13 billion in Fiscal 2003, said Revenue Com- missioner Wilson Condon.

"Despite higher production, the budget gap will grow regardless of what oil prices do," Condon said today as the department released its Fall 2001 Revenue Sources Book. "Our reliance on newer, more costly oil to replace the declining flow from our aging fields means less revenue for the state. Low oil prices only exacerbate the situation."

Based on the department's oil price and production forecasts, and assuming a spending level needed to maintain existing services, the Constitutional Budget Reserve Fund will hit empty in July 2004 - almost a full year sooner than forecast by the department last spring. The Budget Reserve Fund is at $2.8 billion this week, with an additional $100 million draw scheduled for next week.

"Until Alaskans can agree on a fiscal plan, which must include new revenues, we will continue to drain the Budget Re- serve Fund," Condon said. "Higher, or lower, oil prices could move the end date into 2005 or 2003, but, realistically, we know we're getting dangerously close to the end of the line."

The department forecasts Alaska North Slope oil prices to average $20.55 for Fiscal Year 2002, which ends June 30. That's a drop of almost $2 a barrel from the Spring 2001 revenue forecast and almost $4 from the Fall 2000 forecast. "Although prices have been around the $17 range the past week, the year-to-date average is $22, and we believe the higher prices of the first six months we help keep the year-end average respectable," Condon said.

Prices are expected to continue their downward trend, however, averaging $18.81 a barrel in Fiscal 2003 and then picking up a bit to $19.72 a barrel in Fiscal 2004 if the world economy recovers.

Although the price forecast is down from previous estimates, North Slope production is expected to increase after falling to an average of 991,000 barrels a day in Fiscal 2001 - the first time the flow has dropped below 1 million barrels a day since full production started 24 years ago. The department forecasts Fiscal 2002 production to average 1.012 million barrels a day, building to 1.070 million barrels in Fiscal 2003 and 1.111 million barrels a day in Fiscal 2004. North Slope production is forecast to remain above 1.1 million barrels a day through Fiscal 2008.

"Alpine and Northstar are primarily responsible for the production growth," Condon said. "The producers are to be commended for bringing the new fields online. We certainly hope for more new production to help reverse the overall decline in older fields on the slope."

For more information, contact Deputy Commissioner Larry Persily at 907-465-5469.

Alaska Permanent Fund Corporation P.O. Box 25500 Juneau, AK 99802-5500 Telephone (907) 465-2047 Facsimile (907) 586-2057

MEMORANDUM

DATE: January 8, 2002

TO: Representative Bill Hudson

FROM: Jim Kelly Director of Communications

SUBJECT: "What would happen if the Permanent Fund's earnings reserve account (ERA) were called upon by the legislature to effectively replace the CBRF as the source for funding the budget gap when the CBRF runs out?"

The Department of Revenue estimates that the CBRF will be depleted late in calendar 2004 and thus will be unavailable to fund the expected $1.099 billion budget gap in FY 05. Based on the APFC's current projections, the Fund's ERA most likely would be sufficient in FY 05 to fund the budget gap that year and pay dividends per current formula. How- ever, there is a chance that the ERA itself could be depleted by that date in the event of continued negative investment returns between now and then.

The full answer depends on whether the Board-proposed percent of market value (POMV) payout limitation has been placed in the constitution by the time the legislature needs to use the Permanent Fund for the state budget.

If the constitutional amendment has been passed. The APFC’s analysis of the constitutional amendment proposed under HJR 15/SJR 13 indicates that the Permanent Fund is likely to be able to produce earnings to support an annual payout of five percent of the five-year average market value of the Fund. That is estimated at from $1.2 billion to $1.4 billion per year in inflation-adjusted 2001 dollars. That payout would be for all purposes approved by the legislature, including the dividend and the general government budget. If you assume no change in the present dividend statute, which is based on realized income rather than market value, some $175 million to $300 million would be available each year for budget purposes other than the dividend. These estimated ranges are narrow because of the five-year smoothing built in to the payout proposal.

If the constitutional amendment has not been passed, however, the amount available for the legislature to appropriate each year for all purposes would vary much more widely. Instead of a range of $1.2 to $1.4 billion, it could be as little as a few hundred million to well over $2 billion. To illustrate the real-life impact of volatility, consider the following numbers:

A. Note the APFC’s November projected June 30, 2002 balance in the realized ERA, after dividends and inflation-proofing: $1.9 billion.

B. Note the annual swings in statutory net income over the past four years plus 2002 projected: 1998 $2.6 billion 1999 $2.5 2000 $2.2 2001 $1.2 2002 $1.2

C. Note the annual “Net Change” in the realized ERA (after dividends and inflation-proofing) for the same period: 1998 $1,282 million 1999 $1,201 2000 $382 2001 – $588 2002 – $471

The first number (A), $1.9 billion, is the beginning size of the cushion in the realized ERA. When that is gone, or nearly gone, legislative appropriations for all purposes would be completely subject to the wide variability demonstrated by the set of numbers shown in (B). The (C) set of numbers shows what would have been left for funding the budget gap after paying dividends and inflation-proofing; it is obviously quite volatile.

This volatility was not a problem in the past because the bull market added billions of dollars to the Fund’s reserves and payments from the Fund were limited to dividends only. Now, a bear market is reducing Fund reserves and the legislature is considering increased payouts to help fund the budget gap. In this environment, it is essential to prudently manage the impact of volatility in investment returns.

Senator Dave Donley

For Immediate Release: Oct. 22, 2001 Contact: Ron Irwin (907) 269-0234

Former Governor Jay Hammond Joins Other Alaskans to Sound Off on Long Range Fiscal Planning Before the Senate Finance Committee

(ANCHORAGE) Former Governor Jay Hammond joined other Alaskans who braved the first big snow storm Saturday to file into the Legislative Information Offices in Anchorage and other area around the state to participate in the Senate Finance Committees public hearings on a new Long Range Fiscal Plan for Alaska.

Sen. Dave Donley (R-Anchorage), who is the Co-Chairman of the Senate Finance Committee kept his promise to hold public hearings to find out what the people of Alaska felt should be done concerning the growing fiscal problem in the State. Donley felt it was important to give people an opportunity to speak their minds in front of the Senate Committee that the actual jurisdiction over fiscal issues.

Donley hopes to narrow the fiscal gap, which is projected to top $500 million this year. He plans to do this by passing seven bills and two constitutional amendments, all with the aim of establishing a more streamlined, efficient and fiscally responsible government, while maintaining and improving state services.

Donley says to handle the projected $500 million dollar fiscal gap the State needs action not just rhetoric. Donley's approach to the problem, involves a systematic step-by-step method, a plan that drew support from those in attendance Saturday, including Gov. Hammond.

Hammond said he preferred Donley's step-by-step approach to responsible fiscal planning, rather than an all inclusive concept, like the 1999 plan (rejected by 84-percent of voters) that is still being pushed by some members of the Legislative Fiscal Policy Caucus. Hammond warned the committee that if they wanted the support of the public the government would need to address fiscal issues a piece at a time. In other words curb spending before talk about initiating taxes and explore tax revenue options before even considering touching the Permanent Fund.

"The public does not feel they are listened too," Hammond said. "We can not look at using dividend dollars before tax dollars."

Saturday however, the people were listened too. And the Senate Finance Committee heard them say don't look at tax dollars either if you don't first cut spending.

14 "We need a cap on government spending," said Linda Reynolds a Kenai voter. " We need to look at layers of bureaucracy and make cuts." Chuck Achberger of Anchorage took the need for fiscal responsibility up a notch by pointing fingers at the worst spender in the government. "The Governor's approach to spending is like a teenage kid with daddy's Visa Gold Card," Achberger said. "Before we introduce random acts of taxation, we must get spending under control."

Thus was the sentiment of public testimony from Wrangell to Fairbanks. And Donley along with the Senate Finance Committee seemed poised to heed the advice given Saturday by concentrating first on controlling spending and making the Government work within its means.

Arrangements can be made to interview Sen. Donley on this and other issues by calling his Anchorage office at 269-0234. All efforts will be made to accommodate individual deadlines. # # #

15 Anchorage Daily News VOICE OF THE TIMES Saturday, May 5, 2001

Fiscal plan: More than taxes, Fund raids

By SEN. DAVE DONLEY

Development of a long-range fiscal plan is one of the greatest challenges facing Alaska. But like most Alas- kans, I do not believe the answer is simply passing new taxes or raiding the Permanent Fund. In my opinion, that is not a plan -- it is a recipe for fiscal disaster.

We cannot tax or spend ourselves to economic self-sufficiency. We won't "balance the budget" by spending more money. Without meaningful restrictions on state spending, adding new revenues simply fuels the fire and encourages increased spending -- which will in turn create a larger fiscal gap.

As co-chairman of the Senate Finance Committee, I believe the first two essential elements of any fiscal plan should be a strong constitutional spending limit and Constitutional Budget Reserve reform that encourages fiscal discipline. Such actions are a critical first step in developing a long-range fiscal plan for Alaska.

Without an enforceable constitutional spending limit, simply tapping into the Permanent Fund or adding major new taxes as the governor has proposed will only make the problem worse. It's kind of like trying to put out a brush fire by drenching it with gasoline. With easy access to more money, there would be no incentive to curb state spending. Only by holding the line on government spending and renewing our efforts to improve government efficiency can Alaskans hope to break the economic boom and bust cycles that have plagued our past.

As we continue to work toward a new fiscal plan, it is important to recognize the significant accomplish- ments of the just-completed -- while the Permanent Fund was protected, and increased to more than $26 billion. More importantly, Republicans held the line against $800 million in spending increases proposed by De- mocrats and Gov. Tony Knowles.

The Republican majorities also successfully initiated major governmental reforms. Welfare reform, bureaucracy reduction, education funding reform, tougher criminal laws and solving prison overcrowding were all part of a comprehensive plan to improve Alaska's state government. And, while reducing general fund state spending, we increased funding for local schools and the University of Alaska.

To encourage discussion about what the next step in a fiscal plan should be, earlier this year I wrote the com- missioners of every state department asking for their ideas on ways to improve government efficiency and reduce the state's fiscal gap. To my surprise, I received no new ideas -- not a single one -- from any department head. Apparently no one in the governor's Cabinet has any ideas on ways to make government more efficient and less expensive. That may explain why Gov. Knowles has consistently proposed spending increases every single year he has been in office.

Recently the Anchorage Daily News harshly criticized Republican Senate leaders for not supporting $35 million in spending increases proposed by the Democrats. But the Daily News ignored the fact that, this year alone, Gov. Knowles and the Democrats have offered proposals that would increase the state budget by more than $400 million -- an amount that would wipe out most reductions in state spending in the recently completed Republican Five-Year Budget Plan.

Under the Democrats' approach, Alaska would be back to square one -- and five years of deliberate work to control state spending would be lost. The only recourse left to balance the budget would be to impose major new taxes or tap into the Permanent Fund. For many of us in the Republican majority, that approach is simply not acceptable.

Instead, this year we passed a budget that controls the growth of government by holding state spending increases to levels less than population and inflation increases. The Senate Finance Committee also introduced a package of legislation that continues the Republican majority's commitment to pursue fiscal responsibility and government reform -- before considering any new taxes.

The legislative package represents the first step of a new long-range fiscal plan that has the potential of immediately reducing the fiscal gap by over $12 million per year -- and increasing to over $100 million per year within 10 years. Key elements of the plan include a strong constitutional spending limit, limits on municipal bond in- debtedness and changes to the way the state Constitutional Budget Reserve operates.

The new constitutional spending limit would replace the current ineffective amendment adopted in 1982. It would limit growth in state spending to below increases in population and inflation.

The reform of the current Constitutional Budget Reserve would restore the original intent of that 1990 Constitu- tional Amendment. It would encourage fiscal discipline and discourage increased spending. Currently, an errone- ous court decision creates the opposite effect and annually allows a small minority of legislators to force increased spending. I believe no long-term fiscal plan can be successful without first implementing these two constitutional reforms.

There is no easy "fix" to Alaska's fiscal challenges. Finding solutions will take time and true bi-partisan cooperation. It will take a strong commitment to additional government reform and a resolve to find ways for government to do more -- with less. Alaskans have always prided themselves on being independent and self-sufficient. They have every right to expect their government to be the same.

As co-chairman of the Senate Finance Committee, I will continue to strongly oppose any effort to balance the state budget solely on the backs of working Alaskans.

Sen. Dave Donley represents District J in the state Senate.

17 Senator Donley’s “Fiscal Plan” Summary by the Office of Management and Budget

· The package of nine bills released by the Senate Finance Committee on April 9th was billed as a first step in a long-range fiscal plan.

· Major elements redistribute state resources from rural to urban Alaska, while constitutionally man- dating continued reductions in the quality of public services.

· This package proposes a series of “government reforms.” It uses none of the identified fiscal policy tools except budget cutting to fill the budget gap.

· The Senate majority package is a piecemeal approach that doesn’t have a fiscal effect that would stem the fast approaching depletion of the CBR or potential use of the ERA.

· The proposed legislation includes:

SB 180: Geographic Pay Differential This bill would adjust geographic pay differentials to bring the regional salary adjustments for partially exempt employees into line with those already in place for classified employees. (Note: the Governor introduced similar legislation in the past.)

SB 181: AHFC’s 1% Housing Assistance Interest Rate Subsidy

This bill would eliminate the one percent interest rate subsidy for the AHFC Housing Assistance Loan Fund Program, which makes rural housing more affordable. The differential was established to help offset the higher cost of housing in smaller communities. Sen. Donley estimates the bill would increase AHFC profits by $500,000 a year (assuming no loss in loan volume) but AHFC believes an interest rate increase of 1 percent would likely result in a minimum 50% loss of loan volume, completely negating any profits

SB 182: Proration of Benefit Payments This bill would require the administration to prorate payments to individuals for statutory benefit programs like longevity bonus and adult public assistance if the legislature does not fully fund the program. This would enable the legislature to cut benefits in a back-door manner without amending the program statutes and openly debating the policy issues and impacts on people who count on these services. Similar legislation passed the House and Senate last year, but the House did not concur with Senate amendments. If a law like this were in place now, Longevity Bonus checks would be cut about 2% in FY2001 and next year’s Adult Public Assistance payments would be cut about $8 per month, depending on the timing of reductions. (Medicaid would not be affected since it is paid to health care providers, not individuals.)

SB 183: Public Interest Litigant Attorney Fees This legislation would limit attorney fees for public interest litigants. While Sen. Donley has included this in his package, it is a "pet peeve" type of bill that makes no significant contribution to solving the fiscal gap. Donley's own optimistic savings estimate is $117,000 per year.

18 Senator Donley’s “Fiscal Plan” Summary Continued

SB 184: Local Contributions to Village Safe Water Program Projects This bill would change the village safe water program statute from prohibiting a local match requirement to allowing a local match. Sen. Donley estimates savings of $2.7 million with a 5% match (no percentage is specified in the bill) but since the program is 75% federally funded, a 5% match would actually save $675,000 in state general funds. As an example: Goodnews Bay has applied for a grant of $1,666,000. A 5% local match would be $83,300 so the state would "save" $20,800. This would make the community spend $83,000 so that the state can save $21,000.

SB 185: Power Cost Equalization (PCE) This bill would reduce funding for the PCE program by almost $9 million, or almost 60%, but it does not save $9 million for the fiscal gap. Instead, it reneges on prior legislative agreements of establishing an endowment to pay most of the PCE program with that fund’s own earnings. The PCE floor would be raised to 20 cents per kWh and the monthly consumption cap would be lowered from 500 to 400 kWh. It would reduce payments to approximately 78,000 residents in rural Alaska and eliminate PCE in 20 rural communities. This reduction is likely to under- mine the financial viability of many rural utilities, leaving the state to respond to power emer- gencies.

SB 186: Setting a Municipal Bonding Cap This bill would amend AS 29.47 to prohibit a municipality (city or borough) from issuing any new general obligation debt if its total debt would exceed $15,000 per capita. This bill specifically targets the North Slope Borough, since it is the only municipality over this per capita amount. It would make an enormous cut in the borough’s future tax base. Sen. Donley claims this bill could increase state revenue by over $100 million per year within 10 years. However, the Department of Revenue's position is that because of multiple unknown factors — e.g. future operating expenses and property assessments, new facilities that might be constructed within the borough — Donley’s estimate is highly speculative and the actual impact of the bill cannot be accurately predicted.

SJR 23: Constitutional Spending Limit · Since 1982 when the current constitutional limit went into place, state spending has been controlled by a combination of limited available revenues and public opinion. That’s not going to change.

· Other states with spending limits have had surplus revenues from income/sales/corporate taxes that increased with their economic growth. The situation in Alaska is entirely different as we are looking at the decline of our resource extraction revenue and no income or sales taxes that grow with population and the economy.

· The logic in this legislation does not make sense in terms of what categories of spending are counted under the limit. If applied to our general fund budget history, the arbitrary 2% per year gradual growth in spending envisioned in the resolution actually results in a wildly erratic limit.

The proposed limit would also have no relation to the fiscal gap. In fact, if the limit proposed in SJR 23 were currently in place, FY 02 general fund spending ($2.4 billion) would be counted as

19 Senator Donley’s “Fiscal Plan” Summary Continued

· less than FY 00 general fund spending ($2.3 billion) even though the FY 02 fiscal gap is projected to be twice as much.

· Under the provisions of the resolution, any time the legislature knowingly passed a budget that exceeded the appropriation limit, the Governor would be required to impose across the board cuts on executive agency operations to reduce spending to the level of the cap. Arbitrary across the board cuts are an abrogation of the Legislature’s responsibilities for setting appropriation levels. (Interestingly, SJR 23 does not apply these across the board cuts to the Legislature’s own budget.)

· The limit would be set for FY 2004 at a level of no more than 4% above FY 2002 spending without regard to cost increases experienced by individual programs (e.g., Medicaid or the university), changes in federal requirements, increases in other fund sources such as Mental Health Trust and Public School Trust income, or court mandated expenditures. The arbitrary percentage increase in the limit has no relation to the real world drivers of public service costs such as population and inflation. We know for certain that faster than average growth of expensive cohorts of the population such as school age children or the elderly and medical cost inflation rising much faster than the overall CPI will have dramatic effects on future budgets.

SJR 24: Constitutional Budget Reserve This proposed constitutional amendment would actually make it much easier to spend money in the budget reserve fund. It would achieve this by reducing the votes necessary to appropriate the CBR, and by removing whole classes of available funds (such as the Permanent Fund Earnings Re- serve) from determining whether appropriations from the CBR are needed to support the prior year’s budget level. While the “sweep provisions” would be removed, the existing $3.8 billion debt to the CBR would remain on the state’s accounts.

20 Major Categories of State Spending

Total Funds Budget

Much of the $7.4 billion total state budget has restrictions on how the money is spent. Of this amount, the capital budget is $1.3 billion, with $925 million of that coming from federal funds, mostly for transportation projects.

Permanent Fund Earnings Another $1.8 billion is Permanent Fund earnings that go to pay for dividends ($1.1 billion) and inflation proofing ($700 million). The PFD program is by far the largest single state expenditure and has been the fastest growing program for the past decade.

Federal Funds About $2.1 billion is federal funding which has restrictions on how it may be spent - requires a $253 million state general fund match along with maintenance of effort requirements.

Other Funds A little over $1 billion comes from sources such as university tuition receipts, AHFC dividend, endowment and trust receipts. Most of these funding sources have restrictions on how they may be spent, e.g., AHFC

FY 2002 General Fund Budget by Program Area Capital and Operating: $2.4 Billion

K-12 Education Formula* Support 29% - $706 Million All Other (Admin., Revenue, All Non-Education Governor, Legislature, etc.) Formula* Programs 14% - $331 Million 14% - $328 Million

Natural Resource Management 4% - $96 Million

Debt Service 4% - $105 Million Public Safety/ Health and Social Services Justice/ Corrections 6% - $141 Million Transportation University of Alaska 7% - $159 million 8% - $203 Million 14% - $343 Million

*Formula programs are based in statute and guarantee a specific level of benefits to qualified recipients. Non-education formula programs include: Medicaid, Adult Public Assistance, Longevity Bonus, Revenue Sharing, Foster Care, Elected Officials Retirement, Shared Fisheries Business Tax and Temporary Assistance.

Formula Programs $1.6 billion goes for formula programs where the level of funding is determined by a formula set in statute – largest are K-12 education at $782 million and Medicaid at $577 million. Others include revenue sharing, longevity bonus, welfare, and foster care.

General Fund Budget

General funds are mostly oil revenues and the legislature has complete discretion over how they may be spent. The fiscal gap is measured as the difference between general fund revenues and general fund expenditures.

The large majority of expenditures in the general funds budget are committed to services that most people recognize as standard government functions. These include: K-12 education (29%), formula programs (14%), public safety (14%), university (8%), transportation (7%), health and social services (6%), natural resource management (4%) and debt service (4%).

The remaining 14% piece represents all other general government functions. These include economic development, senior services, public health, motor vehicle services, revenue collection, finance, the legislature and governor’s office.

FY 2002 Total Funds Budget by Program Area Capital and Operating: $7.4 Billion

Permanent Fund Inflation Proofing and Dividends 26% - $1.8 Billion All Other Services 7% - $625 Million Transportation 17% - $1.3 Billion

Debt Service 3% - $204 Million

Health and Social Services (Non-Formula) 5% - $385 Million

Natural Resource Management 6% - $409 Million

Public Safety/ K-12 Education Formula* Support Justice/Corrections 11% - $782 Million 6% - $476 Million University of Alaska All Non-Education Formula* 8% - $614 Million Programs 11% - $837 Million

*Formula programs are based in statute and guarantee a specific level of benefits to qualified recipients.

THIS PAGE LEFT BLANK INTENTIONALLY

Attachment C2

“Permanent Fund Earning—Phase II: A Cornerstone for Fiscal Certainty,” Commonwealth North, Permanent Fund Study Group, May 1999

Attachment C3

Measures Supported by the Fiscal Policy Caucus:

HB 3 HB 20 HB 35 HB 199 HB 225 HB229 HB 233 HB 303 HB 304 HB 401 HB 413 SB 165 HJR 15 SJR 13

22-LS0038\A

HOUSE BILL NO. 3

IN THE LEGISLATURE OF THE STATE OF ALASKA

TWENTY-SECOND LEGISLATURE - FIRST SESSION

BY REPRESENTATIVES ROKEBERG, Murkowski, Davies, Hudson, Stevens, Green, Fate, James, Cissna

SENATOR Austerman

Introduced: 1/8/01 Referred: State Affairs, Judiciary, Finance

A BILL

FOR AN ACT ENTITLED

1 "An Act relating to deposits to the Alaska permanent fund from mineral lease rentals,

2 royalties, royalty sale proceeds, net profit shares under AS 38.05.180(f) and (g), federal

3 mineral revenue sharing payments received by the state from mineral leases, and

4 bonuses received by the state from mineral leases, and limiting deposits from those

5 sources to the 25 percent required under art. IX, sec. 15, Constitution of the State of

6 Alaska; and providing for an effective date."

7 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA:

8 * Section 1. AS 37.05.550(b) is amended to read: 9 (b) The legislature may appropriate to the fund money received by the state as 10 Alaska marine highway system program receipts or from a settlement or final judicial 11 determination of the Dinkum Sands case (United States v. Alaska) and the North 12 Slope royalty case (State v. Amerada Hess, et al.) and not deposited into the Alaska 13 permanent fund under AS 37.13.010(a)(1) [OR (2)] or into the public school trust fund

HB0003a -1- HB 3 New Text Underlined [DELETED TEXT BRACKETED]

22-LS0038\A

1 under AS 37.14.150. 2 * Sec. 2. AS 37.13.010(a) is amended to read: 3 (a) Under art. IX, sec. 15, of the state constitution, there is established as a 4 separate fund the Alaska permanent fund. The Alaska permanent fund consists of 5 (1) 25 percent of all mineral lease rentals, royalties, royalty sale 6 proceeds, net profit shares under AS 38.05.180(f) and (g), 25 percent of [AND] 7 federal mineral revenue sharing payments received by the state from mineral leases 8 [ISSUED ON OR BEFORE DECEMBER 1, 1979], and 25 percent of all bonuses 9 received by the state from mineral leases [ISSUED ON OR BEFORE FEBRUARY 10 15, 1980]; and 11 (2) [50 PERCENT OF ALL MINERAL LEASE RENTALS, 12 ROYALTIES, ROYALTY SALE PROCEEDS, NET PROFIT SHARES UNDER 13 AS 38.05.180(f) AND (g), AND FEDERAL MINERAL REVENUE SHARING 14 PAYMENTS RECEIVED BY THE STATE FROM MINERAL LEASES ISSUED 15 AFTER DECEMBER 1, 1979, AND 50 PERCENT OF ALL BONUSES RECEIVED 16 BY THE STATE FROM MINERAL LEASES ISSUED AFTER FEBRUARY 15, 17 1980; 18 (3)] any other money appropriated to or otherwise allocated by law or 19 former law to the Alaska permanent fund. 20 * Sec. 3. This Act takes effect immediately under AS 01.10.070(c).

HB 3 -2- HB0003a New Text Underlined [DELETED TEXT BRACKETED]

22-LS0008\P

CS FOR HOUSE BILL NO. 20(RLS)

IN THE LEGISLATURE OF THE STATE OF ALASKA

TWENTY-SECOND LEGISLATURE - SECOND SESSION

BY THE HOUSE RULES COMMITTEE

Offered: 5/2/02 Referred: Today's Calendar

Sponsor(s): REPRESENTATIVES MOSES, Davies, Foster, Wilson, Hudson, Mulder, Bunde, Stevens, Joule, Lancaster, James, Kapsner

A BILL

FOR AN ACT ENTITLED

1 "An Act relating to organization grants to cities, to state aid for unincorporated

2 communities, and to municipal dividends."

3 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA:

4 * Section 1. AS 29.05.180(a) is amended to read: 5 (a) To defray the cost of transition to city government and to provide for 6 interim government operations, each city incorporated after June 30, 2002, 7 [DECEMBER 31, 1985] is entitled to [AN] organization grants [GRANT OF $50,000 8 FOR THE FIRST FULL OR PARTIAL FISCAL YEAR] after incorporation as 9 follows: 10 (1) $100,000 for the city's first full or partial fiscal year; 11 (2) $50,000 for the city's second fiscal year; and 12 (3) $25,000 for the city's third fiscal year. 13 * Sec. 2. AS 29.05.180(b) is amended to read: 14 (b) To defray the cost of reclassification, each second class city in the

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1 unorganized borough incorporated before January 1, 1986, that reclassifies as a first 2 class city or adopts a home rule charter after June 30, 2002, [DECEMBER 31, 1985] 3 is entitled to [AN] organization grants [GRANT EQUAL TO $50,000 FOR THE 4 FIRST FULL OR PARTIAL FISCAL YEAR] after reclassification as follows: 5 (1) $200,000 for the city's first full or partial fiscal year; 6 (2) $100,000 for the city's second fiscal year; 7 (3) $50,000 for the city's third fiscal year. 8 * Sec. 3. AS 29.60.140 is amended to read: 9 Sec. 29.60.140. State aid for [TO] unincorporated communities. (a) 10 Subject to (c) of this section, the [THE] department shall pay for [TO] each 11 unincorporated community an entitlement each fiscal year to be used for a public 12 purpose. The department shall pay an entitlement for an unincorporated 13 community in a borough or unified municipality to that borough or unified 14 municipality. The borough or unified municipality may use the money from the 15 entitlement only for the benefit of that unincorporated community. The 16 department with advice from the Department of Law shall determine whether there is 17 in each unincorporated community in the unorganized borough an incorporated 18 nonprofit entity or a Native village council that will agree to receive and spend the 19 entitlement. If there is more than one qualified entity in an unincorporated community 20 in the unorganized borough, the department shall pay the money under the 21 entitlement to the entity that the department finds most qualified to receive and spend 22 the money. The department may not pay money under an entitlement to a Native 23 village council unless the council waives immunity from suit for claims arising out of 24 activities of the council related to the entitlement. A waiver of immunity from suit 25 under this subsection must be on a form provided by the Department of Law. If there 26 is no qualified incorporated nonprofit entity or Native village council in an 27 unincorporated community in the unorganized borough that is willing to receive 28 money under an entitlement, the entitlement for that unincorporated community may 29 not be paid. Neither this subsection nor any action taken under it enlarges or 30 diminishes the governmental authority or jurisdiction of a Native village council. If at 31 least $41,472,000 is appropriated for all entitlements under as 29.60.010 - 29.60.310

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1 for a fiscal year, the entitlement for each unincorporated community under this 2 subsection for that year equals $40,000. Otherwise, the entitlement equals $25,000. 3 (b) In this section "unincorporated community" means a place [IN THE 4 UNORGANIZED BOROUGH] that is not incorporated as a city and in which 25 or 5 more persons reside as a social unit. 6 * Sec. 4. AS 29.60.140 is amended by adding a new subsection to read: 7 (c) The department may pay an entitlement under (a) of this section for an 8 unincorporated community in a borough or unified municipality only if the borough or 9 unified municipality on a service area basis provides at least three of the following 10 services within the community: 11 (1) fire protection and emergency services; 12 (2) water and sewer; 13 (3) solid waste management and disposal; 14 (4) public road or ice road maintenance; 15 (5) public health. 16 * Sec. 5. AS 29.60 is amended by adding a new section to article 3 to read: 17 Sec. 29.60.330. Municipal dividend fund. There is established in the 18 department the municipal dividend fund consisting of municipal dividends transferred 19 to the fund under AS 37.13.145(e). Each fiscal year, the legislature may appropriate 20 money in the municipal dividend fund for the organization grant program 21 (AS 29.05.200), municipal tax resource equalization program (AS 29.60.010 - 22 29.60.080), priority revenue sharing for municipal services program (AS 29.60.100 - 23 29.60.180), and revenue sharing for safe communities program (AS 29.60.350 - 24 29.60.375). Any balance in the fund may be appropriated for 25 (1) capital project matching grants (AS 37.06.010 - 37.06.090); 26 (2) payments to municipalities for costs of confinement and care of 27 state prisoners. 28 * Sec. 6. AS 37.13.145 is amended by adding a new subsection to read: 29 (e) On or after July 1 and after all the other transfers under this section, the 30 corporation shall, subject to appropriation, transfer a municipal dividend from the 31 earnings reserve account to the municipal dividend fund established under

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1 AS 29.60.330. The municipal dividend equals the lesser of 2 (1) the amount calculated by multiplying $100 by the number of 3 permanent fund dividends paid by the Department of Revenue during the calendar 4 year immediately preceding the year the transfer is made under this subsection; or 5 (2) the balance of the earnings reserve account on the date of the 6 transfer under this subsection. 7 * Sec. 7. The uncodified law of the State of Alaska is amended by adding a new section to 8 read: 9 APPLICABILITY. This Act applies beginning fiscal year 2003 and thereafter.

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HOUSE BILL NO. 35

IN THE LEGISLATURE OF THE STATE OF ALASKA

TWENTY-SECOND LEGISLATURE - FIRST SESSION

BY REPRESENTATIVE HUDSON

Introduced: 1/8/01 Referred: State Affairs, Finance

A BILL

FOR AN ACT ENTITLED

1 "An Act relating to the market value of the permanent fund and to distribution of

2 income of the permanent fund; and providing for an effective date."

3 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA:

4 * Section 1. AS 37.13.140 is amended to read: 5 Sec. 37.13.140. Income available for distribution. The market value [NET 6 INCOME] of the fund includes the market value [INCOME] of the earnings reserve 7 account established under AS 37.13.145. The market value [NET INCOME] of the 8 fund shall be computed annually as of the last day of the fiscal year in accordance with 9 generally accepted accounting principles [, EXCLUDING ANY UNREALIZED 10 GAINS OR LOSSES]. Income available for distribution equals 5.3 [21] percent of the 11 average year-end market value [NET INCOME] of the fund for the last three 12 [FIVE] fiscal years, including the fiscal year just ended, but may not exceed [NET 13 INCOME OF THE FUND FOR THE FISCAL YEAR JUST ENDED PLUS] the 14 balance in the earnings reserve account described in AS 37.13.145.

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1 * Sec. 2. AS 37.13.145(b) is amended to read: 2 (b) By October 1 [AT THE END OF] each [FISCAL] year, the corporation 3 shall transfer from the earnings reserve account to the dividend fund established under 4 AS 43.23.045, 75 [50] percent of the income available for distribution under 5 AS 37.13.140, or the balance in the account, whichever is less. 6 * Sec. 3. AS 37.13.145(d) is amended to read: 7 (d) Notwithstanding (b) and (e) of this section, income earned on money 8 awarded in or received as a result of State v. Amerada Hess, et al., 1JU-77-847 Civ. 9 (Superior Court, First Judicial District), including settlement, summary judgment, or 10 adjustment to a royalty-in-kind contract that is tied to the outcome of this case, or 11 interest earned on the money, or on the earnings of the money shall be treated in the 12 same manner as other income of the Alaska permanent fund, except that it is not 13 available for distribution [TO THE DIVIDEND FUND], and shall be annually 14 deposited into the principal of the Alaska permanent fund. 15 * Sec. 4. AS 37.13.145 is amended by adding a new subsection to read: 16 (e) By October 1 each year after the transfer under (b) of this section, the 17 corporation shall transfer from the earnings reserve account to the general fund 25 18 percent of the income available for distribution under AS 37.13.140, or the balance in 19 the account, whichever is less. 20 * Sec. 5. AS 37.13.150 is amended to read: 21 Sec. 37.13.150. Corporation budget. The revenue generated by the fund's 22 investments must be identified as the source of the operating budget of the corporation 23 in the state's operating budget under AS 37.07 (Executive Budget Act). The 24 unexpended balance of the corporation's annual operating budget does not lapse at the 25 end of the fiscal year but shall be treated as income from the fund under 26 AS 37.13.145(a) [AS 37.13.140]. 27 * Sec. 6. AS 37.13.300(c) is amended to read: 28 (c) Income or other money [NET INCOME] from the mental health trust 29 fund may not be included in the computation of [NET] income available for 30 distribution under AS 37.13.140. 31 * Sec. 7. AS 37.14.031(c) is amended to read:

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1 (c) The net income of the fund shall be determined by the Alaska Permanent 2 Fund Corporation annually as of the last day of the fiscal year in accordance with 3 generally accepted accounting principles, excluding any unrealized gains or losses 4 [IN THE SAME MANNER THE CORPORATION DETERMINES THE NET 5 INCOME OF THE ALASKA PERMANENT FUND UNDER AS 37.13.140]. 6 * Sec. 8. AS 37.17.020(b) is amended to read: 7 (b) The endowment shall be held and invested by the Alaska Permanent Fund 8 Corporation subject to AS 37.13.120; however, net income from the endowment shall 9 be distributed under AS 37.17.010 - 37.17.110 and 37.17.225. Income or other 10 money [NET INCOME] from the endowment may not be included in the computation 11 of [NET] income available for distribution under AS 37.13.140. 12 * Sec. 9. AS 37.17.440(b) is amended to read: 13 (b) The principal and income of the endowment shall be held and invested by 14 the Alaska Permanent Fund Corporation subject to AS 37.13.120; however, net 15 income from the endowment and subsequent income earned on net income from the 16 endowment shall be held in a separate account until appropriated by the legislature. 17 Income or other money [NET INCOME] from the endowment may not be included 18 in the computation of [NET] income available for distribution under AS 37.13.140. 19 * Sec. 10. AS 37.13.145(c) is repealed. 20 * Sec. 11. The uncodified law of the State of Alaska is amended by adding a new section to 21 read: 22 TRANSITION. Notwithstanding AS 37.13.140, as amended in sec. 1 of this Act, 23 income available for distribution following the end of fiscal year 24 (1) 2001 is equal to 5.3 percent of the year-end market value of the fund, but 25 may not exceed the balance in the earnings reserve account; 26 (2) 2002 is equal to 5.3 percent of the average of the year-end market value of 27 the fund for the last two fiscal years, including the fiscal year just ended, but may not exceed 28 the balance in the earnings reserve account. 29 * Sec. 12. This Act takes effect June 30, 2001.

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SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 199

IN THE LEGISLATURE OF THE STATE OF ALASKA

TWENTY-SECOND LEGISLATURE - SECOND SESSION

BY REPRESENTATIVES HUDSON, Scalzi

Introduced: 1/18/02 Referred: State Affairs, Finance

A BILL

FOR AN ACT ENTITLED

1 "An Act relating to taxation, including taxation of income of individuals, estates, and

2 trusts."

3 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA:

4 * Section 1. AS 43.20 is amended by adding a new section to read: 5 Sec. 43.20.009. Tax on individuals, estates, and trusts. (a) There is 6 imposed for each taxable year an income tax, computed as provided in this section, on 7 every 8 (1) resident individual; and 9 (2) nonresident and part-year resident individual, estate, and trust, with 10 income from sources in the state. 11 (b) For a resident individual, 12 (1) for calendar year 2002, the tax under this section is one percent of 13 the individual's income; 14 (2) for each calendar year after 2002, the tax under this section is two

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1 and one-fourth percent of the individual's taxable income. 2 (c) For a nonresident or part-year resident individual, or for an estate or a trust, 3 (1) for the calendar year 2002, the tax under this section is one percent 4 of the individual's, estate's, or trust's income, multiplied by a fraction, the numerator of 5 which is taxable income from sources in the state and the denominator of which is 6 taxable income from all sources; 7 (2) for each calendar year after 2002, the tax under this section is two 8 and one-fourth percent of the individual's, estate's, or trust's taxable income, multiplied 9 by a fraction, the numerator of which is taxable income from sources in the state and 10 the denominator of which is taxable income from all sources. 11 (d) An individual whose income includes a cost-of-living allowance that is 12 exempt from the federal income tax shall determine and include that amount as part of 13 the individual's taxable income as if the cost-of-living allowance were not exempt. 14 (e) In this section, "taxable income" means adjusted gross income, as defined 15 in 26 U.S.C. 62 (Internal Revenue Code), and includes the income described in (d) of 16 this section. 17 * Sec. 2. AS 43.20.030(a) is amended to read: 18 (a) Every individual, trust, estate, partnership, and [IF A] corporation 19 subject to tax under this chapter [, OR A PARTNERSHIP THAT HAS A 20 CORPORATION AS A PARTNER, IS] required to make a return of income under 21 the provisions of the Internal Revenue Code [, IT] shall file with the department, 22 within 30 days after the federal return is required to be filed, a return setting out 23 (1) the amount of tax due under this chapter, less allowable credits 24 and payments claimed against the tax; and 25 (2) other information that the department requires for the purpose of 26 carrying out the provisions of this chapter [THAT THE DEPARTMENT 27 REQUIRES]. 28 * Sec. 3. AS 43.20.031(c) is amended to read: 29 (c) In computing the tax under this chapter, a corporation [THE 30 TAXPAYER] is not entitled to deduct any taxes based on or measured by net income. 31 * Sec. 4. AS 43.20.040 is repealed and reenacted to read:

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1 Sec. 43.20.040. Income from sources in the state. (a) In this chapter, 2 income from sources in the state includes 3 (1) compensation for personal services rendered in the state; 4 (2) working in the state for salary or wages; 5 (3) income from real or tangible personal property located in the state; 6 (4) income from stocks, bonds, notes, bank deposits, and other 7 intangible personal property having a taxable or business situs in the state; however, 8 the receipt of interest income from intangible property in the state does not alone 9 establish a taxable or business situs in the state; 10 (5) rentals and royalties for the use of or for the privilege of using, in 11 the state, patents, copyrights, secret processes and formulas, good will, marks, trade 12 brands, franchises, and other property having a taxable or business situs in the state; 13 (6) income distributed from a trust established under or governed by 14 the laws of the state; 15 (7) income of a trust established under or governed by the laws of the 16 state and income of the estate of a decedent who on the date of death was domiciled in 17 the state; 18 (8) income, from a source with a taxable or business situs in the state, 19 of 20 (A) a trust not established under or governed by the laws of the 21 state; or 22 (B) the estate of a decedent who on the date of death was not 23 domiciled in the state; 24 (9) income of whatever nature from a source with a taxable or business 25 situs in the state. 26 (b) Except as provided in (a)(4) of this section, in this section, income is from 27 a source with a taxable or business situs in the state if it is attributed to or derived from 28 (1) business facilities or property in the state; 29 (2) business, farming, or fishing activities in the state; 30 (3) conducting in the state the management or investment function for 31 intangible property;

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1 (4) a partnership, limited liability company, estate, or trust conducting 2 business activities in the state; 3 (5) a corporation transacting business activities in the state that has 4 elected to file federal returns under subchapter S of the Internal Revenue Code; 5 (6) any other activity from which income is received, realized, or 6 derived in the state. 7 (c) If a business, trade, or profession is carried on partly inside and partly 8 outside the state, other than the rendering of purely personal services by an individual, 9 the income from sources in the state shall be determined as provided in AS 43.19. 10 * Sec. 5. AS 43.20 is amended by adding a new section to article 1 to read: 11 Sec. 43.20.046. Individual, trust, and estate tax credits. (a) For a resident, 12 a trust established under or governed by the laws of this state, or the estate of a 13 decedent who on the date of death was domiciled in this state, the income tax imposed 14 on that resident, trust, or estate by another state or territory of the United States for the 15 taxable year, on income derived from sources in that state or territory, is allowed as a 16 credit against the tax under this chapter. 17 (b) The credit under (a) of this section is determined by multiplying the tax 18 computed under this chapter by a fraction, the numerator of which is the income 19 derived from sources in the other state or territory and the denominator of which is 20 income derived from all sources. The credit under (a) of this section may not exceed 21 the actual tax paid to the other state or territory. 22 (c) An individual, estate, or trust is allowed only the state credits provided in 23 this section. The total state credit allowed under this section may not exceed the tax 24 liability for the taxable year for the individual, estate, or trust. A credit may not be 25 carried, in whole or in part, to a different taxable year. 26 * Sec. 6. AS 43.20 is amended by adding a new section to read: 27 Sec. 43.20.171. Tax withholding on wages of individuals. (a) Every 28 employer making payment of wages, salaries, or crew shares after December 31, 2002, 29 (1) shall deduct and withhold an amount of tax computed in a manner 30 to approximate the amount of tax due on those wages, salaries, or crew shares under 31 this chapter for that taxable year;

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1 (2) shall remit the tax withheld to the department accompanied by a 2 return on a form prescribed by the department at the times required by the department 3 by regulation; 4 (3) is liable for the payment of the tax required to be deducted and 5 withheld under this section but is not liable to any individual for the amount of the 6 payment; and 7 (4) shall furnish to the employee on or before January 31 of the 8 succeeding year, or within 30 days after a request by the employee after the 9 employee's termination if the 30-day period ends before January 31, a written 10 statement on a form prescribed by the department showing 11 (A) the name and taxpayer identification number of the 12 employer; 13 (B) the name and social security number of the employee; 14 (C) the total amount of wages, salary, or crew shares for the 15 taxable year; and 16 (D) the total amount deducted and withheld as tax for the 17 taxable year. 18 (b) The department shall publish the rate of withholding required by this 19 section. 20 (c) In this section, 21 (1) "employee" includes an individual who receives compensation on a 22 crew share basis in connection with a commercial fishing activity; 23 (2) "employer" includes a person who pays compensation to an 24 individual on a crew share basis in connection with a commercial fishing activity. 25 * Sec. 7. AS 43.20.340 is amended by adding new paragraphs to read: 26 (12) "individual" means a natural person, married or unmarried, adult 27 or minor, subject to payment of income tax under 26 U.S.C. (Internal Revenue Code); 28 (13) "nonresident" means an individual who is not a resident or part- 29 year resident; 30 (14) "resident" means an individual who, for the entire taxable year, 31 was domiciled in the state or resided in the state.

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1 * Sec. 8. AS 43.05.085; AS 43.20.012, and 43.20.013 are repealed. 2 * Sec. 9. The uncodified law of the State of Alaska is amended by adding a new section to 3 read: 4 SEVERABILITY. Under AS 01.10.030, if any provision of this Act, or the 5 application of a provision of this Act to any person or circumstance is held invalid, the 6 remainder of this Act and the application to other persons is not affected. 7 * Sec. 10. The uncodified law of the State of Alaska is amended by adding a new section to 8 read: 9 RETROACTIVE APPLICATION. Sections 1 - 5, 7, and 8 of this Act are retroactive 10 to January 1, 2002.

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SENATE CS FOR CS FOR HOUSE BILL NO. 225(RLS)

IN THE LEGISLATURE OF THE STATE OF ALASKA

TWENTY-SECOND LEGISLATURE - SECOND SESSION

BY THE SENATE RULES COMMITTEE

Offered: 5/12/02 Referred: Today's Calendar

Sponsor(s): REPRESENTATIVES MURKOWSKI, Hudson, Halcro, Crawford

A BILL

FOR AN ACT ENTITLED

1 "An Act relating to state taxation of alcoholic beverages; and increasing the alcoholic

2 beverage state tax rates."

3 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA:

4 * Section 1. The uncodified law of the State of Alaska is amended by adding a new section 5 to read: 6 PURPOSE. The purpose of the alcohol and other drug abuse treatment and prevention 7 fund established by sec. 4 of this Act is to finance the establishment and maintenance of 8 programs under AS 47.37.030 for the prevention and treatment of alcoholism, drug abuse, and 9 misuse of hazardous volatile materials and substances by inhalant abusers. 10 * Sec. 2. AS 43.60.010(a) is amended to read: 11 (a) Except as provided in (c) of this section, every [EVERY] brewer, 12 distiller, bottler, jobber, retailer, wholesaler, or manufacturer who sells alcoholic 13 beverages in the state or who consigns shipments of alcoholic beverages into the state, 14 whether or not the alcoholic beverages are brewed, distilled, bottled, or manufactured

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1 in the state, shall pay on all malt beverages (alcoholic content of one percent or more 2 by volume), wines, and hard or distilled alcoholic beverages, the following taxes: 3 (1) malt beverages at the rate of $1.07 [35 CENTS] a gallon or fraction 4 of a gallon; 5 (2) cider with at least 0.5 percent alcohol by volume but not more 6 than seven percent alcohol by volume, at the rate of $1.07 a gallon or fraction of a 7 gallon; 8 (3) wine or other beverages, other than beverages described in (1) or 9 (2) of this subsection, of 21 percent alcohol by volume or less, at the rate of $2.50 10 [85 CENTS] a gallon or fraction of a gallon; and 11 (4) [(3)] other beverages having a content of more than 21 percent 12 alcohol by volume at the rate of $12.80 [$5.60] a gallon. 13 * Sec. 3. AS 43.60.010 is amended by adding a new subsection to read: 14 (c) A brewer shall pay a tax at the rate of 35 cents a gallon on sales of the first 15 60,000 barrels of beer sold in the state each fiscal year beginning July 1, 2001, for beer 16 produced in the United States if the producing brewery meets the qualifications of 26 17 U.S.C. 5051(a)(2). To qualify for the tax rate under this subsection, the brewer must 18 file with the department a copy of a Bureau of Alcohol, Tobacco and Firearms 19 acknowledged copy of the Brewer's Notice of Intent to Pay Reduced Rate of Tax 20 required under 27 C.F.R. 25.167 for the calendar year in which the fiscal year begins 21 for which the partial exemption is sought. If proof of eligibility is not received by the 22 department before June 1, the tax rate under this subsection does not apply until the 23 first day of the second month after the month the notice is received by the department. 24 For purposes of applying this subsection, a barrel of beer may contain no more than 31 25 gallons. 26 * Sec. 4. AS 43.60 is amended by adding a new section to read: 27 Sec. 43.60.050. Disposition of proceeds. (a) The alcohol and other drug 28 abuse treatment and prevention fund is established in the general fund. The 29 Department of Administration shall separately account for 50 percent of the tax 30 collected under AS 43.60.010 and deposit it into the alcohol and other drug abuse 31 treatment and prevention fund.

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1 (b) The legislature may use the annual estimated balance in the fund to make 2 appropriations to the Department of Health and Social Services to establish and 3 maintain programs for the prevention and treatment of alcoholism, drug abuse, and 4 misuse of hazardous volatile materials and substances by inhalant abusers under 5 AS 47.37.030. 6 (c) Nothing in this section creates a dedicated fund.

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CS FOR HOUSE BILL NO. 229(L&C)

IN THE LEGISLATURE OF THE STATE OF ALASKA

TWENTY-SECOND LEGISLATURE - SECOND SESSION

BY THE HOUSE LABOR AND COMMERCE COMMITTEE

Offered: 2/15/02 Referred: Finance

Sponsor(s): REPRESENTATIVE STEVENS

A BILL

FOR AN ACT ENTITLED

1 "An Act imposing a tax on employment; and providing for an effective date."

2 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA:

3 * Section 1. AS 43 is amended by adding a new chapter to read: 4 Chapter 45. Education Tax. 5 Sec. 43.45.011. Tax imposed. There is imposed a tax of $100 a year on each 6 individual 19 years of age or older and employed, including self-employed, in the 7 state. 8 Sec. 43.45.021. Collection of tax. (a) An employer shall deduct and 9 withhold $50 of the tax from the employee's salary or other compensation on each of 10 the first two regular payrolls after January 1 of each calendar year or, in the case of an 11 employee who begins work and is provided a salary or compensation on a later 12 payroll, on each of the first two payrolls after employment. A deduction of the tax 13 may not be made in the salary or other compensation of a person who provides proof 14 to the employer that the tax imposed under AS 43.45.011 has been paid. 15 (b) The department shall provide a return form for the tax withheld under this

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1 section. An employer shall send the tax withheld to the department on or before the 2 last day of the month following the calendar quarter in which the tax was withheld 3 from the employee. 4 Sec. 43.45.031. Record of withholding. An employer who withholds tax 5 under AS 43.45.021 shall furnish to the employee upon request a record of the amount 6 of tax withheld from the employee. The department shall provide a form for that 7 purpose. 8 Sec. 43.45.041. Disposition of tax proceeds. (a) The tax collected by the 9 department under AS 43.45.021 shall be deposited into the general fund and accounted 10 for separately. 11 (b) The legislature may appropriate the estimated amounts to be collected and 12 separately accounted for under (a) of this section for education. 13 (c) The deposit required and appropriation authorized by this section are not 14 intended to create a dedication in violation of art. IX, sec. 7, Constitution of the State 15 of Alaska. 16 * Sec. 2. The uncodified law of the State of Alaska is amended by adding a new section to 17 read: 18 CONTINGENT EFFECTIVENESS. This Act takes effect only if an Act imposing an 19 individual income tax is passed by the Twenty-Second Alaska State Legislature and becomes 20 law. 21 * Sec. 3. This Act takes effect on the later of (1) the effective date of the Act described in 22 sec. 2 of this Act, and (2) January 1, 2003.

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HOUSE BILL NO. 413

IN THE LEGISLATURE OF THE STATE OF ALASKA

TWENTY-SECOND LEGISLATURE - SECOND SESSION

BY THE HOUSE RULES COMMITTEE BY REQUEST OF THE GOVERNOR

Introduced: 2/13/02 Referred: State Affairs, Finance

A BILL

FOR AN ACT ENTITLED

1 "An Act relating to the imposition of an income tax on individuals, estates, and trusts;

2 relating to the administration of revenue laws; relating to the Alaska Net Income Tax

3 Act; and providing for an effective date."

4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA:

5 * Section 1. AS 43.05 is amended by adding a new section to article 3 to read: 6 Sec. 43.05.300. Definition. In AS 43.05.220 – 43.05.300, unless the context 7 otherwise requires, "taxpayer" 8 (1) means a person required to pay a tax under this title; and 9 (2) includes an employer that is required to withhold taxes under 10 AS 43.20.041. 11 * Sec. 2. AS 43.20 is amended by adding a new section to read: 12 Sec. 43.20.009. Tax on individuals, estates, and trusts; applicable Alaska 13 tax rate. (a) There is imposed for each taxable year an income tax on every 14 (1) resident individual, resident estate, and resident trust;

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1 (2) part-year resident individual with income from sources in the state; 2 and 3 (3) nonresident individual, nonresident estate, and nonresident trust, 4 with income from sources in the state. 5 (b) For a resident individual, resident estate, and resident trust, the tax under 6 this section is the sum of the taxpayer's federal income tax less the credits allowed in 7 AS 43.20.039, multiplied by the applicable Alaska tax rate set by (d) of this section, 8 and then less the offset allowed in (g) of this section. 9 (c) For a part-year resident individual, nonresident individual, nonresident 10 estate, and nonresident trust, the tax under this section is the sum of the taxpayer's 11 federal income tax less the credits allowed in AS 43.20.039, multiplied by the product 12 of the applicable Alaska tax rate set by (d) of this section, times a fraction the 13 numerator of which is gross income from sources within the state and the denominator 14 of which is gross income from all sources. In this subsection, "gross income" includes 15 the deductions provided for in 26 U.S.C. 62(a)(1), (2), (3), (4), (5), and (6). 16 (d) As soon as practicable after September 30 of each year, the department 17 shall publish the applicable Alaska tax rate under this subsection. The applicable 18 Alaska tax rate is 19 (1) 20 percent if the unaudited balance in the budget reserve fund 20 created by art. IX, sec. 17, Constitution of the State of Alaska is equal to or less than 21 $2,000,000,000 on September 30 of the year preceding the tax year; 22 (2) 10 percent if the unaudited balance in the budget reserve fund 23 created by art. IX, sec. 17, Constitution of the State of Alaska is more than 24 $2,000,000,000 but less than $2,500,000,000; or 25 (3) five percent if the unaudited balance in the budget reserve fund 26 created by art. IX, sec. 17, Constitution of the State of Alaska is $2,500,000,000 or 27 greater on September 30 of the year preceding the tax year. 28 (e) For purposes of (b) and (c) of this section, a taxpayer's federal income tax 29 is the sum of the tax imposed by 26 U.S.C. 1-3 on taxable income required to be 30 reported on the taxpayer's federal tax return and the tax, if any, imposed by 26 U.S.C. 31 55(a), less federal credits incorporated under AS 43.20.021(a) to the extent that the tax

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1 after credits is not less than zero. Credits may not be carried back or forward to 2 another tax year except to the extent allowed for federal income tax purposes by the 3 Internal Revenue Code. 4 (f) For purposes of (g) of this section, the conversion fraction is a fraction the 5 numerator of which is the federal tax on taxable income computed under 26 U.S.C. 1- 6 3 and the denominator of which is federal adjusted gross income, except that if the 7 computed fraction 8 (1) is less than the lowest rate of tax on taxable income under 26 9 U.S.C. 1, the fraction is that lowest rate of tax; and 10 (2) exceeds the highest rate of tax on taxable income under 26 U.S.C. 11 1, the fraction is that highest rate of tax. 12 (g) A resident individual, resident estate, and resident trust is allowed as an 13 offset against the tax determined in (b) of this section the amount of income tax 14 imposed for the taxable year by another state or territory of the United States on 15 income derived from sources in the other state or territory that is also subject to tax 16 under this chapter. The offset is the least of the following: 17 (1) the product from multiplying the income derived from sources in 18 the other state or territory that is subject to tax under this chapter by the conversion 19 fraction calculated in accordance with (f) of this section, and then by multiplying that 20 amount by the applicable Alaska tax rate; 21 (2) the amount of the actual tax paid to the other state or territory; or 22 (3) the tax determined under (b) of this section but without regard to 23 the offset provided in this subsection. 24 (h) In this section, unless the context otherwise requires, "unaudited balance in 25 the budget reserve fund" means the balance in the fund on deposit with the state's 26 custodian bank as certified by the commissioner, without regard to liabilities to the 27 general fund under art. IX, sec. 17(d), Constitution of the State of Alaska. 28 * Sec. 3. AS 43.20 is amended by adding a new section to read: 29 Sec. 43.20.029. Electronic filing incentive. The commissioner may by 30 regulation provide for an incentive to taxpayers for the electronic filing of tax returns 31 and making of tax payments. An incentive under this section may not exceed $25 per

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1 taxpayer per year and is contingent upon the accurate and timely filing of the tax 2 return and timely payment of the tax due. 3 * Sec. 4. AS 43.20.030(a) is amended to read: 4 (a) Every individual, trust, estate, partnership, and [IF A] corporation [, 5 OR A PARTNERSHIP THAT HAS A CORPORATION AS A PARTNER, IS] 6 required to make a return under the provisions of the Internal Revenue Code [, IT] 7 shall file with the department [, WITHIN 30 DAYS AFTER THE FEDERAL 8 RETURN IS REQUIRED TO BE FILED,] a return setting out 9 (1) the amount of tax due under this chapter, less allowable credits 10 and payments claimed against the tax; and 11 (2) other information that the department requires for the purpose of 12 carrying out the provisions of this chapter [THAT THE DEPARTMENT 13 REQUIRES]. 14 * Sec. 5. AS 43.20.030(c) is amended to read: 15 (c) Notwithstanding (h) [(a)] of this section, the total amount of tax imposed 16 by this chapter is due and payable to the department at the same time and in the same 17 manner as the tax payable to the United States Internal Revenue Service. 18 * Sec. 6. AS 43.20.030 is amended by adding a new subsection to read: 19 (h) The return for a corporation is due within 30 days after the federal return is 20 required to be filed. The return for other taxpayers is due on the date the federal return 21 is required to be filed. 22 * Sec. 7. AS 43.20 is amended by adding a new section to read: 23 Sec. 43.20.039. Credits. (a) A resident individual, resident estate, and 24 resident trust, and, if (1) - (3) of this subsection are from a source in the state, a 25 nonresident or part-year resident individual, nonresident estate, and nonresident trust, 26 is allowed as a credit the product obtained from multiplying the conversion fraction 27 calculated in accordance with AS 43.20.009(f) by the sum of the following income 28 amounts: 29 (1) Alaska longevity bonus under AS 47.45; 30 (2) interest upon obligations unconditionally backed by the full faith 31 and credit of the United States; and

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1 (3) any other income to the extent required by state or federal law. 2 (b) The total credits allowed by this section may not exceed the taxpayer's 3 federal income tax calculated in accordance with AS 43.20.009(e). 4 * Sec. 8. AS 43.20.040 is repealed and reenacted to read: 5 Sec. 43.20.040. Income from sources in the state. (a) In this chapter, 6 income from sources in the state, to the extent not otherwise preempted by federal law, 7 includes 8 (1) compensation for personal services rendered in the state except for 9 compensation for military or naval service by an individual physically present in the 10 state under military or naval orders with a legal residence or legal domicile in another 11 state as provided by 50 U.S.C. App. 574 (Soldiers' and Sailors' Civil Relief Act of 12 1940); 13 (2) income from salary or wages for work in the state; 14 (3) income from real or tangible personal property located in the state; 15 (4) income from stocks, bonds, notes, bank deposits, and other 16 intangible personal property having a taxable situs in the state; however, the receipt of 17 interest income from intangible property in the state does not alone establish a taxable 18 situs in the state; 19 (5) rentals and royalties for the use of or for the privilege of using, in 20 the state, patents, copyrights, secret processes and formulas, good will, marks, trade 21 brands, franchises, and other property having a taxable situs in the state; 22 (6) income distrubuted from a resident trust and resident estate; 23 (7) the income of a resident trust and resident estate; 24 (8) income, from a source with a taxable situs in the state, of 25 (A) a nonresident trust; or 26 (B) a nonresident estate; and 27 (9) income of whatever nature from a source with a taxable situs in the 28 state. 29 (b) In this section, income is from a source with a taxable situs in the state if it 30 is attributed to or derived from 31 (1) property in the state;

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1 (2) business, farming, or fishing activities in the state; 2 (3) conducting in the state the management or investment function for 3 intangible property; 4 (4) a partnership, limited liability company, estate, or trust conducting 5 business activities in the state; 6 (5) a corporation transacting business activities in the state that has 7 elected to file federal returns under subchapter S of the Internal Revenue Code; or 8 (6) any other activities in the state. 9 (c) If a business, trade, or profession is carried on partly inside and partly 10 outside the state, other than the rendering of purely personal services by an individual, 11 the income from sources in the state shall be determined as provided in AS 43.19. The 12 department shall by regulation provide the methodology, including the use and 13 composition of an apportionment formula, to allocate and apportion the income of 14 individuals involved in commercial fishing or in water, air, or land transportation 15 activities. The department may allocate income of an individual as may be necessary 16 to clearly reflect the source of the income or to prevent an evasion of taxes. 17 * Sec. 9. AS 43.20 is amended by adding a new section to read: 18 Sec. 43.20.041. Withholding and estimated tax payments. (a) Every 19 employer making payment of wages or salaries 20 (1) shall deduct and withhold an amount of tax computed in a manner 21 to approximate the amount of tax due on those wages or salaries under this chapter for 22 that year; 23 (2) shall remit the tax withheld to the department accompanied by a 24 return on a form prescribed by the department at the times required by the department 25 by regulation; 26 (3) is liable for the payment of the tax required to be deducted and 27 withheld under this section but is not liable to any individual for the amount of the 28 payment; and 29 (4) shall furnish to the employee on or before January 31 of the 30 succeeding year, or within 30 days after a request by the employee after the 31 employee's termination of employment if that 30-day period ends before January 31, a

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1 written statement on a form prescribed by the department showing 2 (A) the name and taxpayer identification number of the 3 employer; 4 (B) the name and social security number of the employee; 5 (C) the total amount of wages, salary, and other compensation 6 for the tax year; and 7 (D) the total amount deducted and withheld as tax. 8 (b) The department shall publish the rate of withholding required by this 9 section. 10 (c) Individuals, trusts and estates shall make estimated payments of income 11 tax on income not subject to withholding. Income in the form of a permanent fund 12 dividend under AS 43.23 is not subject to this subsection. 13 (d) Tax withholdings and estimated tax payments under this section shall be 14 claimed as payments of tax for the tax year. 15 (e) In this section, unless the context otherwise requires, 16 (1) "employee" means an employee as determined under provisions of 17 the Internal Revenue Code; 18 (2) "employer" means an employer as determined under the provisions 19 of the Internal Revenue Code; 20 (3) "wages" means wages as determined under the provisions of the 21 Internal Revenue Code. 22 * Sec. 10. AS 43.20.160(c) is amended to read: 23 (c) The department shall prescribe and furnish all necessary forms, shall 24 facilitate automated or other efficient means for the filing and processing of tax 25 returns and the making of tax payments, and shall adopt and publish all necessary 26 regulations in plain and concise language conformable with this chapter for the 27 assessment and collection of the taxes imposed by this chapter. The department shall 28 apply as far as practicable the administrative and judicial interpretations of the federal 29 income tax law. [THE DEPARTMENT SHALL ALSO PREPARE A CONCISE 30 STATEMENT OF THE CONTENTS OF THE CODE SECTIONS REFERRED TO 31 IN THIS CHAPTER FOR THE INFORMATION OF THE TAXPAYER AND

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1 MAKE THEM AVAILABLE TO THE TAXPAYER MAKING A RETURN.] 2 * Sec. 11. AS 43.20.340(7) is amended to read: 3 (7) "part-year resident individual" means an individual who enters or 4 leaves the state during the taxable year and who has resided or was domiciled in the 5 state for a period of less than 12 months during the taxable year; 6 * Sec. 12. AS 43.20.340 is amended by adding new paragraphs to read: 7 (12) "domicile" means the place where an individual has a true, fixed, 8 permanent home and principal establishment and to which place the individual has the 9 intention of returning whenever absent for a temporary or transitory purpose; 10 (13) "individual" means a natural person, regardless of whether 11 (A) married or unmarried; 12 (B) adult or minor; 13 (14) "nonresident estate" means an estate of a decedent who on the 14 date of death was not domiciled in the state; 15 (15) "nonresident individual" means an individual 16 (A) who is not a resident or part-year resident individual; or 17 (B) who is physically present in the state pursuant to military or 18 naval orders with a legal residence or legal domicile in another state as 19 provided by 50 U.S.C. App. 574 (Soldiers' and Sailors' Civil Relief Act of 20 1940); 21 (16) "nonresident trust" means a trust not established under or 22 governed by the laws of the state; 23 (17) "residence" or "resided" means actual physical presence in the 24 state and is determined without regard to a person's domicile; 25 (18) "resident estate" means an estate of a decedent who on the date of 26 death was domiciled in the state; 27 (19) "resident individual" means an individual or natural person who 28 was domiciled in the state or resided within the state for the entire taxable year except 29 for temporary absences; however, an individual does not lose status as a resident 30 simply by reason of attending an educational institution or serving in the armed forces 31 not in this state;

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1 (20) "resident trust" means a trust established under or governed by the 2 laws of the state. 3 * Sec. 13. AS 43.05.085; AS 43.20.012, and 43.20.013 are repealed. 4 * Sec. 14. The uncodified law of the State of Alaska is amended by adding a new section to 5 read: 6 APPLICABILITY. The changes made by this Act apply to tax years beginning on or 7 after January 1, 2003. 8 * Sec. 15. The uncodified law of the State of Alaska is amended by adding a new section to 9 read: 10 TRANSITION: REGULATIONS. Notwithstanding sec. 18 of this Act, the 11 Department of Revenue may proceed to adopt regulations to carry out the provisions of this 12 Act. The regulations take effect under AS 44.62 (Administrative Procedure Act), but not 13 before January 1, 2003. 14 * Sec. 16. The uncodified law of the State of Alaska is amended by adding a new section to 15 read: 16 TRANSITION: APPLICABLE ALASKA TAX RATE. Notwithstanding 17 AS 43.20.009(d), enacted by sec. 2 of this Act, for tax year 2003 the applicable Alaska tax 18 rate is 20 percent. Nothing in this section limits the operation of AS 43.20.009(d), enacted by 19 sec. 2 of this Act, for subsequent tax years. 20 * Sec. 17. Section 15 of this Act takes effect immediately under AS 01.10.070(c). 21 * Sec. 18. Except as provided in sec. 17 of this Act, this Act takes effect January 1, 2003.

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HOUSE BILL NO. 401

IN THE LEGISLATURE OF THE STATE OF ALASKA

TWENTY-SECOND LEGISLATURE - SECOND SESSION

BY REPRESENTATIVE DAVIES

Introduced: 2/11/02 Referred: Transportation, Finance

A BILL

FOR AN ACT ENTITLED

1 "An Act increasing the motor fuel tax levied and collected on motor vehicles and on

2 certain fuel for internal combustion engines not used in or in conjunction with a motor

3 vehicle; directing separate accounting of amounts derived from motor vehicle licensing,

4 registration, and transfers and related activities; authorizing the appropriation of the

5 proceeds of the motor fuel tax on motor vehicles and the amounts separately accounted

6 for in the special highway fuel tax account to meet the costs of activities relating to

7 motor vehicle licensing and registration and for the uses identified in the law

8 establishing the account; and providing for an effective date."

9 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA:

10 * Section 1. AS 28.10 is amended by adding a new section to read: 11 Sec. 28.10.595. Separate accounting. Except as to the proceeds of fees for 12 which a different form of accounting and disposition is otherwise specifically provided

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1 in this chapter, 2 (1) the fees collected by the department under this chapter shall be 3 deposited in the special highway fuel tax account in the state general fund described in 4 AS 43.40.010(g); and 5 (2) the legislature may appropriate the annual estimated balance of the 6 funds from the special highway fuel tax account for the purposes described in 7 AS 43.40.010(g). 8 * Sec. 2. AS 43.40.010(g) is amended to read: 9 (g) The proceeds of the revenue from the tax on all motor fuels, except as 10 provided in (e), (f), and (j) of this section, shall be deposited in a special highway fuel 11 tax account in the state general fund. The legislature may appropriate the annual 12 estimated balance of the funds from the account [IT] for (1) the annual operating 13 costs for the operating division or unit in the Department of Administration that 14 has the duties and responsibilities described in AS 28.05.011(b)(1) - (7), including 15 registration, titling, and transfer of motor vehicles; and (2) expenditure by the 16 Department of Transportation and Public Facilities directly or as matched with 17 available federal-aid highway money for maintenance of highways, construction of 18 highway projects and ferries included in the program provided for in AS 19.10.150, 19 including approaches, appurtenances and related facilities and acquisition of rights-of- 20 way or easements, and other highway costs including surveys, administration, and 21 related matters. All departments of the state government authorized to spend funds 22 collected from taxes imposed by this chapter shall perform, when feasible, all 23 construction or reconstruction projects by contract after the projects have been 24 advertised for competitive bids, except that, when feasible, arrangements shall be 25 made with political subdivisions to carry out the construction or reconstruction 26 projects. If it is not feasible for the work to be performed by state engineering forces, 27 the commissioner of transportation and public facilities may contract on a professional 28 basis with private engineering firms for road design, bridge design, and services in 29 connection with surveys. If more than one private engineering firm is available for the 30 work, the contracts shall be entered into on a negotiated basis. 31 * Sec. 3. AS 43.40.010 is amended by adding a new subsection to read:

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1 (m) In addition to the tax on motor fuel levied under (a) and (b) of this section, 2 there is levied an additional tax of 10 cents a gallon on all motor fuel sold or otherwise 3 transferred within the state or consumed by a user. The levy made by this subsection 4 does not apply to motor fuel described in (a)(1) - (3) or to motor fuel described in 5 (b)(1) - (3) of this section. 6 * Sec. 4. AS 43.40.030(a) is amended to read: 7 (a) Except as specified in AS 43.40.010(j), a person who uses motor fuel to 8 operate an internal combustion engine is entitled to a refund of 16 [SIX] cents a gallon 9 if 10 (1) the tax on the motor fuel has been paid; 11 (2) the motor fuel is not aviation fuel, or motor fuel used in or on 12 watercraft; and 13 (3) the internal combustion engine is not used in or in conjunction with 14 a motor vehicle licensed to be operated on public ways. 15 * Sec. 5. This Act takes effect July 1, 2002.

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CS FOR HOUSE BILL NO. 304(2d RLS) am

IN THE LEGISLATURE OF THE STATE OF ALASKA

TWENTY-SECOND LEGISLATURE - SECOND SESSION

BY THE HOUSE RULES COMMITTEE

Amended: 5/2/02 Offered: 5/2/02

Sponsor(s): REPRESENTATIVES WHITAKER, Fate, Mulder, Davies

A BILL

FOR AN ACT ENTITLED

1 "An Act relating to the education fund and the infrastructure and economic

2 development fund, to the market value of the permanent fund, to distribution of the

3 income of the permanent fund, and to the determination of net income of the mental

4 health trust fund."

5 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA:

6 * Section 1. AS 37.05 is amended by adding new sections to article 6 to read: 7 Sec. 37.05.590. Education fund. (a) There is created as a special account in 8 the general fund the education fund consisting of transfers to the fund under 9 AS 37.13.145(e). Money may be appropriated from the fund for public schools, 10 including the University of Alaska. 11 (b) Nothing in this section dedicates money for a specific purpose. 12 Sec. 37.05.600. Infrastructure and economic development fund. (a) There 13 is created as a special account in the general fund the infrastructure and economic 14 development fund consisting of transfers to the fund. Money may be appropriated

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1 from the fund for capital projects, economic development projects, or payments of 2 principal and interest on general obligation or revenue bonds issued by the state or an 3 instrumentality of the state. 4 (b) Nothing in this section dedicates money for a specific purpose. 5 * Sec. 2. AS 37.13.140 is amended to read: 6 Sec. 37.13.140. Income available for distribution. The market value [NET 7 INCOME] of the fund includes the market value [INCOME] of the earnings reserve 8 account established under AS 37.13.145. The market value [NET INCOME] of the 9 fund shall be computed annually as of the last day of the fiscal year in accordance with 10 generally accepted accounting principles [, EXCLUDING ANY UNREALIZED 11 GAINS OR LOSSES]. Income available for distribution on July 1 equals five [21] 12 percent of the average year-end market value [NET INCOME] of the fund for the 13 last five fiscal years, including the fiscal year just ended, but may not exceed [NET 14 INCOME OF THE FUND FOR THE FISCAL YEAR JUST ENDED PLUS] the 15 balance in the earnings reserve account described in AS 37.13.145. 16 * Sec. 3. AS 37.13.145(b) is amended to read: 17 (b) At the beginning [END] of each fiscal year, the corporation shall transfer 18 from the earnings reserve account to the dividend fund established under 19 AS 43.23.045, 50 percent of the income available for distribution under AS 37.13.140. 20 * Sec. 4. AS 37.13.145(d) is amended to read: 21 (d) Notwithstanding (b) and (e) of this section, income earned on money 22 awarded in or received as a result of State v. Amerada Hess, et al., 1JU-77-847 Civ. 23 (Superior Court, First Judicial District), including settlement, summary judgment, or 24 adjustment to a royalty-in-kind contract that is tied to the outcome of this case, or 25 interest earned on the money, or on the earnings of the money shall be treated in the 26 same manner as other income of the Alaska permanent fund, except that it is not 27 available for distribution [TO THE DIVIDEND FUND], and shall be annually 28 deposited into the principal of the Alaska permanent fund. 29 * Sec. 5. AS 37.13.145 is amended by adding new subsections to read: 30 (e) At the beginning of each fiscal year, the corporation shall transfer from the 31 earnings reserve account to the education fund (AS 37.05.590) 50 percent of the

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1 income available for distribution under AS 37.13.140. 2 (f) If the amount in the earnings reserve account is not sufficient to fully fund 3 all transfers under (b) and (e) of this section, the amount of each transfer shall be 4 reduced on a pro rata basis so that the total amount transferred equals the balance in 5 the earnings reserve account. 6 * Sec. 6. AS 37.13.150 is amended to read: 7 Sec. 37.13.150. Corporation budget. The revenue generated by the fund's 8 investments must be identified as the source of the operating budget of the corporation 9 in the state's operating budget under AS 37.07 (Executive Budget Act). The 10 unexpended balance of the corporation's annual operating budget does not lapse at the 11 end of the fiscal year but shall be treated as income from the fund under 12 AS 37.13.145(a) [AS 37.13.140]. 13 * Sec. 7. AS 37.13.300(c) is amended to read: 14 (c) Income or other money [NET INCOME] from the mental health trust 15 fund may not be included in the computation of [NET] income available for 16 distribution under AS 37.13.140. 17 * Sec. 8. AS 37.14.031(c) is amended to read: 18 (c) The net income of the fund shall be determined by the Alaska Permanent 19 Fund Corporation annually as of the last day of the fiscal year in accordance with 20 generally accepted accounting principles [IN THE SAME MANNER THE 21 CORPORATION DETERMINES THE NET INCOME OF THE ALASKA 22 PERMANENT FUND UNDER AS 37.13.140]. 23 * Sec. 9. AS 37.17.020(b) is amended to read: 24 (b) The endowment shall be held and invested by the Alaska Permanent Fund 25 Corporation subject to AS 37.13.120; however, net income from the endowment shall 26 be distributed under AS 37.17.010 - 37.17.110 and 37.17.225. Income or other 27 money [NET INCOME] from the endowment may not be included in the computation 28 of [NET] income available for distribution under AS 37.13.140. 29 * Sec. 10. AS 37.17.440(b) is amended to read: 30 (b) The principal and income of the endowment shall be held and invested by 31 the Alaska Permanent Fund Corporation subject to AS 37.13.120; however, net

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1 income from the endowment and subsequent income earned on net income from the 2 endowment shall be held in a separate account until appropriated by the legislature. 3 Income or other money [NET INCOME] from the endowment may not be included 4 in the computation of [NET] income available for distribution under AS 37.13.140. 5 * Sec. 11. AS 37.13.145(c) is repealed. 6 * Sec. 12. The uncodified law of the State of Alaska is amended by adding a new section to 7 read: 8 TRANSFER TO GENERAL FUND. At the beginning of fiscal year 2003, after the 9 transfers under AS 37.13.145 at the end of fiscal year 2002, an amount equal to $300,000,000 10 or the balance in the earnings reserve account, whichever is less, is transferred from the 11 earnings reserve account to the general fund.

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2d CS FOR HOUSE BILL NO. 303(RLS)(fld S)

IN THE LEGISLATURE OF THE STATE OF ALASKA

TWENTY-SECOND LEGISLATURE - SECOND SESSION

BY THE HOUSE RULES COMMITTEE

Offered: 5/2/02 Referred: Today's Calendar

Sponsor(s): REPRESENTATIVES WHITAKER, Fate, Lancaster, Davies

A BILL

FOR AN ACT ENTITLED

1 "An Act relating to taxation of individual income; and providing for an effective date."

2 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA:

3 * Section 1. AS 43.05 is amended by adding a new section to article 3 to read: 4 Sec. 43.05.300. Definition. In AS 43.05.220 - 43.05.300, unless the context 5 otherwise requires, "taxpayer" 6 (1) means a person required to pay a tax under this title; and 7 (2) includes an employer that is required to withhold taxes under 8 AS 43.20.041. 9 * Sec. 2. AS 43.20 is amended by adding a new section to read: 10 Sec. 43.20.009. Tax on individuals. (a) For each year after December 31, 11 2002, there is imposed an income tax on the adjusted gross income of every 12 (1) resident individual; and 13 (2) nonresident and part-year resident individual with income from 14 sources in the state. 15 (b) The applicable tax rates for a calendar year are as follows:

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1 (1) if, on September 30 of the previous year, the unaudited balance in 2 the budget reserve fund created by art. IX, sec. 17, Constitution of the State of Alaska, 3 was equal to or less than $2,000,000,000, 4 (A) for an individual whose federal filing status for the year is 5 single, married filing separately, or head of household, 6 if the adjusted gross income is: then the tax is: 7 not over $10,000 1.35 percent 8 over $10,000 but not over $20,000 $135 plus 2.03 percent of the 9 amount over $10,000 10 over $20,000 but not over $30,000 $338 plus 2.70 percent of the 11 amount over $20,000 12 over $30,000 but not over $50,000 $608 plus 2.70 percent of the 13 amount over $30,000 14 over $50,000 but not over $75,000 $1,148 plus 1.76 percent of 15 the amount over $50,000 16 over $75,000 but not over $100,000 $1,588 plus 1.76 percent of 17 the amount over $75,000 18 over $100,000 but not over $150,000 $2,028 plus 1.69 percent of 19 the amount over $100,000 20 over $150,000 but not over $200,000 $2,873 plus 1.49 percent of 21 the amount over $150,000 22 over $200,000 but not over $500,000 $3,618 plus .41 percent of the 23 amount over $200,000 24 over $500,000 but not over $1,000,000 $4,848 plus .07 percent of the 25 amount over $500,000 26 over $1,000,000 $5,198 plus .05 percent of the 27 amount over $1,000,000 28 (B) for two individuals whose federal filing status is married 29 filing jointly or an individual whose federal filing status is as a qualifying 30 widow or widower with dependent child, 31 if adjusted gross income is: then the tax is:

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1 not over $20,000 1.35 percent 2 over $20,000 but not over $40,000 $270 plus 2.03 percent of the 3 amount over $20,000 4 over $40,000 but not over $60,000 $676 plus 2.70 percent of the 5 amount over $40,000 6 over $60,000 but not over $100,000 $1,216 plus 2.70 percent of 7 the amount over $60,000 8 over $100,000 but not over $150,000 $2,296 plus 1.76 percent of 9 the amount over $100,000 10 over $150,000 but not over $200,000 $3,176 plus 1.76 percent of 11 the amount over $150,000 12 over $200,000 but not over $300,000 $4,056 plus 1.69 percent of 13 the amount over $200,000 14 over $300,000 but not over $400,000 $5,746 plus 1.49 percent of 15 the amount over $300,000 16 over $400,000 but not over $1,000,000 $7,236 plus .41 percent of 17 the amount over $400,000 18 over $1,000,000 but not over $2,000,000 $9,696 plus .07 percent of 19 the amount over $1,000,000 20 over $2,000,000 $10,396 plus .05 percent of 21 the amount over $2,000,000 22 (2) if, on September 30 of the previous year, the unaudited balance in 23 the budget reserve fund created by art. IX, sec. 17, Constitution of the State of Alaska, 24 was more than $2,000,000,000 but not more than $3,000,000,000, 25 (A) for an individual whose federal filing status for the year is 26 single, married filing separately, or head of household, 27 if the adjusted gross income is: then the tax is: 28 not over $10,000 .95 percent 29 over $10,000 but not over $20,000 $95 plus 1.42 percent of the 30 amount over $10,000 31 over $20,000 but not over $30,000 $237 plus 1.89 percent of the

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1 amount over $20,000 2 over $30,000 but not over $50,000 $426 plus 1.89 percent of the 3 amount over $30,000 4 over $50,000 but not over $75,000 $804 plus 1.23 percent of 5 the amount over $50,000 6 over $75,000 but not over $100,000 $1,112 plus 1.23 percent of 7 the amount over $75,000 8 over $100,000 but not over $150,000 $1,419 plus 1.18 percent of 9 the amount over $100,000 10 over $150,000 but not over $200,000 $2,009 plus 1.04 percent of 11 the amount over $150,000 12 over $200,000 but not over $500,000 $2,529 plus .28 percent of 13 the amount over $200,000 14 over $500,000 but not over $1,000,000 $3,369 plus .05 percent of 15 the amount over $500,000 16 over $1,000,000 $3,619 plus .04 percent of 17 the amount over $1,000,000 18 (B) for two individuals whose federal filing status is married 19 filing jointly or an individual whose federal filing status is as a qualifying 20 widow or widower with dependent child, 21 if adjusted gross income is: then the tax is: 22 not over $20,000 .95 percent 23 over $20,000 but not over $40,000 $190 plus 1.42 percent of the 24 amount over $20,000 25 over $40,000 but not over $60,000 $474 plus 1.89 percent of the 26 amount over $40,000 27 over $60,000 but not over $100,000 $852 plus 1.89 percent of 28 the amount over $60,000 29 over $100,000 but not over $150,000 $1,608 plus 1.23 percent of 30 the amount over $100,000 31 over $150,000 but not over $200,000 $2,223 plus 1.23 percent of

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1 the amount over $150,000 2 over $200,000 but not over $300,000 $2,838 plus 1.18 percent of 3 the amount over $200,000 4 over $300,000 but not over $400,000 $4,018 plus 1.04 percent of 5 the amount over $300,000 6 over $400,000 but not over $1,000,000 $5,058 plus .28 percent of 7 the amount over $400,000 8 over $1,000,000 but not over $2,000,000 $6,738 plus .05 percent of 9 the amount over $1,000,000 10 over $2,000,000 $7,238 plus .04 percent of 11 the amount over $2,000,000 12 (3) if, on September 30 of the previous year, the unaudited balance in 13 the budget reserve fund created by art. IX, sec. 17, Constitution of the State of Alaska, 14 was more than $3,000,000,000, 15 (A) for an individual whose federal filing status for the year is 16 single, married filing separately, or head of household, 17 if the adjusted gross income is: then the tax is: 18 not over $10,000 .54 percent 19 over $10,000 but not over $20,000 $54 plus .81 percent of the 20 amount over $10,000 21 over $20,000 but not over $30,000 $135 plus 1.08 percent of the 22 amount over $20,000 23 over $30,000 but not over $50,000 $243 plus 1.08 percent of the 24 amount over $30,000 25 over $50,000 but not over $75,000 $459 plus .70 percent of 26 the amount over $50,000 27 over $75,000 but not over $100,000 $634 plus .70 percent of 28 the amount over $75,000 29 over $100,000 but not over $150,000 $809 plus .68 percent of 30 the amount over $100,000 31 over $150,000 but not over $200,000 $1,149 plus .59 percent of

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1 the amount over $150,000 2 over $200,000 but not over $500,000 $1,444 plus .16 percent of 3 the amount over $200,000 4 over $500,000 but not over $1,000,000 $1,924 plus .03 percent of 5 the amount over $500,000 6 over $1,000,000 $2,074 plus .02 percent of 7 the amount over $1,000,000 8 (B) for two individuals whose federal filing status is married 9 filing jointly or an individual whose federal filing status is as a qualifying 10 widow or widower with dependent child, 11 if adjusted gross income is: then the tax is: 12 not over $20,000 .54 percent 13 over $20,000 but not over $40,000 $108 plus .81 percent of the 14 amount over $20,000 15 over $40,000 but not over $60,000 $270 plus 1.08 percent of the 16 amount over $40,000 17 over $60,000 but not over $100,000 $486 plus 1.08 percent of 18 the amount over $60,000 19 over $100,000 but not over $150,000 $918 plus .70 percent of 20 the amount over $100,000 21 over $150,000 but not over $200,000 $1,268 plus .70 percent of 22 the amount over $150,000 23 over $200,000 but not over $300,000 $1,618 plus .68 percent of 24 the amount over $200,000 25 over $300,000 but not over $400,000 $2,298 plus .59 percent of 26 the amount over $300,000 27 over $400,000 but not over $1,000,000 $2,888 plus .16 percent of 28 the amount over $400,000 29 over $1,000,000 but not over $2,000,000 $3,848 plus .03 percent of 30 the amount over $1,000,000 31 over $2,000,000 $4,148 plus .02 percent of

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1 the amount over $2,000,000 2 (c) For a part-year resident individual or a nonresident individual, the tax 3 under this section shall be computed by multiplying the tax described in (b) of this 4 section, depending on the taxpayer's federal filing status, by a fraction, the numerator 5 of which is income from all sources in the state and the denominator of which is 6 income from all sources. 7 (d) In this section, 8 (1) "adjusted gross income" has the meaning given in 26 U.S.C. 62 9 (Internal Revenue Code), except that it 10 (A) includes a cost-of-living allowance that is exempt from the 11 federal income tax; 12 (B) does not include income exempted from state income 13 taxation under another provision of state or federal law, such as, by way of 14 example, interest on United States government securities and longevity bonus 15 payments; 16 (2) "unaudited balance in the budget reserve fund created by art. IX, 17 sec. 17, Constitution of the State of Alaska" means the balance in the fund on deposit 18 with the state's custodian bank as certified by the commissioner, without regard to 19 liabilities to the general fund under art. IX, sec. 17(d), Constitution of the State of 20 Alaska. 21 * Sec. 3. AS 43.20 is amended by adding a new section to read: 22 Sec. 43.20.029. Electronic filing incentive. The commissioner may by 23 regulation provide for an incentive to taxpayers for electronically filing tax returns and 24 making tax payments. An incentive under this section may not exceed $25 for each 25 taxpayer a year and is contingent on the accurate and timely filing of the tax return and 26 timely payment of the tax due. 27 * Sec. 4. AS 43.20.030(a) is amended to read: 28 (a) Every individual, partnership, and [IF A] corporation [, OR A 29 PARTNERSHIP THAT HAS A CORPORATION AS A PARTNER, IS] required to 30 make a return under the provisions of the Internal Revenue Code [, IT] shall file with 31 the department [, WITHIN 30 DAYS AFTER THE FEDERAL RETURN IS

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1 REQUIRED TO BE FILED,] a return setting out 2 (1) the amount of tax due under this chapter, less allowable credits 3 and payments claimed against the tax; and 4 (2) other information that the department requires for the purpose of 5 carrying out the provisions of this chapter [THAT THE DEPARTMENT 6 REQUIRES]. 7 * Sec. 5. AS 43.20.030(d) is amended to read: 8 (d) A taxpayer, upon request by the department, shall file with the taxpayer's 9 state return [FURNISH TO THE DEPARTMENT] a true [AND CORRECT] copy of 10 the tax return [WHICH THE TAXPAYER HAS] filed with the United States Internal 11 Revenue Service. Every taxpayer shall file an amended return with [NOTIFY] the 12 department, and remit any additional tax and interest due, within [IN WRITING 13 OF ANY ALTERATION IN, OR MODIFICATION OF, THE TAXPAYER'S 14 FEDERAL INCOME TAX RETURN AND OF A RECOMPUTATION OF TAX OR 15 DETERMINATION OF DEFICIENCY, WHETHER WITH OR WITHOUT 16 ASSESSMENT. A FULL STATEMENT OF THE FACTS MUST ACCOMPANY 17 THIS NOTICE. THE NOTICE SHALL BE FILED WITHIN] 60 days after a [THE] 18 final determination of the taxpayer's federal tax liability [MODIFICATION, 19 RECOMPUTATION OR DEFICIENCY, AND THE TAXPAYER SHALL PAY THE 20 ADDITIONAL TAX OR PENALTY UNDER THIS CHAPTER]. For purposes of 21 this subsection [SECTION], a final determination means [SHALL MEAN] the date 22 [TIME] that an amended federal return is filed, the date a federal [OR A NOTICE 23 OF DEFICIENCY OR AN] assessment is made, or the date the restrictions on 24 assessment are waived by [MAILED TO] the taxpayer [BY THE INTERNAL 25 REVENUE SERVICE, EXCEPT THAT IN NO EVENT WILL THERE BE A FINAL 26 DETERMINATION FOR PURPOSES OF THIS SECTION UNTIL THE 27 TAXPAYER HAS EXHAUSTED RIGHTS OF APPEAL UNDER FEDERAL 28 LAW]. 29 * Sec. 6. AS 43.20.030 is amended by adding a new subsection to read: 30 (h) The return for a corporation is due within 30 days after the federal return is 31 required to be filed. The return for other taxpayers is due on the date the federal return

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1 is required to be filed. 2 * Sec. 7. AS 43.20.031(c) is amended to read: 3 (c) In computing the tax under this chapter, a corporation [THE 4 TAXPAYER] is not entitled to deduct any taxes based on or measured by net income. 5 * Sec. 8. AS 43.20.040 is repealed and reenacted to read: 6 Sec. 43.20.040. Income from sources in the state. (a) In this chapter, 7 income from sources in the state includes 8 (1) compensation for personal services rendered in the state; 9 (2) working in the state for salary or wages; 10 (3) income from real or tangible personal property located in the state; 11 (4) income from stocks, bonds, notes, bank deposits, and other 12 intangible personal property having a taxable or business situs in the state; however, 13 the receipt of interest income from intangible property in the state does not alone 14 establish a taxable or business situs in the state; 15 (5) rentals and royalties for the use of or for the privilege of using, in 16 the state, patents, copyrights, secret processes and formulas, good will, marks, trade 17 brands, franchises, and other property having a taxable or business situs in the state; 18 (6) income distributed from a trust established under or governed by 19 the laws of the state; 20 (7) income of whatever nature from a source with a taxable or business 21 situs in the state. 22 (b) Except as provided in (a)(4) of this section, in this section, income is from 23 a source with a taxable or business situs in the state if it is attributed to or derived from 24 (1) business facilities or property in the state; 25 (2) business, farming, or fishing activities in the state; 26 (3) conducting in the state the management or investment function for 27 intangible property; 28 (4) a partnership or limited liability company conducting business 29 activities in the state; 30 (5) a corporation transacting business activities in the state that has 31 elected to file federal returns under subchapter S of the Internal Revenue Code;

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1 (6) any other activity from which income is received, realized, or 2 derived in the state. 3 (c) If a business, trade, or profession is carried on partly inside and partly 4 outside the state, other than the rendering of purely personal services by an individual, 5 the income from sources in the state shall be determined as provided in AS 43.19. 6 * Sec. 9. AS 43.20 is amended by adding a new section to article 1 to read: 7 Sec. 43.20.046. Individual income tax credit. (a) For a resident, the income 8 tax imposed on that resident by another state or territory of the United States for the 9 taxable year, on income derived from sources in that state or territory, is allowed as a 10 credit against the tax under this chapter. 11 (b) The credit under (a) of this section is determined by multiplying the tax 12 computed under this chapter by a fraction, the numerator of which is the income 13 derived from sources in the other state or territory and the denominator of which is 14 income derived from all sources. The credit under (a) of this section may not exceed 15 the actual tax paid to the other state or territory. 16 (c) An individual is allowed only the state credit provided in this section. The 17 total state credit allowed under this section may not exceed the tax liability for the 18 taxable year for the individual. A credit may not be carried, in whole or in part, to a 19 different taxable year. 20 * Sec. 10. AS 43.20 is amended by adding a new section to read: 21 Sec. 43.20.171. Tax withholding on wages of individuals. (a) Every 22 employer making payment of wages or salaries 23 (1) shall deduct and withhold an amount of tax computed in a manner 24 to approximate the amount of tax due on those wages or salaries under this chapter for 25 that taxable year; 26 (2) shall remit the tax withheld to the department accompanied by a 27 return on a form prescribed by the department at the times required by the department 28 by regulation; 29 (3) is liable for the payment of the tax required to be deducted and 30 withheld under this section but is not liable to any individual for the amount of the 31 payment; and

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1 (4) shall furnish to the employee on or before January 31 of the 2 succeeding year, or within 30 days after a request by the employee after the 3 employee's termination if the 30-day period ends before January 31, a written 4 statement on a form prescribed by the department showing 5 (A) the name and taxpayer identification number of the 6 employer; 7 (B) the name and social security number of the employee; 8 (C) the total amount of wages or salary for the taxable year; 9 and 10 (D) the total amount deducted and withheld as tax for the 11 taxable year. 12 (b) The department shall publish the rate of withholding required by this 13 section. 14 (c) When an employer has deducted the tax from an employee's wages or 15 salary, the employee is no longer liable to the state for the amount deducted, 16 regardless of whether the employer actually remits the tax to the state. 17 * Sec. 11. AS 43.20 is amended by adding a new section to read: 18 Sec. 43.20.174. Tax withholding from pass-through entities. Every 19 partnership, limited liability company, or corporation for which an election under 26 20 U.S.C. 1362(a) (Internal Revenue Code) is in effect, and any other entity taxed as a 21 partnership, shall withhold an amount of tax computed in a manner to approximate the 22 amount of tax due on dividends paid to a nonresident individual, undistributed taxable 23 income credited to a nonresident individual, or the distributive share credited to a 24 nonresident individual and remit the tax withheld to the department at the times 25 required by the department by regulation. 26 * Sec. 12. AS 43.20.200(b) is amended to read: 27 (b) The same period of limitation upon the assessment and collection of taxes 28 imposed under this chapter and the same exceptions to it shall apply as provided in 26 29 U.S.C. 6501 - 6503 (Internal Revenue Code). In the case of additional tax due by 30 reason of a modification, recomputation, or determination of deficiency in a taxpayer's 31 federal income tax return, the period of limitation on assessment commences from the

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1 date that the amended return [NOTICE] required in AS 43.20.030(d) is filed, and if 2 no amended return [NOTICE] is filed the tax may be assessed at any time. 3 * Sec. 13. AS 43.20.340 is amended by adding new paragraphs to read: 4 (12) "individual" means a natural person, married or unmarried, adult 5 or minor, subject to payment of income tax under 26 U.S.C. (Internal Revenue Code); 6 (13) "nonresident" means an individual who is not a resident or part- 7 year resident; 8 (14) "resident" means an individual who, for the entire taxable year, 9 was domiciled in the state or resided in the state. 10 * Sec. 14. AS 43.05.085; AS 43.20.012, and 43.20.013 are repealed. 11 * Sec. 15. The uncodified law of the State of Alaska is amended by adding a new section to 12 read: 13 INDIVIDUAL INCOME TAX RATE FOR 2003. The applicable tax rates for 2003 14 are the rates in AS 43.20.009(b)(1)(A) and (B), added by sec. 2 of this Act, regardless of the 15 balance in the budget reserve fund created by art. IX, sec. 17, Constitution of the State of 16 Alaska. 17 * Sec. 16. The uncodified law of the State of Alaska is amended by adding a new section to 18 read: 19 TRANSITION: REGULATIONS. The Department of Revenue may proceed to adopt 20 regulations necessary to implement the provisions of this Act. The regulations take effect 21 under AS 44.62 (Administrative Procedure Act), but not before the effective date of the 22 provision being implemented. 23 * Sec. 17. Section 16 of this Act takes effect immediately under AS 01.10.070(c). 24 * Sec. 18. Except as provided in sec. 17 of this Act, this Act takes effect January 1, 2003.

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SENATE BILL NO. 165

IN THE LEGISLATURE OF THE STATE OF ALASKA

TWENTY-SECOND LEGISLATURE - FIRST SESSION

BY SENATOR AUSTERMAN

Introduced: 3/26/01 Referred: Labor and Commerce, Finance

A BILL

FOR AN ACT ENTITLED

1 "An Act imposing a tax on employment; and providing for an effective date."

2 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA:

3 * Section 1. AS 43 is amended by adding a new chapter to read: 4 Chapter 45. Education Tax. 5 Sec. 43.45.011. Tax imposed. There is imposed a tax of $100 a year on each 6 individual 19 years of age or older and employed, including self-employed, in the 7 state. 8 Sec. 43.45.021. Collection of tax. (a) The tax imposed under AS 43.45.011 9 shall be paid before February 1 of the calendar year following the year for which it is 10 imposed. 11 (b) An employer shall deduct and send to the department $50 of the tax from 12 the employee's salary or other compensation on each of the first two regular payrolls 13 after January 1 of each calendar year or, in the case of an employee who begins work 14 and is provided a salary or compensation on a later payroll, on each of the first two 15 payrolls after employment. A deduction of the tax may not be made in the salary or

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1 other compensation of a person who provides proof to the employer that the tax 2 imposed under AS 43.45.011 has been paid. 3 (c) The department shall provide a return form for the tax collected under this 4 section. 5 Sec. 43.45.031. Record of withholding. An employer who withholds tax 6 under AS 43.45.021 shall furnish to the employee upon request a record of the amount 7 of tax withheld from the employee. The department shall provide a form for that 8 purpose. 9 Sec. 43.45.041. Disposition of tax proceeds. (a) The tax collected under 10 AS 43.45.021 shall be deposited into the general fund and accounted for separately. 11 (b) The legislature may appropriate the estimated amounts to be collected and 12 separately accounted for under (a) of this section for education. 13 (c) The deposit required and appropriation authorized by this section are not 14 intended to create a dedication in violation of art. IX, sec. 7, Constitution of the State 15 of Alaska. 16 * Sec. 2. This Act takes effect January 1, 2002.

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CS FOR SENATE JOINT RESOLUTION NO. 13(JUD)

IN THE LEGISLATURE OF THE STATE OF ALASKA

TWENTY-SECOND LEGISLATURE - SECOND SESSION

BY THE SENATE JUDICIARY COMMITTEE

Offered: 5/6/02 Referred: Finance

Sponsor(s): SENATE RULES COMMITTEE BY REQUEST OF THE LEGISLATIVE BUDGET AND AUDIT COMMITTEE

A RESOLUTION

1 Proposing amendments to the Constitution of the State of Alaska relating to the Alaska

2 permanent fund.

3 BE IT RESOLVED BY THE LEGISLATURE OF THE STATE OF ALASKA:

4 * Section 1. Article IX, sec. 15, Constitution of the State of Alaska, is amended to read: 5 Section 15. Alaska Permanent Fund. (a) At least twenty-five per cent of all 6 mineral lease rentals, royalties, royalty sale proceeds, federal mineral revenue sharing 7 payments and bonuses received by the State shall be placed in a permanent fund. 8 Except as provided in (b) of this section, money in the fund [, THE PRINCIPAL 9 OF WHICH] shall be used only for those income-producing investments specifically 10 designated by law as eligible for permanent fund investments. All income from the 11 permanent fund shall be retained in a separate earnings reserve account 12 [DEPOSITED] in the permanent [GENERAL] fund [UNLESS OTHERWISE 13 PROVIDED BY LAW]. 14 * Sec. 2. Article IX, sec. 15, Constitution of the State of Alaska, is amended by adding a 15 new subsection to read: 16 (b) Money may be appropriated from the earnings reserve account.

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1 Appropriations from the account for a fiscal year may not exceed the lesser of 2 (1) five percent of the average of the year-end market values of the 3 permanent fund for the five fiscal years that immediately precede the fiscal year that 4 immediately precedes the fiscal year for which the appropriations are made; or 5 (2) the balance in the earnings reserve account. 6 * Sec. 3. Article XV, Constitution of the State of Alaska, is amended by adding a new 7 section to read: 8 Section 30. Transition. On the effective date of the 2002 amendments 9 relating to the Alaska permanent fund (art. IX, sec. 15), the balance of the statutory 10 earnings reserve account (AS 37.13.145) of the permanent fund is transferred to the 11 earnings reserve account established in Section 15(a) of Article IX. 12 * Sec. 4. The amendments proposed by this resolution shall be placed before the voters of 13 the state at the next general election in conformity with art. XIII, sec. 1, Constitution of the 14 State of Alaska, and the election laws of the state.

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HOUSE CS FOR CS FOR SENATE JOINT RESOLUTION NO. 23(JUD)

IN THE LEGISLATURE OF THE STATE OF ALASKA

TWENTY-SECOND LEGISLATURE - SECOND SESSION

BY THE HOUSE JUDICIARY COMMITTEE

Offered: 2/8/02 Referred: Finance

Sponsor(s): SENATORS DONLEY, Halford, Ward, Taylor, Cowdery, Phillips, Austerman, Leman, Kelly

REPRESENTATIVES Kohring, Rokeberg

A RESOLUTION

1 Proposing amendments to the Constitution of the State of Alaska relating to an

2 appropriation limit and a spending limit.

3 BE IT RESOLVED BY THE LEGISLATURE OF THE STATE OF ALASKA:

4 * Section 1. Article IX, sec. 16, Constitution of the State of Alaska, is repealed and 5 readopted to read: 6 Section 16. Appropriation and Spending Limit. (a) Appropriations made 7 for a fiscal year shall not exceed by more than four percent the amount appropriated 8 for the fiscal year two years preceding the fiscal year for which the appropriations are 9 made. This subsection does not apply to 10 (1) an appropriation to the Alaska permanent fund; 11 (2) an appropriation of Alaska permanent fund income for payments of 12 permanent fund dividends to State residents; 13 (3) an appropriation to meet a state of disaster declared by the 14 governor as prescribed by law; 15 (4) an appropriation for the Alaska Railroad; 16 (5) an appropriation of State general obligation and revenue bond

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1 proceeds; 2 (6) an appropriation required to pay obligations under general 3 obligation bonds, revenue bonds, and certificates of participation issued by the State; 4 (7) an appropriation of money received from the federal government; 5 (8) a reappropriation of money already appropriated under an 6 unobligated appropriation that is not void under Section 13 of this article; 7 (9) an appropriation of money for expenditure by a State agency to 8 provide services to another State agency that has also received an appropriation of the 9 same money; and 10 (10) an appropriation made under (b) or (c) of this section. 11 (b) An appropriation that exceeds the limit under (a) of this section may be 12 made for any public purpose upon affirmative vote of at least two-thirds of the 13 members of each house of the legislature. The total amount of appropriations under 14 this subsection made for a fiscal year may not exceed two percent of the amount 15 appropriated for the fiscal year two years preceding the fiscal year for which the 16 appropriations are made. 17 (c) An appropriation that exceeds the limit under (a) and (b) of this section 18 may be made for any public purpose upon affirmative vote of at least three-fourths of 19 the members of each house of the legislature. The total amount of appropriations 20 under this subsection made for a fiscal year may not exceed two percent of the amount 21 appropriated for the fiscal year two years preceding the fiscal year for which the 22 appropriations are made. 23 (d) If appropriations for a fiscal year exceed the amount that may be 24 appropriated under (a) - (c) of this section, the governor shall reduce expenditures by 25 the executive branch for its operation and administration to the extent necessary to 26 avoid spending more than the amount that may be appropriated under (a) - (c) of this 27 section. 28 * Sec. 2. Article XV, Constitution of the State of Alaska, is amended by adding a new 29 section to read: 30 Section 30. Transition; Reconsideration of Appropriation and Spending 31 Limit. (a) Notwithstanding the provision in Section 16(a) of the Article IX that

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1 appropriations for a fiscal year shall not exceed by more than four percent the amount 2 appropriated for the fiscal year two years preceding the fiscal year for which 3 appropriations are made, appropriations made for 4 (1) fiscal year 2004 under Section 16(a) of Article IX shall not exceed 5 $3,328,000,000 excluding appropriations under Section 16(a)(1) - (10) of Article IX; 6 and 7 (2) fiscal year 2005 under Section 16(a) of Article IX shall not exceed 8 $3,394,000,000 excluding appropriations under Section 16(a)(1) - (10) of Article IX. 9 (b) If the 2002 amendment relating to an appropriation and spending limit (art. 10 IX, sec. 16) is adopted, the lieutenant governor shall place the ballot title and 11 proposition for the amendment on the ballot again at the general election in 2006 and 12 every six years thereafter unless it is rejected. If the majority of those voting on the 13 proposition rejects the proposition, Section 16 of Article IX is repealed on the date the 14 election is certified. 15 * Sec. 3. The amendments proposed by this resolution shall be placed before the voters of 16 the state at the next general election in conformity with art. XIII, sec. 1, Constitution of the 17 State of Alaska, and the election laws of the state.

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Attachment D1

Sean Cockerham, “Governor to Explore Use of Fund—Address: Murkowski Creates Panel to Decide Whether to Use Money to Balance Budget,” Anchorage Daily News, January 14, 2004

Richard Mauer, “Conference Begins with Plea for a Tax—Former Gov. Hammond Crashes Murkowski’s Party PFD: Delegates to Decide Whether to Recommend using Earnings to Fund Government,” Anchorage Daily News, February 11, 2004

Sean Cockerham, “Delegates Favor an Income Tax—Conference of Alaskans Turns Against Governor’s Wishes,” Anchorage Daily News, February 12, 2004

Steve Lindbeck, “Governor Receives what He was After,” Anchorage Daily News, February 13, 2004

Richard Mauer and Sean Cockerham, “Enshrine Fund Conferees Say—Delegates Retreat on Tax, Support of Use of Earnings,” Anchorage Daily News, February 13, 2004

Sean Cockerham, “Governor Takes Fiscal Pitch to Senate—‘ACT NOW’: Leaders Hear Proposal for Spending Permanent Fund Earnings,” Anchorage Daily News, March 16, 2004

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Governor to explore use of fund - ADDRESS: Murkowski creates panel to decide whether to use money to balance budget. Anchorage Daily News (AK) - Wednesday, January 14, 2004 Author: SEAN COCKERHAM Anchorage Daily News ; Staff

Gov. Frank Murkowski on Tuesday announced plans to hold a conference that will decide for him whether the Permanent Fund should be used to balance the state budget. If so, he said, he wants a public vote on that question in November.

Murkowski said he will take the findings of the conference, Feb. 10-12 in Fairbanks, and present them as bills to the Legislature. He'll then call a special session of the Legislature, starting March 1, to deal with the bills that come out of the conference.

Murkowski unveiled the plan in his Tuesday night "State of the State" speech to the Legislature. In the speech, he stopped short of saying he wanted to use part of the $27.5 billion Permanent Fund for government. Yet it appeared clear from his remarks that is where the governor is headed.

"How much and for how long do we allow the fund to grow, and public services to decline, before we Alaskans address using a portion of the Permanent Fund's annual income to support our most important public services?" he said.

At another point he said he wanted Alaskans to consider "what will happen to our economy, jobs and public services if we do not" use the Permanent Fund for government.

Murkowski officials have long hinted at using the Permanent Fund, but the governor has not taken a public stand.

"Make no mistake, (the conference is) not going to be just another government task force or a collection of words," the Republican governor said. "It will be a fast-moving, results-oriented group that will debate one specific issue, I mean one issue, and that is whether and how to use the Permanent Fund income to protect our future."

The conference will be modeled after Alaska's Constitutional Convention, and will be held in the same place: the University of Alaska Fairbanks. There will be 55 conference members, the same number who wrote the Alaska Constitution.

"As with our Constitutional Convention in 1955, those chosen must be prepared to put politics aside and focus solely on what is best for Alaska," Murkowski said.

The conference will include the Legislature's Republican and Democratic leaders. Murkowski also named seven members of the public who will convene the conference and select the remaining members.

The seven include former Key Bank president Mike Burns of Anchorage, who Murkowski named as the conference chairman.

The others are: former Republican legislator Steve Frank of Fairbanks, now vice chairman of the Permanent Fund Corp. board of trustees; Northrim Bancorp president Marc Langland of Anchorage; NANA Development Corp. president Helvi Sandvik of Anchorage; Permanent Fund trustee and Anchorage lawyer Eric Wohlforth; former Republican legislator Arliss Sturgulewski; and Juneau Democrat Clark Gruening, a former Permanent Fund trustee who ran against Murkowski for the U.S. Senate in 1980.

Former Democratic legislator Brian Rogers of Fairbanks will be the facilitator.

Some of the seven have personal or political ties to Murkowski. The governor and Sturgulewski are related by marriage. Burns was a Murkowski campaign adviser when he ran for governor in 2002. Langland led a previous effort to spend Permanent Fund earnings on the government.

Murkowski said he would insist on a statewide vote in November on any conference proposal. And the governor said he would want it to be paired with a constitutional amendment to put some limit on state spending.

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Legislative Democrats offered a muted response to Murkowski's speech.

"Frankly, this is not the way that Democratic legislators would have done it," said Sen. Johnny Ellis, D-Anchorage, the Senate minority leader. "We would not have gone to the Permanent Fund first."

But, Ellis said, the Democrats are willing to wait and see what results.

A Murkowski proposal to spend Permanent Fund earnings will also have to overcome resistance among state Senate Republicans. GOP leaders have said there is no rush to turn to the fund to balance the budget.

"Will this heighten the sense of urgency on the Senate side? I'm not sure," said North Pole Republican Sen. Gene Therriault, the Senate president.

Murkowski said it's time to act. He said the Constitutional Budget Reserve, which covers the annual state budget shortfalls in the hundreds of millions of dollars, must be kept afloat to act as a cushion against oil price drops and to guarantee the state government cash flow.

Murkowski said the reserve is projected to drop below $1 billion in 2006.

"Allowing the Constitutional Budget Reserve to drop below a billion dollars in order to continue to underwrite the budget deficit will not happen on my watch," Murkowski said.

He said he will not ask the Fairbanks conferees to talk about taxes as a way of balancing the budget. But he will ask them to find consensus on four questions.

* Should a portion of the income of the Permanent Fund be used for essential state services like education?

* Should the use of income from the Permanent Fund be limited by the state constitution to 5 percent of the of the fund's value, as the Permanent Fund trustees have proposed?

* Should the use of the income of the Permanent Fund for dividends and possibly for other purposes be determined annually by the Legislature, as is currently the case? Or should it be dedicated in the constitution?

* Should the state maintain a minimum balance in the Constitutional Budget Reserve to stabilize state finances against fluctuation in oil production or prices?

Reporter Sean Cockerhaham can be reached at [email protected] or in Juneau at 586-1531.

FOR ADN COVERAGE of the Alaska Legislature, including easy ways to track bills and information on how to contact your legislator; or FOR THE GOVERNOR'S Web site; or FOR TEXT of last year's State of the State speech, visit

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inside

STATE REP. BOB LYNN, R-Anchorage, finds himself in the center of a controversy for backing Democrats in calling for a vote on restoring the longevity bonus.

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Conference of Alaskans

Feb. 10-12 in Fairbanks

55 delegates to consider:

* Limiting use of Permanent Fund income to 5 percent of its value each year.

* Using part of Permanent Fund income for essential state services.

* Whether using the Permanent Fund for dividends and other purposes should be decided annually by the Legislature or

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Conference begins with plea for a tax - Former Gov. Hammond crashes Murkowski's party PFD: Delegates to decide whether to recommend using earnings to fund government. Anchorage Daily News (AK) - Wednesday, February 11, 2004 Author: RICHARD MAUER Anchorage Daily News ; Staff

Though a nondelegate, former Gov. Jay Hammond was attracting as much attention Tuesday morning outside the doors on Day One of the Conference of Alaskans as the session itself inside.

Leaning hard on his polished, hand-carved cane until he was exhausted, the 81-year-old Hammond held court with the media, legislators and others as he sought to broaden the discussion beyond Gov. Frank Murkowski's four questions on the Alaska Permanent Fund and budget reserve.

Murkowski has called the three-day conference seeking recommendations from the 55 delegates on whether earnings of the Permanent Fund should be spent on state government, the most contentious among the four issues.

Murkowski opened the session Tuesday morning, reminding the delegates that as they carry out their historic mission, they should remember that while Alaska's fiscal problems are not much different than other states', its wealth is unique. The problem isn't enough resources, he said, it's how to allocate them.

Over the course of a long day -- they started at 8 a.m. and worked till a few minutes after 8 p.m., with only short breaks in between -- the delegates introduced themselves, learned about changing ideas in how to calculate Permanent Fund earnings, studied the origin and financing of the state's Constitutional Budget Reserve, and took some test votes to learn how far their opinions diverged.

Off the agenda but obviously on a lot of minds, Hammond said he believes that spending Permanent Fund earnings will surely result in wasteful spending and zero dividends before long. A Legislature that passes such a scheme will be remembered in history, and not fondly, Hammond said, his voice rising and right arm jabbing while talking to reporters and spectators.

"When they are gone, our children and their children will curse them till their dying days."

Hammond wanted a plan that ensured legislative accountability and long-range fiscal health. He wanted to put an income tax on the table, something Murkowski sought to avoid.

"He's put himself in a box," Hammond said.

As one of the founders of the Permanent Fund and its constant advocate for more than 20 years, Hammond is looming as a huge political force at the conference, especially now that he has formulated a plan that he said would solve most of Alaska's financial woes with minimal pain.

As Hammond's unseen presence grew, some of the delegates, seated in a double horseshoe in the Wood Center ballroom at the University of Alaska Fairbanks, saw him as an opportunity to expand the conference beyond Murkowski's narrow limits. Many were just as uncomfortable as Hammond with taxation off the agenda, among them Ketchikan Mayor Bob Weinstein. He spoke up and asked that the former Republican governor be allowed to address the conference.

"I'm not sure the four questions can be answered in their entirety without placing them in the appropriate context," Weinstein explained later. "It's commonly known that Gov. Hammond has extensive history with respect to the Permanent Fund." Alaskans will listen to him even if the conference does not.

Facilitator Brian Rogers said Hammond wasn't a delegate, but if the delegates wished, perhaps it could be arranged.

A group of delegates including Anchorage School District Superintendent Carol Comeau joined the call.

During a break, Rep. Ethan Berkowitz, a nonvoting delegate, revealed that he and Sen. Kim Elton, both Democrats, had

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directed legislative staff to turn Hammond's plan into a bill and said it would be introduced today.

Mike Burns, the conference chair, approached some of the seven convenors -- the "super delegates" chosen by Murkowski who in turn had selected the other 48 delegates -- and they thought Hammond should be brought in.

Rogers and Burns found Hammond in the foyer of the Wood Center and asked him to speak. He agreed to talk during lunch today, then limped out the door and left to work on his presentation.

On a day when the conference focused largely on introductions and the accounting question of whether the Permanent Fund should be managed to return 5 percent of market value as opposed to its actual earnings, Hammond's initiative provided an alternative for discussion, if not yet officially.

Delegate Clem Tillion of Halibut Cove, a former Senate president, said taxes will become part of the discussion no matter what Murkowski thinks.

"I'm not going to let them get away without it," Tillion said. "And I got lots of allies."

In an interview, Tillion described himself as a Republican who believes that if people pay taxes, they will watch their government much more carefully.

"Nobody should have more services than they are willing to pay for," Tillion said. "If you fund government out of federal funds or oil funds that they don't see, they'll stand for a very foolish level of government."

While Hammond has always regretted the demise of the state income tax on his watch as governor some 25 years ago, only recently has he come up with a package that he says will ensure dividends indefinitely, bridge the state's "fiscal gap" between revenues and expenditures, impose restraint on the Legislature and be politically palatable to voters who would have to approve it.

Devised with former legislators Tillion and Rick Halford, both Republicans, and backed by Democrats Berkowitz and Elton as well as Green Party Senate candidate Jim Sykes, who also was at the conference, Hammond's plan would return the full 5 percent of value of the fund to Alaskans each year as dividends, yielding checks twice the size of last year's, at least early on. At the same time, residents and nonresidents would face a graduated income tax that would be capped at the level of the dividend.

An analysis dated Monday by the governor's office of management and budget criticized the Hammond plan as workable only in its first year. Before long, the need for revenue would be so great that an individual earning only $25,000 would pay taxes equal to the entire dividend.

Rep. Norm Rokeberg, R-Anchorage, attending the conference as an observer, said he thought Hammond's plan was "fraught with problems and danger to the public." He said it didn't raise enough money, and if oil prices take a dive, the state would end up with a billion-dollar budget gap.

Hammond disagreed with the OMB's math and said some of its analysis, and other critiques, sank to "nitpicking."

"Don't get distracted with the nits. Look at the carcass of the creature itself," he said.

Halford, here to observe the conference and also spending a lot of his time in the hallways, said Hammond's proposal may be unduly complicated, but its "essence" is a great starting place.

At a break, Comeau, the Anchorage school superintendent, said her interest was hearing from "all people who have ideas on how we can solve the fiscal problem in the state."

Later in the day, the delegates got their first experience with the Consensor, a technological enhancement for achieving agreement among large groups. About the size of a television remote, it allows delegates to vote quickly -- and anonymously -- to interim questions that define the range and strength of opinion. (Final votes on formal resolutions will be recorded by roll call.)

For instance, at the start of the debate on whether the Permanent Fund should pay out on the basis of percent of market value, delegates quickly learned they were divided this way: absolutely yes, 55 percent; yes if some unspecified steps were taken, 25 percent; no, but maybe if ..., 8 percent; absolutely no, 4 percent; don't know, 9 percent.

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At the end of debate, the number shifted to: absolutely yes, 76 percent; yes if some unspecified steps were taken, 11 percent; no, but maybe if ..., 7 percent; absolutely no, 0 percent; don't know, 5 percent.

Another technological assistant didn't work so well. The discussions were transcribed live using voice-to-text software, and posted to the Internet for Alaskans to follow along. But if they did, they were probably mightily confused at times. For instance, when delegate Tillion introduced himself, he said, "I work for the Aleut enterprise corporations right now." Someone reading his words on the Internet saw, "I work for the Aleut event price corporations right now."

A lone protester, Mark Ames, sat in the audience for a time Tuesday. Well known in Fairbanks for believing that Alaska wasn't getting the 90 percent share of royalties on federal land that he thought it should, he held a hand-lettered sign that said, "Stop the Theft," forcing the people behind him to move so they could see.

Daily News reporter Richard Mauer can be reached at [email protected] or 257-4345. Daily News reporter Sean Cockerham contributed to this report.

PLAN B

A MOCK BUDGET for 2006 scheduled to be unveiled at the conference today includes $420 million in cuts that the governor says could happen if the Permanent Fund is not tapped. Others call it a scare tactic.

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LIVE REPORTS from the convention are available online, on radio and on television.

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OFFICIAL WEB SITE for the conference is available online.

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The conference will be aired live on the Alaska Rural Communications Service and the statewide Gavel to Gavel Alaska cable TV service. See local channels for Gavel to Gavel.

Live video and audio streaming will be available at www.ktoo.org/gavel

A live text transcript will be streamed at Webscription.com. Up-to-the minute transcripts can be reviewed.

Many stations in the Alaska Public Radio Network are broadcasting the conference. An evening wrap-up and highlights TV and radio show will air today and Thursday at 9 p.m. on Alaska One, KAKM-Channel 7 and many APRN stations.

Where to watch, read and listen Caption: Photo 2: conf_of_akGov2_021104.jpg Photo 4: conf_of_akJay_021104.jpg Photo 5: 11Murkowski 02_021104.jpg Graphic 1: ADNLinks_021104.pdf Graphic 3: conf_of_akGroups_021104.eps ERIK HILL / Anchorage Daily News Gov. Frank Murkowski addresses the Conference of Alaskans, assuring delegates their work is of serious consequence. "Make no mistake, history will reward what this conference achieves." ERIK HILL / Anchorage Daily News Former Gov. Jay Hammond discusses his proposals with Rep. Eric Croft, D-Anchorage, during a break at the Conference of Alaskans on Tuesday. Hammond is slated to address the group during lunch today. ERIK HILL / Anchorage Daily News Conferees greeted each other as they began group discussions Tuesday at the Conference of Alaskans in Fairbanks. The three-day event brings together 55 delegates who have been asked to make a recommendation on whether to use earnings from the Alaska Permanent Fund to fund state government. Gov. Frank Murkowski Edition: State Section: Main Page: A1 Dateline: FAIRBANKS Record Number: 426831102/11/04 Copyright (c) 2004, Anchorage Daily News

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Back To Results Previous Article 45 of 152 Next Save this Article Delegates favor an income tax - Conference of Alaskans turns 0 Saved Articles against governor's wishes this article Anchorage Daily News (AK) - Thursday, February 12, 2004 Email Author: SEAN COCKERHAM and RICHARD MAUER Daily News reporters ; Staff Print Gov. Frank Murkowski's Conference of Alaskans on Wednesday rebelled against him and expressed strong support for an income tax, an idea the governor has forcefully Bibliography (export) opposed since he campaigned for the office.

Juneau delegate Clark Gruening, one of the converence leaders Murkowski appointed, Quick Links described the consensus as it built over the course of the day as a "Declaration of Find articles by SEAN Independence." COCKERHAM and RICHARD MAUER Daily News reporters ; Staff By the time a straw vote was taken Wednesday night, two-thirds of the 55 delegates Find more articles from page A1 favored the income tax. The delegates are scheduled to take formal action on it and other Find more from section "Main" resolutions today, the final day of the three-day conference convened by Murkowski at Find all articles from February the University of Alaska Fairbanks. 12, 2004

The governor had asked the conference to decide whether to spend Permanent Fund income on government -- and not to talk about an income tax. The governor has made the idea of an income tax his biggest political punching bag, describing it as bordering on Marxism.

Murkowski wouldn't comment Wednesday night on the delegates' backing of an income tax, according to his press spokesman. The governor had earlier intended to take the decisions of the conference and submit them as bills for the Legislature to consider, but he had not planned for the delegates to stray from the Permanent Fund.

Bob Bell, a former Anchorage assemblyman, said the conference's support of an income tax was more like a "declaration of dependence" that violated the purpose of the conference. "We weren't tasked with taxes," Bell said. By taking on too many issues, the conference could turn into a "big ugly mess that nobody is going to pay attention to."

The delegates did hold a straw vote on several of Murkowski's charges, including a vote that showed support for using some of the earnings of the $28 billion Permanent Fund to help solve the state's budget troubles. But that would shrink the dividend checks, and the delegates didn't want the fund to bear the full burden of closing the huge recurring gap between the state's income and its expenses.

The dividends mean more to the poor than the rich, several of the delegates said, and an income tax is the fairest option to provide balance. Delegate Clem Tillion, a former Republican state senator from Halibut Cove, said he would only support using some of the Permanent Fund earnings if the conference also supported an income tax.

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"Before you tax the poorest of us, for God's sake let the rest of us who are a little better off pay our fair share," Tillion said.

Delegate Tom Williams of Anchorage, a BP executive and former state revenue commissioner, agreed dividends shouldn't be the lone solution.

"What is the one tax that you could put on people that will only fall on Alaskans, and no one else, and will hit the poor the hardest, and leave the wealthy off easiest? You'd be hard-put to come up with a tax as regressive and as limited to Alaskans as cutting the dividends," he said.

Delegate Byron Mallott, former Permanent Fund Corp. trustee, also said the conference shouldn't just look to the fund. Mallott described a conversation he once had with another former trustee, banker Elmer Rasmuson

"Elmer, the Permanent Fund dividend is the one thing that you can accept, and a welfare mother can accept, and I can accept, and we can all look each other in the eye. It has no social stigma. There was much that brought us together, and that's the power of Permanent Fund dividend," he said.

Still, the delegates said that some of the income from the Permanent Fund needs to be used for state government. It would require too big an income tax to fill the entire annual state fiscal gap of several hundred million dollars, some delegates said. And doing nothing would result in further budget cuts far too big to be acceptable.

Earlier in the day, Murkowski budget chief Cheryl Frasca presented the delegates with a "Plan B" budget that described $420 million in cuts that might come in 2006 unless the fiscal gap is dealt with.

The "Plan B" could result in huge cuts, Frasca said, leading to less funding for schools, social services and criminal prosecutions just for starters. Jails would be closed and there would be fewer state troopers on patrol. The Power Cost Equalization Program would be eliminated, leading to skyrocketing power costs in rural Alaska.

The list goes on. Frasca estimated 1,760 state positions would be eliminated. Delegates appeared stunned as Frasca laid out the cuts.

"Your budget is creating a lot of fear," delegate Charlie Curtis of Kiana told her. "Having said that, fear creates heroes. Who is going to be our hero?"

"You all are," Frasca replied.

But that was hours before the delegates embraced the income tax that Frasca's boss, the governor, hates. Murkowski has said an income tax is a redistribution of wealth that robs money from hardworking Alaskans.

The Republican governor routinely criticizes the idea of an income tax in his speeches and has made it clear to legislators that it's not an option.

An income tax also has a lot of opposition in the Republican-controlled Legislature. Anchorage Rep. Norm Rokeberg, who attended the conference as an observer, described the delegates' income tax decision as "politics." But he didn't rule out the idea.

"The governor has come out strongly against it and our majority has certainly not been predisposed to an income tax," said Rokeberg, who is part of the House leadership. "But we think everything should be on the table."

The conference began its dramatic turn away from its narrow Permanent Fund agenda when conference attendees spent their lunch hour enthralled by former Gov. Jay Hammond, who was neither a delegate nor on the agenda of the three-day session. The empty chairs in the back of the room filled for Hammond, and people were standing against the back wall as he began his talk from the front podium. He received the

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conference's only standing ovation when he was done.

The 81-year-old Hammond had planned to be in Hawaii this week, but his physician ordered him to stay in Alaska for observation. So he did some observing himself from the back of the conference until delegates asked that he be allowed to present his "People's Plan."

Hammond's new plan would distribute all the fund's earnings to Alaskans, leading to double the dividend checks. And he'd impose an income tax.

Hammond has been one of the fiercest protectors of the fund and its dividend, an idea he has been working with for 40 years since his days as borough manager in Bristol Bay. He was governor when the fund was created and, regrettably for him, when the state income tax was rescinded 24 years ago. "It was the most stupid thing they could possibly do," he said of that Legislature.

Now, with the fund at $28 billion and the governor and the Legislature looking to tap its earnings for state expenses, Hammond has reissued his fiscal plan with new features which, he said, makes it politically acceptable as well as financially responsible.

"We had dropped in our lap a monstrous golden goose egg. How we burnish it, tarnish it, or crack it wide open will leave a legacy for years to come," Hammond said.

The tax in his proposal, Hammond said, would function as the "eye of the needle" through which legislative spending would occur, forcing more accountability.

If the conference can convince the Legislature to impose an income tax and protect the dividends, "you'll make heroes out of them in spite of themselves." Sensing the conference was moving beyond Murkowski's charge, he said: "Many have predicted this conference will be a charade. I never thought that. I thought it was a wondrous attempt to focus statewide attention on the way that we Alaskans have handled our God-given wealth. You can turn a rainy day into a very bright future."

The delegates have not endorsed the specifics of the Hammond plan, but his views flavored their discussions for the rest of the day.

The 55 delegates, mostly civic and business leaders from around the state, held their discussions in the open with no visible rancor. Delegate Cliff Groh from Sitka, a former legislative aide, said the dialogue was in contrast with the closed-door meetings and partisan bickering that mark how the Legislature does its business in Juneau.

By generating a "common sense of sacrifice," an income tax might "help make the Legislature more like this group," Groh said. "Now, without the common purpose that you had when the income tax was repealed, you have a Legislature that is much more filled with narrow partisanship, and filled with vitriol and savagery."

Daily News reporter Sean Cockerham can be reached at [email protected]. Daily News reporter Richard Mauer can be reached at [email protected].

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HAMMOND'S plan

FORMER GOVERNOR wants to increase the size of the Permanent Fund dividend and then implement a state income tax.

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Hammond's 'People's Plan'

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* PERMANENT FUND EARNINGS: All go to Alaskans as dividends. Only a two-thirds vote of the people could change it. Hammond estimates that in 2005, the first year of his plan, the dividend would likely be $2,100, more than twice the size without his plan.

* HOW CALCULATED? Earnings based on 5 percent of market value, though in times of very poor returns, the earnings could be reduced below that number to preserve the fund's principal.

* INCOME TAX: State tax would be collected only when the Constitutional Budget Reserve dips below $1 billion. Initially, the tax will be capped at the size of the Permanent Fund dividend. That cap could be changed or eliminated later by voters.

* NEW RESIDENTS: Would receive a smaller dividend, though Hammond said that provision wasn't an essential part of his proposal.

The conference will be aired live on the Alaska Rural Communications Service and the statewide Gavel to Gavel cable TV service. See local channels for Gavel to Gavel.

Live video and audio streaming will be available at www.ktoo.org/gavel

A live text transcript will be streamed at Webscription.com. Up-to-the minute transcripts can be reviewed.

Many stations in the Alaska Public Radio Network are broadcasting the conference. An evening wrap-up and highlights TV and radio show will air today at 9 p.m. on Alaska One, KAKM-Channel 7 and many APRN stations.

Where to watch, read and listen Caption: Photo 1: ADNLinks_021204.jpg Photo 2: WedFbxHammond2_021204.jpg Photo 3: WedFbxAdams_021204.tif Photo 4: WedFbxGroh_021204.jpg ERIK HILL / Anchorage Daily News Former Gov. Jay Hammond held court Wednesday after explaining his "People's Plan" that couples increasing dividends with an income tax as a way to restore the state to fiscal health. ERIK HILL / Anchorage Daily News Cliff Groh Jr. of Sitka argued for reinstatement of an income tax at the Conference of Alaskans on Wednesday in Fairbanks. Groh said such a tax could revive the sense of community, state ownership and financial independence in Alaska as he remembers it before the previous tax was eliminated. Former state legislator Al Adams of Kotzebue is one of the 55 delegates. Edition: Final Section: Main Page: A1 Dateline: FAIRBANKS Record Number: 427917002/12/04 Copyright (c) 2004, Anchorage Daily News To bookmark this article, right-click on the link below, and copy the link location: Delegates favor an income tax - Conference of Alaskans turns against governor's wishes

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Back To Results Previous Article 49 of 152 Next Save this Article Governor receives what he was after 0 Saved Articles this article Anchorage Daily News (AK) - Friday, February 13, 2004 Author: Steve Lindbeck Comment ; Staff Email

Gov. Frank Murkowski got just what he wanted from the Conference of Alaskans on Print Thursday afternoon. And as a result he's got the high ground -- and a little more momentum for fiscal solutions -- as the debate moves back to Juneau. Bibliography (export)

After Wednesday's mini-rebellion on income taxes, delegates gave the governor the cover he needed to pursue his preferences -- Alaska Permanent Fund earnings for state Quick Links services, a 5 percent limit on Permanent Fund payouts and a bottom line for protecting Find articles by Steve Lindbeck the Constitutional Budget Reserve. In the end, the conference followed his script. Comment ; Staff Find more articles from page B4 When it was all over, the governor issued a press release saying he'll propose legislation Find more from section "Alaska" to "only focus on the four key questions I asked the Conference to debate." Find all articles from February 13, 2004

Only one result surprised anybody in Fairbanks. Delegates, after pitched debate, proposed to put Permanent Fund dividends into the Alaska Constitution. Many had doubts about tying the hands of legislators -- who currently control all use of Permanent Fund earnings -- but they decided it was critical to send a message to voters: If we're going to support any use of earnings, we're first going to lock up the dividends as tightly as possible

But the big story Thursday afternoon was the receding tide on income taxes. Wednesday's straw poll showed 2-to-1 support for income taxes -- and sent everybody home with either shock or pleasant surprise. The pro-administration delegates showed some long faces but also a determination to rally, in the hotel bar afterward.

It turned out they knew what they were doing. When it came time to write up the recommendations established in Wednesday's straw polls, taxes moved from near the top to near the bottom of the list.

The difference between a personal preference straw poll Wednesday and an on-the- record debate Thursday was everything. Income taxes showed up in the resolutions approved Thursday, but only as one option among many and only after use of Permanent Fund earnings. Gov. Jay Hammond's test for public spending -- "claw the money back through taxes" -- settled back as no more than a footnote. Delegates made a point of showering him with praise in the final report, but they didn't buy any of his story.

What changed?

Delegates said three things. First, income tax opponents were more determined than proponents. Their conviction was stronger, their interest clearer. Second, an anonymous straw poll -- which turned out to be no more than a personal philosophical statement -- is

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different from taking a public stand. Many of Wednesday's proponents backed off Thursday. And third, there was focused pressure in the hallways and breakout groups.

So Wednesday's rising tide turned into Thursday's ebb. The conference recommendations, signed by all 55 delegates, stayed basically with the governor's agenda. He was right to call the event "a great success." He got what he needed to put the pressure on legislators in Juneau.

Just because Wednesday's rebellion was quelled doesn't mean progress wasn't achieved.

For one thing, the conference report was unanimous in its view that Alaska's fiscal troubles are a "clear and present danger to the adequate protection of necessary public services." Legislators will face less and less tolerance for the decade-long stalemate in Juneau in the months ahead.

Delegates also said clearly that current state spending is inadequate to meet current needs. If cutting services has been the strategy for the past decade, delegates said, it's gone far enough. They'd use Permanent Fund earnings to stop the bloodshed and call for taxes if that's not enough.

Finally, delegates unanimously endorsed the 5 percent of market value approach to Permanent Fund payouts long advocated by the Permanent Fund trustees. They didn't choose a permanent definition of how to split earnings between dividends and state services, but in endorsing constitutional protection for the dividend they left an assumption that the dividend should stay at about its current level over time.

The debate now goes back to the Legislature, where it's anybody's guess how this report will be received. Legislators in the room Thursday didn't vote and had minimal impact, but they headed back to Juneau with a package of resolutions in hand.

If anybody gained the initiative Thursday in Fairbanks, it was Gov. Murkowski.

Steve Lindbeck is associate editor of the Daily News. Caption: Graphic 1: LINDBECKa_BW_021304.eps

Edition: Final Section: Alaska Page: B4 Dateline: FAIRBANKS Record Number: 428756302/13/04 Copyright (c) 2004, Anchorage Daily News To bookmark this article, right-click on the link below, and copy the link location: Governor receives what he was after

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Enshrine fund, conferees say - Delegates retreat on tax, support use of earnings Anchorage Daily News (AK) - Friday, February 13, 2004 Author: RICHARD MAUER and SEAN COCKERHAM Anchorage Daily News ; Staff

In their final day of work, delegates to the Conference of Alaskans softened their support of an income tax, asked for a constitutional amendment to enshrine the Alaska Permanent Fund dividend, and backed use of some fund earnings for state government.

In all, the resolutions and communiques from the three-day conference were sufficiently broad that victory could be claimed by both Gov. Frank Murkowski, who opposes an income tax and wants to use fund earnings for state government, and former Gov. Jay Hammond, who wants all earnings to be distributed to Alaskans as dividends and is an income tax advocate.

The 55 delegates -- the first seven hand-chosen by Murkowski, the remainder selected from more than 1,000 nominees by the seven -- also said the Alaska Constitution should be amended so annual draws are limited to 5 percent of the fund's value, instead of actual year-to-year profits. The method was recommended by the fund's trustees and would put the fund in line with accepted practices among endowment managers for stability and long-term growth.

They also endorsed a recommendation that the state's shrinking savings account, the Constitutional Budget Reserve, keep a "prudent balance" but rejected suggestions that they list an actual amount such as $1 billion. Allies of Hammond, whose term as governor bridged construction of the trans-Alaska oil pipeline and the surge in oil wealth, say taxes should be imposed only when the fund dips below that level.

Murkowski convened the three-day conference, modeled after the state's Constitutional Convention in 1955, to ask the highly charged political question of whether some fund earnings should be used to plug the state's "fiscal gap," the difference between revenue and expenses. The gap this year is projected to be $600 million. Billions of dollars from the budget reserve have been used over the years to plug the gap, but that account is projected to be zero by 2007 unless other revenue is found or massive cuts are imposed.

The governor presented four questions to the delegates, none of them dealing with taxes. But taxes quickly became the big fifth question. Eighty-one-year-old Hammond, who helped create the fund and has been one of its staunchest advocates, stole the show Wednesday when he addressed the delegates at lunch and put the question of taxes squarely on the agenda.

Hammond and his Republican ally, former Sen. President Clem Tillion of Halibut Cove, a conference delegate, say that taking fund earnings is really a tax on Alaska's poorest, while the fund itself should be allowed to grow long into the future. It is, in effect, one of the four largest industries in Alaska, they say, the metamorphosis of oil into cash. If politicians start to tap it, they're likely not to stop, and the fund will go the way of the rest of the state's oil wealth. It is not state money, it's the people's money, they say. If more money is needed, they argue, an income tax is the fairest solution.

Others have argued that earnings from the fund should be used to supplement the declining revenues the state gets from the aging North Slope oil fields, especially now that local and state governments have begun to seriously cut funds for schools, highways and public safety.

In the hours after the delegates and the standing-room-only audience gave Hammond a standing ovation, a series of straw votes Wednesday showed strong support for an income tax. They chose that as their preference over using fund earnings, oil taxes, user fees and further spending reductions to fill the fiscal gap. Asked point-blank whether they supported an income tax, 69 percent said yes, while another 13 percent said maybe.

But when it came time Thursday to vote formally on draft resolutions and a "Fellow Alaskans" letter, heated and emotional arguments, followed by amendments, diluted that position.

For instance, the draft resolution approving expenditures of the fund's income for state services said the "best way to raise additional revenue for government would be through a personal income tax, which would spare those who need the money the most, while most of the well-to-do could deduct it on their (federal) tax return."

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After a series of amendments, it said, "The governor and legislature must take action to balance the state's revenues and expenditures, including but not limited to consideration of a personal income tax, other broad-based taxes and other alternative sources of income."

A similar series of amendments made similar changes to the letter to Alaskans.

Delegate Steve Rieger of Anchorage, a former Republican legislator, was one of the outspoken opponents of including a tax solution in the resolutions. In an interview, he said he personally doesn't oppose an income tax but said it needs to be studied much more carefully than would be possible in a three-day conference.

"I was one of those who thought this group was not charged with proposing specific measures," Rieger said.

But Mark Neuman of Big Lake, by trade a woodworker and one of the few among the delegates who could not be termed a civic, business or labor leader, said he felt betrayed by the turn of events.

Neuman, who identified himself as the sole individual with an income of less than $25,000 when the delegates provided their demographics, said he thought a "real well-organized group of people ripped the guts out of the letter on income taxes." In doing so, he said, "they took Jay Hammond right out of it and they lost a lot of the respect that we gained by having Gov. Hammond here to start with. But I guess that's how politics works."

As the delegates began departing for their hotel rooms and the airport, Hammond declared nevertheless that the conference was a success, in particular because of the support for a constitutional amendment enshrining the dividend (the fund's principal is already protected in the Alaska Constitution).

"I'm happy they at least did not commit an invasion of the Permanent Fund without a vote of the shareholders," Hammond said, using his term for Alaskans with their vested interest in the fund. "And they left the door opened" to taxes that could be the long-term solution to Alaska's fiscal problems, he said.

Murkowski issued a statement that hailed the Conference of Alaskans as a "tremendous success." Murkowski said he will introduce bills based on some of what happened at the conference, but he didn't say just what that planned legislation would propose.

Murkowski's spokesman, John Manly, would not elaborate on the statement. He also wouldn't say what Murkowski's position is on the delegates' call for the dividends to be enshrined in the state constitution.

Murkowski did make it clear that his legislation will reflect only the Permanent Fund-related issues he asked delegates to consider -- and not the delegates' desire that the state also consider an income tax.

The tax issue spurred heated debate throughout the afternoon.

Some income tax advocates urged their colleagues to maintain that position. They reminded them of the overwhelming support that the delegates gave an income tax the day before.

"I think we are retreating substantially from the message we gave yesterday," said Anchorage delegate Helvi Sandvik, president of NANA Development Corp.

Big Lake delegate Neuman became visibly upset about the ongoing purge.

"We voted yesterday, we took straw polls, and we favored an income tax," he said. "Now it's getting gutted out of our resolution. I don't understand what's going on here."

But other delegates said the conference hadn't looked at the impact an income tax would have and it's a decision better left to the Legislature.

"I'm not ready to do that," said Fairbanks delegate Margaret Russell, who works in Fairbanks state Sen. Ralph Seekins' car dealership.

"We don't have information," she said.

Fairbanks delegate Steve Frank, a former state senator, said the conference would risk its credibility if it called for a statewide income tax.

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"I think it's out of touch with what the Legislature is likely to endorse and what the public wants in general," Frank said. "I think it will make the conference be viewed as kind of a tax-and-spend bunch of elites, frankly," he said.

Delegate Bob Weinstein, who supported an income tax in the straw vote, said he thinks it's for the best that the delegates softened the language.

"Because I don't know today if a personal income tax, for example, is more fair to Alaskans than a change in the taxation policies on the oil industry," he said.

Daily News reporter Richard Mauer can be reached at [email protected]. Daily News reporter Sean Cockerham can be reached at [email protected].

INSIDE

RESOLUTION: A look at the four points passed by delegates Thursday and how they would affect the Permanent Fund.

LETTER: The full text of the letter drafted by the Conference of Alaskans.

TIMELINE: A look at dates of possible future action affecting the Permanent Fund.

RESPOND: Find out how to weigh in on the subject and respond to the actions taken this week by the Conference of Alaskans.

Back Page

Permanent Fund resolutions

1. Change how earnings of Permanent Fund are calculated

Legislature should propose a constitutional amendment to voters that would change the method of distributing money from the fund so that distributions are limited to 5 percent of market value (POMV) of the fund.

Passed unanimously by voice vote

2. Constitutional Budget Reserve

Alaska should maintain a prudent balance in the Constitutional Budget Reserve fund.

Passed unanimously by voice vote

3. Let voters decide

Legislature should propose a constitutional amendment to voters at the November 2004 election that would protect Permanent Fund dividends and ensure they would continue to be paid to residents.

Passed with 37 yes votes

4. Permanent Fund income for state expenses

After dividends are paid, some Permanent Fund income should be used for essential state services. The governor and Legislature must act to balance the state's revenues and expenditures, considering a personal income tax, other broad-based taxes, and other alternative sources of income.

Passed with two dissenting votes

Permanent Fund timeline

Thursday: Conference of Alaska issues recommendations.

March 1: Special session called by the governor to consider conference's results. Legislature could decide to put the

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conference's recommendations on the November ballot. Fourteen of 20 senators, and 27 of 40 representatives, would have to approve doing so.

May 11: Last day of regular legislative session.

Nov. 2: Election day.

Full text of the letter drafted Thursday by the Conference of Alaskans

February 12, 2004

Fellow Alaskans,

The 55 of us have spent the past three days in Fairbanks at the Conference of Alaskans called by Governor Murkowski to consider the fiscal future of our state and the proper role of the Permanent Fund in that future. We believe there are five basic facts that Alaskans must and do acknowledge.

o The Permanent Fund must remain precisely that - permanent - and must be protected.

o Permanent Fund Dividends provide the crucial link between the Permanent Fund and its true owners, the People of Alaska, and so they too must continue.

o The fiscal crisis facing Alaska is a clear and present danger to the adequate protection of necessary public services.

o Alaska must not impose self-inflicted harm. The delegates now believe that Alaska's state spending is inadequate to meet current needs for public education, public protection, and many other necessary state services. Too many communities around Alaska, large and small, are already facing desperate decisions.

o Alaska needs some kind of standby cash reserve so state and local government services won't have to come to a catastrophic halt if oil prices crash.

With these facts in mind, we have considered and discussed the four questions that Governor Murkowski specifically asked us, and here are what we believe are the best answers to them.

1. Should the use of income from the Permanent Fund be limited by the Constitution to 5% of the Fund's value, as the Permanent Fund Trustees have proposed?

Yes. We must inflation-proof the Permanent Fund in order to keep it and the Permanent Fund Dividends (PFDs) from evaporating away in the future. The "percent of market value" (POMV), as suggested by the trustees will put infla-tion- proofing into the Constitution, instead of leaving it to the Legislature's discretion. POMV is a technical change in determining how much money from the Fund is available, but it has nothing directly to do with the choice of using it for Dividends or spending it on anything else. That's the next question.

2. Should a portion of the income of the Permanent Fund be used for essential state services, such as education?

Our answer here is "yes, but.." There are two conditions to our endorsement. One, dividends must be paid out first under POMV. Only what's left over could be used for essential state services. Two, the delegates to the Conference of Alaskans recommend that the governor and legislature take action to balance the state's revenues and expenditures, including but not limited to, consideration of a personal income tax, other broad-based taxes and other alternative sources of income.

3. Should the use of the income of the Permanent Fund for dividends and possibly for other purposes be determined annually by the Legislature, as is currently the case? Or should it be dedicated in the Constitution?

A reasonable percentage of the Permanent Fund money available under POMV should be constitutionally dedicated to PFDs in order to make them "permanent" like the Fund itself. All other uses of the remaining Permanent Fund money should be left for the Legislature to appropriate, since it is impossible for this generation to predict what the needs will be for the next.

4. Should the state maintain a minimum balance in the Constitutional Budget Reserve to stabilize state finances against fluctuations in oil production or prices?

Yes, a prudent amount should be in reserve at all times, for two reasons. We can't afford to send home all the police,

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firefighters, teachers or other critical personnel because the state treasury is empty due to something unforeseen. It is critical that a prudent amount be retained in a Constitutional Budget Reserve (CBR) to stabilize state finances against fluctuations in oil production or prices. This is necessary to maintain the state's very good credit-rating which will save millions of dollars in the future. Therefore, if oil production is interrupted or prices fall, so that we need to draw the CBR below the prudent balance, the state needs a plan to refill it back to that level as soon as possible.

We have been honored by the presence and words of former Governor Jay Hammond during the Conference of Alaskans, and we applaud his continuing passionate dedication to protecting the Alaska Permanent Fund and building a strong fiscal future for Alaska. We have been honored by hearing from hundreds of Alaskans during the course of the Conference of Alaskans, and we thank them for their contributions.

It has been an honor to answer the call of Governor Murkowski in his quest to address issues critical to Alaska. We commend his willingness to bring together this diverse group of Alaskans and join him as we look toward the future of Alaska together. We acknowledge the tremendous staff time put in by both the Administration and the different departments within the Administration, and by the University of Alaska and its staff.

These were challenging discussions with no easy answers. We sincerely believe they are the best answers available for all Alaskans as a whole, and we know they are superior to the "easy" answers. We have tried our best to represent the interests of all Alaskans, and we hope each of you will take up where we have had to leave off. It is time to act. Thank you for the honor of representing you. Caption: Photo 2: ThuFbxLetter2_021304.jpg Photo 3: THuFbxVote_021304.jpg Photo 4: ThuFbxBye1_021304.jpg Photo 5: ThuFbxBye2_021304.jpg Graphic 1: ADNLinks_021304.eps ERIK HILL / Anchorage Daily News Marc Langland, left, Mike Navarre and Peg Tileston worked during a small group session Thursday on content of a letter to fellow Alaskans regarding the outcome of the three days in Fairbanks at the Conference of Alaskans. ERIK HILL / Anchorage Daily News Tadd Owens of Anchorage and fellow delegates voted on amendments, amendments to amendments, and finally on resolutions and a letter to Alaskans at the conclusion of the Conference of Alaskans on Thursday in Fairbanks. ERIK HILL / Anchorage Daily News Theresa John of Bethel, left, and Pelican mayor Kathie Wasserman hugged goodbye after the conference. ERIK HILL / Anchorage Daily News Former Gov. Jay Hammond was congratulated by Clark Gruening of Juneau at the end of the Conference of Alaskans. Originally scheduled to be on vacation in Hawaii, Hammond instead diverted to the conference. Edition: State Section: Main Page: A1 Dateline: FAIRBANKS Record Number: 428765902/13/04 Copyright (c) 2004, Anchorage Daily News

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Back To Results Previous Article 32 of 63 Next Save this Article Governor takes fiscal pitch to Senate - 'ACT NOW': Leaders 0 Saved Articles hear proposal for spending Permanent Fund earnings. this article Anchorage Daily News (AK) - Tuesday, March 16, 2004 Email Author: SEAN COCKERHAM Anchorage Daily News ; Staff Print Gov. Frank Murkowski on Monday sat before skeptical leaders of the state Senate and made a pitch for spending earnings of the Alaska Permanent Fund for government. Bibliography (export)

"We all agree that the state needs a resolution this session of Alaska's long-term fiscal problem. ... It is our obligation to act now," the governor said to the Senate Finance Quick Links Committee. Find articles by SEAN COCKERHAM Anchorage Daily News ; Staff Senate leaders don't seem convinced of the urgency, however. "I don't think we are in a Find more articles from page B1 crisis situation," Fairbanks Republican Sen. Gary Wilken, co-chair of the Senate Finance Find more from section "Alaska" Committee, said in an interview after the governor spoke. Find all articles from March 16, 2004 Still, Wilken said he was impressed that Murkowski came and testified to his committee, an unusual move for a governor.

This week, at Murkowski's request, the Legislature is considering the findings of the governor's recent Conference of Alaskans. The delegates to the Fairbanks conference recommended that earnings from the $28 billion fund be used for government, that Permanent Fund dividends of some amount be guaranteed through an amendment to the state constitution and that the Permanent Fund be managed in a way that provides more predictable revenues.

The delegates also recommended that income taxes or other taxes be considered.

The Senate Finance Committee is scheduled today to take up two Permanent Fund issues: putting the dividends in the constitution and spending some of the earnings.

Murkowski has not endorsed the constitutional dividend idea. He has supported spending fund earnings for state services, though he said Monday he wasn't proposing specific legislation. The governor said he would work with lawmakers to craft a solution. But the bottom line is that the gap between revenues and spending needs to be fixed now, he said.

"We all share the responsibility not to pass on to future legislators, or future governors, the fiscal gap with which I was confronted with when I came to office," Murkowski told the senators.

The governor's spokesman, John Manly, said Murkowski wants a statewide vote in November on whether to patch the budget with Permanent Fund earnings. Wilken, the

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Fairbanks senator, said he hasn't made up his mind on whether he would support the governor's call for a vote this fall.

Murkowski told Wilken's committee the state needs money to keep services afloat until a possible natural gas pipeline and other hoped-for major economic development happens. Such potential projects aren't expected to produce government revenue until at least 2012, according to state officials.

In almost every recent year, the state has had a budget shortfall in the hundreds of millions of dollars. The $1.9 billion Constitutional Budget Reserve absorbs the deficit. But the reserve is shrinking, and Murkowski told the senators that he would not allow it to go below a billion dollars.

"This minimum balance is absolutely necessary to provide a cushion against dramatic disruptions in state revenues," Murkowski said.

According to the governor's office, the reserve is projected to go below the billion-dollar mark in spring 2006. And Murkowski's proposal to use Permanent Fund earnings is a constitutional amendment that must go to a public vote during a regular state general election, said Cheryl Frasca, Murkowski's budget chief.

That means that if the Legislature doesn't agree to put it on this fall's ballot, then the next chance would be in November 2006.

The Legislature could just decide to spend Permanent Fund earnings without a public vote. But the earnings account is, basically, the dividend account, and lawmakers are reluctant to touch it. And Murkowski is insisting on a statewide vote.

The high price of oil has made the governor's push more difficult, since it has significantly lessened the state's budget trouble.

Alaska could save $300 million this year on the high price. But Murkowski urged the state Senators not to accept that reprieve.

"We cannot bet our children's future education, our families' public safety and our social obligations on the continuing high price of oil," Murkowski said.

Anchorage Republican Sen. Con Bunde, a supporter of tapping fund earnings for state services, said he hopes Murkowski's words will help prod lawmakers who might be reluctant to take action in an election year.

Daily News reporter Sean Cockerham can be reached at scockerham@adncom.

FOR MORE on the Legislature, including easy ways to track bills and how to contact your legislator, go to

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Attachment D2

Legislation Introduced by Governor Murkowski Pursuant to the Recommendations of the Conference of Alaskans

HB/SB 1003 HJR/SJR 101 HJR/SJR 102

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HOUSE BILL NO. 1003

IN THE LEGISLATURE OF THE STATE OF ALASKA

TWENTY-THIRD LEGISLATURE - FIRST SPECIAL SESSION

BY THE HOUSE RULES COMMITTEE BY REQUEST OF THE GOVERNOR

Introduced: 6/22/04 Referred: Finance

A BILL

FOR AN ACT ENTITLED

1 "An Act relating to the income of and appropriations from the Alaska permanent fund

2 under art. IX, sec. 15(b), Constitution of the State of Alaska, and making conforming

3 amendments; relating to permanent fund dividend payments of at least $1,000; relating

4 to the determination of net income of the mental health trust fund; and providing for an

5 effective date."

6 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA:

7 * Section 1. AS 09.20.050(b) is amended to read: 8 (b) The jury list shall be based on a list prepared by the Department of 9 Revenue of all persons who filed an application for a [DISTRIBUTION OF 10 ALASKA] permanent fund dividend [INCOME] under AS 43.23 during the current 11 calendar year that shows an Alaska [ALASKAN] address, and of all persons who 12 volunteer for jury duty under (d) of this section. If considered necessary by the 13 administrative director of the Alaska Court System, the jury list shall incorporate a list

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1 prepared by the Department of Administration of all persons who hold a valid Alaska 2 driver's license. The departments shall submit their respective lists to the Alaska 3 Court System not later than September 30 of each year. To the extent that it is 4 available, the departments shall include on the lists they submit the following 5 information for each person: first name, middle initial, and last name; mailing address, 6 including the zip code; and birth date. The lists shall be recorded on magnetic tape 7 compatible with Alaska Court System data processing equipment. 8 * Sec. 2. AS 24.20.206 is amended to read: 9 Sec. 24.20.206. Duties. The Legislative Budget and Audit Committee shall 10 (1) [REPEALED 11 (2)] annually review the long-range operating plans of all agencies of 12 the state that perform lending or investment functions; 13 (2) [(3)] review periodic reports from all agencies of the state that 14 perform lending or investment functions; 15 (3) [(4)] prepare a complete report of investment programs, plans, 16 performance, and policies of all agencies of the state that perform lending or 17 investment functions and notify the legislature within 30 days after the convening of 18 each regular session that the report is available; 19 (4) [(5)] in conjunction with the finance committee of each house, 20 recommend annually to the legislature the investment policy for the general fund 21 surplus and for the [INCOME FROM THE] permanent fund; 22 (5) [(6)] provide for an annual post audit and annual operational and 23 performance evaluation of the Alaska Permanent Fund Corporation investments and 24 investment programs; 25 (6) [(7)] provide for an annual operational and performance evaluation 26 of the Alaska Housing Finance Corporation and the Alaska Industrial Development 27 and Export Authority; the performance evaluation must include, but is not limited to, a 28 comparison of the effect on various sectors of the economy by public and private 29 lending, the effect on resident and nonresident employment, the effect on real wages, 30 and the effect on state and local operating and capital budgets of the programs of the 31 Alaska Housing Finance Corporation and the Alaska Industrial Development and

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1 Export Authority; 2 (7) [(8)] provide assistance to the trustees of the trust established in 3 AS 37.14.400 - 37.14.450 in carrying out their duties under AS 37.14.415. 4 * Sec. 3. AS 37.13 is amended by adding a new section to read: 5 Sec. 37.13.143. Appropriations from the fund. (a) The total amount 6 available for appropriation from the fund for a specific fiscal year is determined under 7 art. IX, sec. 15(b), Constitution of the State of Alaska. However, if the annualized real 8 rate of return of the fund during the first 10 of the 11 fiscal years immediately 9 preceding the specific fiscal year was less than five percent, the amount available for 10 appropriation for that specific fiscal year may not exceed that 10-year annualized real 11 rate of return multiplied by the average of the fiscal year-end market values of the 12 fund for the first five of the six fiscal years immediately preceding that specific fiscal 13 year. For purposes of this subsection, "real rate of return" means the total rate of 14 return of the fund's investments for the period measured, minus the rate of inflation for 15 that period, stated on an annualized basis. 16 (b) The legislature may appropriate from the fund for each fiscal year the 17 amount for costs of the corporation associated with operating and investing the fund. 18 (c) After the appropriation under (b) of this section, appropriations by the 19 legislature for a specific fiscal year are limited as follows, based on the total amount 20 remaining available for appropriation under (a) of this section: 21 (1) not more than five percent may be appropriated for municipalities 22 and other communities; 23 (2) not more than 45 percent may be appropriated for public education; 24 (3) not more than 50 percent may be appropriated to the dividend fund 25 established under AS 43.23.045. 26 (d) Notwithstanding (c) of this section, the amount of a dividend payment for 27 residents of the state shall be no less than $1,000 each year. If the appropriation made 28 under (c)(3) of this section would be insufficient to pay that amount, the percentages 29 specified in (c)(1) and (2) of this section are decreased for the applicable year, and the 30 percentage specified in (c)(3) of this section is increased, by the amount necessary to 31 fund the shortfall.

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1 (e) The corporation shall transfer money appropriated under this section from 2 the fund within 14 days after the effective date of the appropriation. 3 (f) For purposes of (a) of this section, the corporation shall calculate the rate 4 of inflation using the annual year over year change in the Consumer Price Index for all 5 urban consumers for the time period specified. 6 * Sec. 4. AS 37.13.145(d) is amended to read: 7 (d) Income [NOTWITHSTANDING (b) OF THIS SECTION, INCOME] 8 earned on money awarded in or received as a result of State v. Amerada Hess, et al. 9 1JU-77-847 Civ. (Superior Court, First Judicial District), including settlement, 10 summary judgment, or adjustment to a royalty-in-kind contract that is tied to the 11 outcome of this case, or interest earned on the money, or on the earnings of the money 12 shall be treated in the same manner as other income of the Alaska permanent fund, 13 except that it is not available for distribution to the dividend fund [, AND SHALL BE 14 ANNUALLY DEPOSITED INTO THE PRINCIPAL OF THE ALASKA 15 PERMANENT FUND]. 16 * Sec. 5. AS 37.13 is amended by adding a new section to read: 17 Sec. 37.13.148. Market value of the fund. For the purposes of art. IX, sec. 18 15(b), Constitution of the State of Alaska, the corporation shall determine the market 19 value of the fund annually as of the close of business on June 30 in accordance with 20 generally accepted accounting principles for the determination of fair value. 21 * Sec. 6. AS 37.13.150 is amended to read: 22 Sec. 37.13.150. Corporation budget. The [REVENUE GENERATED BY 23 THE FUND'S INVESTMENTS MUST BE IDENTIFIED AS THE SOURCE OF 24 THE] operating budget of the corporation shall be included in the state's operating 25 budget under AS 37.07 (Executive Budget Act). [THE UNEXPENDED BALANCE 26 OF THE CORPORATION'S ANNUAL OPERATING BUDGET DOES NOT LAPSE 27 AT THE END OF THE FISCAL YEAR BUT SHALL BE TREATED AS INCOME 28 UNDER AS 37.13.140.] 29 * Sec. 7. AS 37.14.031(c) is amended to read: 30 (c) The net income of the fund shall be determined by the Alaska Permanent 31 Fund Corporation annually as of the last day of the fiscal year in accordance with

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1 generally accepted accounting principles [IN THE SAME MANNER THE 2 CORPORATION DETERMINES THE NET INCOME OF THE ALASKA 3 PERMANENT FUND UNDER AS 37.13.140]. 4 * Sec. 8. AS 43.23.025(a) is amended to read: 5 (a) By October 1 of each year, the commissioner shall determine the value of 6 each permanent fund dividend for that year by 7 (1) determining the total amount available for dividend payments, 8 which equals 9 (A) the amount of money appropriated from [INCOME OF] 10 the Alaska permanent fund [TRANSFERRED] to the dividend fund under 11 AS 37.13.143 [AS 37.13.145(b)] during the current year; 12 (B) plus the unexpended and unobligated balances of prior 13 fiscal year appropriations that lapse into the dividend fund under 14 AS 43.23.045(d); 15 (C) less the amount necessary to pay prior year dividends from 16 the dividend fund in the current year under AS 43.23.005(h) and under 17 AS 43.23.055(3) and (7); 18 (D) less the amount necessary to pay dividends from the 19 dividend fund due to eligible applicants who, as determined by the department, 20 filed for a previous year's dividend by the filing deadline but who were not 21 included in a previous year's dividend computation; 22 (E) less appropriations from the dividend fund during the 23 current year, including amounts to pay costs of administering the dividend 24 program and the hold harmless provisions of AS 43.23.075; 25 (2) determining the number of individuals eligible to receive a 26 dividend payment for the current year and the number of estates and successors 27 eligible to receive a dividend payment for the current year under AS 43.23.005(h); and 28 (3) dividing the amount determined under (1) of this subsection by the 29 amount determined under (2) of this subsection. 30 * Sec. 9. AS 43.23.028(a) is amended to read: 31 (a) By October 1 of each year, the commissioner shall give public notice of

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1 the value of each permanent fund dividend for that year and notice of the information 2 required to be disclosed under (3) of this subsection. In addition, the stub attached to 3 each individual dividend check and direct deposit advice must 4 (1) disclose the amount of each dividend attributable to [INCOME 5 EARNED BY THE PERMANENT FUND FROM] deposits to that fund required 6 under art. IX, sec. 15, Constitution of the State of Alaska; 7 (2) disclose the amount of each dividend attributable to all [INCOME 8 EARNED BY THE PERMANENT FUND FROM] appropriations to that fund plus 9 [AND FROM] amounts added to that fund before January 1, 2005, to offset the 10 effects of inflation; 11 (3) disclose the amount by which each dividend has been reduced due 12 to each appropriation from the dividend fund, including amounts to pay the costs of 13 administering the dividend program and the hold harmless provisions of 14 AS 43.23.075; 15 (4) include a statement that an individual is not eligible for a dividend 16 when 17 (A) during the qualifying year, the individual was convicted of 18 a felony; 19 (B) during all or part of the qualifying year, the individual was 20 incarcerated as a result of the conviction of a 21 (i) felony; or 22 (ii) misdemeanor if the individual has been convicted of 23 a prior felony or two or more prior misdemeanors; 24 (5) include a statement that the legislative purpose for making 25 individuals listed under (4) of this subsection ineligible is to 26 (A) obtain reimbursement for some of the costs imposed on the 27 state criminal justice system related to incarceration or probation of those 28 individuals; 29 (B) provide funds for services for and payments to crime 30 victims and for grants for the operation of domestic violence and sexual assault 31 programs;

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1 (6) disclose the total amount that would have been paid during the 2 previous fiscal year to individuals who were ineligible to receive dividends under 3 AS 43.23.005(d) if they had been eligible; 4 (7) disclose the total amount appropriated for the current fiscal year 5 under (b) of this section for each of the funds and agencies listed in (b) of this section. 6 * Sec. 10. AS 37.13.140, 37.13.145(a), 37.13.145(b), 37.13.145(c), and 37.13.300(c) are 7 repealed. 8 * Sec. 11. The uncodified law of the State of Alaska is amended by adding a new section to 9 read: 10 CONDITIONAL EFFECT. This Act takes effect only if an amendment to art. IX, sec. 11 15, Constitution of the State of Alaska, relating to and limiting appropriations from the Alaska 12 permanent fund based on an averaged percent of the fund market value, is approved by the 13 voters during the 2004 general election and takes effect. 14 * Sec. 12. If this Act takes effect under sec. 11 of this Act, it takes effect January 1, 2005, 15 except as provided in sec. 13 of this Act. 16 * Sec. 13. Sections 1 and 2 of this Act take effect immediately under AS 01.10.070(c).

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HOUSE JOINT RESOLUTION NO. 101

IN THE LEGISLATURE OF THE STATE OF ALASKA

TWENTY-THIRD LEGISLATURE - FIRST SPECIAL SESSION

BY THE HOUSE RULES COMMITTEE BY REQUEST OF THE GOVERNOR

Introduced: 6/22/04 Referred: Judiciary, Finance

A RESOLUTION

1 Proposing amendments to the Constitution of the State of Alaska relating to and limiting

2 appropriations from the Alaska permanent fund based on an averaged percent of the

3 fund market value.

4 BE IT RESOLVED BY THE LEGISLATURE OF THE STATE OF ALASKA:

5 * Section 1. Article IX, sec. 15, Constitution of the State of Alaska, is amended to read: 6 Section 15. Alaska Permanent Fund. (a) At least twenty-five per cent of all 7 mineral lease rentals, royalties, royalty sale proceeds, federal mineral revenue sharing 8 payments and bonuses received by the State shall be placed in a permanent fund. 9 Except as appropriated under (b) of this section, money in the permanent fund [, 10 THE PRINCIPAL OF WHICH] shall be used only for those income-producing 11 investments specifically designated by law as eligible for permanent fund investments. 12 [ALL INCOME FROM THE PERMANENT FUND SHALL BE DEPOSITED IN 13 THE GENERAL FUND UNLESS OTHERWISE PROVIDED BY LAW.] 14 * Sec. 2. Article IX, sec. 15, Constitution of the State of Alaska, is amended by adding a 15 new subsection to read:

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1 (b) Appropriations from the permanent fund for a fiscal year may not exceed 2 five percent of the average of the market values of the fund on June 30 for the first 3 five of the six fiscal years immediately preceding that fiscal year. 4 * Sec. 3. Article XV, Constitution of the State of Alaska, is amended by adding a new 5 section to read: 6 Section 30. Transition. (a) On the effective date of the 2004 amendment 7 relating to the Alaska permanent fund (art. IX, sec. 15), the unencumbered, 8 unappropriated balance of the earnings reserve account established under 9 AS 37.13.145(a) is added to the balance in the Alaska permanent fund. 10 (b) The 2004 amendment relating to the Alaska permanent fund first applies to 11 appropriations for fiscal year 2006. Appropriations from the permanent fund for fiscal 12 year 2005 are subject to Section 15 of Article IX as that section read on June 30, 2004. 13 * Sec. 4. The amendments proposed by this resolution shall be placed before the voters of 14 the state at the next general election in conformity with art. XIII, sec. 1, Constitution of the 15 State of Alaska, and the election laws of the state.

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HOUSE JOINT RESOLUTION NO. 102

IN THE LEGISLATURE OF THE STATE OF ALASKA

TWENTY-THIRD LEGISLATURE - FIRST SPECIAL SESSION

BY THE HOUSE RULES COMMITTEE BY REQUEST OF THE GOVERNOR

Introduced: 6/22/04 Referred: Judiciary, Finance

A RESOLUTION

1 Proposing amendments to the Constitution of the State of Alaska relating to and limiting

2 appropriations from the Alaska permanent fund based on an averaged percent of the

3 fund market value and relating to permanent fund dividend payments.

4 BE IT RESOLVED BY THE LEGISLATURE OF THE STATE OF ALASKA:

5 * Section 1. Article IX, sec. 15, Constitution of the State of Alaska, is amended to read: 6 Section 15. Alaska Permanent Fund. (a) At least twenty-five per cent of all 7 mineral lease rentals, royalties, royalty sale proceeds, federal mineral revenue sharing 8 payments and bonuses received by the State shall be placed in a permanent fund. 9 Except as otherwise provided in this section, money in the permanent fund [, 10 THE PRINCIPAL OF WHICH] shall be used only for those income-producing 11 investments specifically designated by law as eligible for permanent fund investments. 12 [ALL INCOME FROM THE PERMANENT FUND SHALL BE DEPOSITED IN 13 THE GENERAL FUND UNLESS OTHERWISE PROVIDED BY LAW.] 14 * Sec. 2. Article IX, sec. 15, Constitution of the State of Alaska, is amended by adding a 15 new subsection to read:

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1 (b) Appropriations from the permanent fund for a fiscal year may not exceed 2 five percent of the average of the market values of the fund on June 30 for the earliest 3 five of the six fiscal years immediately preceding that fiscal year. 4 (c) Appropriations from the permanent fund may be made each fiscal year for 5 the costs of administering the permanent fund. The remaining amount annually 6 available for appropriation from the permanent fund shall be appropriated for the 7 following purposes in the amount set out after each: 8 (1) a program of dividend payments for residents of the State 9 established by law - fifty percent; 10 (2) aid to public education - forty-five percent; and 11 (3) aid to municipalities and other communities - five percent. 12 (d) Notwithstanding (c) of this section, the amount of a dividend payment for 13 residents of the State shall be not less than $1,000 each year. If the appropriation 14 made under (c)(1) of this section would be insufficient to pay that amount, the 15 percentages specified in (c)(2) and (3) of this section are decreased, and the percentage 16 specified in (c)(1) of this section is increased, by the amount necessary to fund the 17 shortfall. 18 * Sec. 3. Article XV, Constitution of the State of Alaska, is amended by adding a new 19 section to read: 20 Section 30. Transition; repeal. (a) On the effective date of the 2004 21 amendment relating to the Alaska permanent fund (art. IX, sec. 15), the 22 unencumbered, unappropriated balance of the earnings reserve account established 23 under AS 37.13.145(a) is added to the balance in the Alaska permanent fund. 24 (b) The 2004 amendment relating to the Alaska permanent fund first applies to 25 appropriations for fiscal year 2006. Appropriations from the permanent fund for fiscal 26 year 2005 are subject to Section 15 of Article IX as that section read on June 30, 2004. 27 (c) Sections 15(c) and (d) of Article IX, added by the 2004 amendment, are 28 repealed July 1, 2014. 29 * Sec. 4. The amendments proposed by this resolution shall be placed before the voters of 30 the state at the next general election in conformity with art. XIII, sec. 1, Constitution of the 31 State of Alaska, and the election laws of the state.

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