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Sponsor Statement for HB 20
Municipal Dividend Program

An Act relating to state aid to municipalities and certain other recipients, and for the village public safety officer program; relating to municipal dividends; relating to the public safety foundation program; and providing for an effective date.

Released: March 21, 2001

The establishment of a Municipal Dividend program would provide Alaskan municipalities with a predictable and reliable source of income with which to address basic community needs. Currently, full funding for essential services is going unmet, in part, due to declining state municipal assistance and revenue sharing General Fund allocations. Increases in local property taxes are not always the answer, especially in many communities where there is insufficient tax base to draw upon.

HB 20 would repeal the current municipal assistance and revenue sharing programs, thus allowing for a General Fund cut of approximately $50 million. It would fund defined basic services from the surplus earnings of the Permanent Fund at a rate of $150 per dividend recipient, only after inflation proofing and only after payment of individual dividends. This plan would provide approximately $88 million to municipalities in the next fiscal year (FY02), a very modest draw from the surplus earnings. It clearly defines the uses to which funding may be applied, and provides minimum amounts for small municipalities ($45,000) and unincorporated communities ($10,000).

It does not require a constitutional amendment, nor does it require a vote of the public. Approval of this Municipal Dividend plan is fully within the authority of the legislature. Within HB 20, annual legislative powers of appropriation remain intact. The bill's impact on an individual dividend check is slight over time, with estimates by the Permanent Fund Corporation at approximately $50 in ten years (see PFC chart). Measure this against the value of adequate local police, fire, EMT, health care, and road maintenance services of benefit to individual residents over the same time period.

Given our inability to substantially cut the state operating budget, and given our unwilling-ness to raise new revenues, we need to look at using surplus earnings of the Permanent Fund in some effective way because of the above two political realities. The Municipal Dividend program responds to the continued reduction in state funding to municipalities, and would be an effective counter to the popularity of a local tax cap solution. It is effective, reliable, and controllable. HB 20 is a plausible component of a long-range fiscal plan.

BILL SECTION 1: Sets out findings which provide guidelines for the bill, including identifying the basic services of police, fire, EMT, health and road maintenance, recognizing the Public Safety Foundation Program, recognizing municipal accountability, and protecting the integrity of the Permanent Fund's inflation-proofing and individual dividend payment program.

BILL SECTION 2: Defines those fire fighting and EMT organizations eligible to receive payments under new section AS 29.60.730 (in Bill Section 7).

BILL SECTION 3: Adds the Public Safety Foundation Program to those programs that apply to Home Rule communities.

BILL SECTION 4: Adds the Public Safety Foundation Program to the compliance language necessary for municipalities to receive program funds.

BILL SECTION 5: Adds the Public Safety Foundation Program to the list of programs through which funds are allocated to a municipality, that a municipality must report to its taxpayers.

BILL SECTION 6: Declares that compliance with AS 29.45.660(b) is necessary for receipt of funds under the Public Safety Foundation Program.

BILL SECTION 7: The heart of the bill. Reestablishes the Public Safety Foundation Program; establishes the Municipal Dividend Fund in the Department of Community and Economic Development; retains legislative powers of annual appropriation; sets out the qualifications of municipalities for eligibility and minimum municipal entitlements ($45,000); creates the road maintenance entitlement ($2,000/mile) and per capita supplement ($10/head); provides for automotive public transportation ($1,000/mile) for frozen waterways; sets out the formula for the fire and emergency medical services entitlement ($20/head for fire and $20/head for EMT); allows usage for public education purposes of up to 55% of the fire/EMT and road entitlements; establishes the entitlement for police protection services ($20/head); creates the hospital and health services entitlement for municipalities which provide these services; establishes the minimum entitlement for unincorporated communities ($10,000); and provides payments for VPSO services ($15/head).

BILL SECTION 8: Adds minimum entitlement provisions of AS 29.60.690 (in Bill Section 7), to the Unincorporated Community Capital Project Matching Grant Fund program.

BILL SECTION 9: Amends the Municipal Capital Project Matching Grant Program by adding the Public Safety Foundation Program as a source for local share match funding for municipalities.

BILL SECTION 10: Amends the Unincorporated Community Capital Project Matching Grant Program by adding the Public Safety Foundation Program as a source for local share match funding for unincorporated communities in the unorganized borough.

BILL SECTION 11: Adds new subsection to AS 37.13.145 to provide for the transfer of funds from the Earnings Reserve account to a new Municipal Dividend Fund account, limited to $150 per each individual PFD distributed the previous year, or less if the E.R. account balance is less than would accommodate the $150 level. This happens after AS 37.13.145 (b), the set-aside for individual dividend payments, and (c), the set-aside for inflation proofing.

BILL SECTION 12: Technical provision which prorates payments under the road maintenance entitlement, for circumstances where a municipality may receive other funds for road maintenance upon roads it may not own, but for which it may have maintenance responsibility.

BILL SECTION 13: Repeals currently established Revenue Sharing and Safe Communities programs.

BILL SECTION 14: Continues eligibility of unincorporated communities to receive state aid for FY 02 once the program conversion takes place.

BILL SECTION 15: Revisor's technical note.

BILL SECTION 16: Establishes an effective date of June 30, 2001.

HB 20 / Rep. Carl E. Moses (staff: Tim Benintendi / 6591) 3-21-01

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