Sponsor Statement for HJR 60

"Proposing amendments to the Constitution of the State of Alaska relating to the community dividend fund, the permanent fund and the budget reserve fund"

HJR 60 proposes a constitutional amendment creating a dedicated fund to pay dividends to municipalities within the state. Principal will be invested to yield competitive market rates and a portion of the fund’s income will be distributed annually to municipalities. Fund principal will consist of an initial $750 million from the Budget Reserve Fund, with 2% of the Permanent Fund’s income added to the principal for the next 20 years. As the principal of the fund increases, so to will earnings, and thus payments to communities. As dividends increase, local taxes can decrease providing more money to individuals without a decrease in local services.

Local governments have individualized needs that must be met in addition to providing basic services. Unfortunately, they do not have sufficient land, economic or tax bases to provide the necessary funding; nor can the state continue to give it to them. With oil production decreasing, there is less general fund money available to the state. The state continues to funnel mandated services to local governments, but as revenues diminish, the state cannot provide adequate sustainable funding to local governments to meet their service demands.

Creating a dedicated fund provides more funding reliability to local governments. With a dedicated fund where only interest from the fund is paid out, communities can better estimate the income they will derive based on current interest rates and changes in population. It provides a more stable and predictable stream of revenues for them to plan and provide services. With local government receiving the funds directly, residents have the opportunity to be more knowledgeable about where the funds will be used and able to provide more input on how they should be spent. Local governments are insured a certain amount of money and will answer to their citizens for the way in which it is spent. The state can then concentrate its efforts on statewide programs and support directed more to specific or specialized needs.

Another equally important benefit is that this strengthens the argument that the Permanent Fund and its proceeds are used for the public’s purpose and are thus eligible to retain the federal tax-exempt status. The Permanent Fund was created as a public trust, the proceeds from which were to be used for a public purpose. The principal of the fund came from resource assets received at statehood because Congress did not believe Alaska could meet its collective needs from taxes alone. Dedicating a portion of the income to communities reiterates the argument that the state fulfills the public purpose by using "income from a collective asset to meet collective needs." Requiring the citizens of the state to approve this dedication by a vote reinforces that the public believes in the purpose for which it is to be used.

last updated on 3/2/98

Sponsor Statement for HJR 60

Representative Davis introduced HJR 60 proposing a constitutional amendment that creates a dedicated fund for the purpose of paying dividends to municipalities within the state. The fund’s principal will be invested to yield competitive market rates and a portion of the income of the fund will be distributed annually to Alaska municipalities based on their population.

Because the price of oil fluctuates, there is always uncertainty about the amount of money available for state budgeting. The one certainty is that, with oil production decreasing each year, there is less general fund money available to the state. State government continues to funnel mandated services to local governments, but as state revenues diminish, so does funding to local governments. The state does not provide adequate sustainable funding to local governments to meet their service demands.

Each local government has individualized needs that it must meet in addition to providing basic services such as education, public safety, and transportation, as well as maintaining existing public infrastructures. Unfortunately, they do not have sufficient land, economic or tax bases to provide the necessary funding; nor can the state continue to give it to them.

Creating a dedicated fund within the constitution rather than creating the program by statute provides more funding reliability to local governments. State appropriations are subject to negotiation, and increases or decreases to programs can occur for a variety of reasons. With a dedicated fund where only the interest from the fund is paid out, communities will be able to better estimate the income they will derive based on current interest rates and changes in the population. It provides a more stable and predictable stream of revenues for local governments to plan and provide services to their communities

Fund principal would consist of an initial $750 million deposited from the Budget Reserve Fund the first year with 2% of the Permanent Fund’s income added to the principal for the next 20 years. Interest earned each year from the principal of the community dividend fund would be distributed to local governments based on population or other methods determined by statute. As the principal of the fund increases, so to will interest earnings, and thus payments to communities. Also, as community dividends increase, local taxes can decrease providing more money to individual citizens without a decreasing level of local services.

With local government receiving these funds directly, residents have the opportunity to be more knowledgeable about where the funds will be used and able to provide more input on how their local government should spend them. Local governments are insured a certain amount of money and will answer to their citizens for the way in which it is spent. State government can then concentrate its efforts on statewide programs and support directed more to specific or specialized needs.

Another, and equally important benefit to this type of fund structure, is that it strengthens the state’s argument that the Permanent Fund and its proceeds are being used for the public’s purpose and are thus eligible to retain the tax exempt status from the federal government. The Permanent Fund was created as a public trust, the proceeds from which were to be used for a public purpose. The principal of the fund came from resource assets given to the state at the time of statehood because Congress did not believe Alaska could meet its collective needs from taxes alone. There has been discussion in the past that using the income from the fund primarily for distribution to citizens directs the purpose more towards private purposes and weakens the "public purpose" argument. Dedicating a portion of the income to communities reiterates the argument that the state fulfills the public purpose by using "income from a collective asset to meet collective needs." Requiring the citizens of the state to approve this dedication by a vote reinforces that the public believes in the purpose for which it is to be used.