Legislature(2015 - 2016)HOUSE FINANCE 519

03/30/2015 01:30 PM FINANCE

Note: the audio and video recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.

Download Mp3. <- Right click and save file as
Download Video part 1. <- Right click and save file as

* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Delayed to 1:45 p.m. Today --
+ SB 64 SCHOOL BOND DEBT REIMBURSEMENT TELECONFERENCED
Moved CSSB 64(EDC) Out of Committee
+= HB 68 ELECTRONIC DISTRIB. OF REPORTS TELECONFERENCED
<Bill Hearing Postponed to 3/31/15>
+ HB 86 PCE ENDOWMENT FUND INVESTMENT TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
                  HOUSE FINANCE COMMITTEE                                                                                       
                      March 30, 2015                                                                                            
                         1:46 p.m.                                                                                              
                                                                                                                                
                                                                                                                                
1:46:20 PM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair  Thompson   called  the  House   Finance  Committee                                                                    
meeting to order at 1:46 p.m.                                                                                                   
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Mark Neuman, Co-Chair                                                                                            
Representative Steve Thompson, Co-Chair                                                                                         
Representative Dan Saddler, Vice-Chair                                                                                          
Representative Bryce Edgmon                                                                                                     
Representative Les Gara                                                                                                         
Representative Lynn Gattis                                                                                                      
Representative David Guttenberg                                                                                                 
Representative Scott Kawasaki                                                                                                   
Representative Cathy Munoz                                                                                                      
Representative Lance Pruitt                                                                                                     
Representative Tammie Wilson                                                                                                    
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
None                                                                                                                            
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Laura  Pierre,  Staff,  Senator  Anna  MacKinnon;  Elizabeth                                                                    
Nudelman,   Director,   School  Finances   and   Facilities,                                                                    
Department  of   Education  and  Early   Development;  Sheri                                                                    
Thomas, Bristol  Bay School  District; Pam  Leary, Director,                                                                    
Treasury  Division, Department  of  Revenue; Jerry  Burnett,                                                                    
Deputy  Commissioner,   Treasury  Division,   Department  of                                                                    
Revenue.                                                                                                                        
                                                                                                                                
PRESENT VIA TELECONFERENCE                                                                                                    
                                                                                                                                
Mark  Foster,  CFO,  Anchorage School  District,  Anchorage;                                                                    
David Nees,  Self, Anchorage; Deena  Paramo, Superintendent,                                                                    
Mat-Su Borough School District, Mat-Su.                                                                                         
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
HB 68     ELECTRONIC DISTRIB. OF REPORTS                                                                                        
                                                                                                                                
          HB 68 was SCHEDULED but not HEARD.                                                                                    
                                                                                                                                
HB 86     PCE ENDOWMENT FUND INVESTMENT                                                                                         
                                                                                                                                
          HB 86 was HEARD and HELD in committee for further                                                                     
          consideration.                                                                                                        
                                                                                                                                
SB 64     SCHOOL BOND DEBT REIMBURSEMENT                                                                                        
                                                                                                                                
          CSSB 64(EDC) was REPORTED out of committee with a                                                                     
          "do pass" recommendation and with one previously                                                                      
          published indeterminate fiscal note: FN1 (EED).                                                                       
                                                                                                                                
1:46:38 PM                                                                                                                    
                                                                                                                                
Co-Chair Thompson discussed the agenda for the day.                                                                             
                                                                                                                                
CS FOR SENATE BILL NO. 64(EDC)                                                                                                
                                                                                                                                
     "An Act relating to school bond debt reimbursement;                                                                        
     and providing for an effective date."                                                                                      
                                                                                                                                
1:47:52 PM                                                                                                                    
                                                                                                                                
LAURA PIERRE,  STAFF, SENATOR ANNA MACKINNON,  discussed the                                                                    
bill sponsored  by the Senate  Finance Committee  that would                                                                    
sunset the  school bond debt reimbursement  program for five                                                                    
years.  She detailed  that after  the  five-year period  the                                                                    
program  would   be  reinstated   at  reduced   levels.  She                                                                    
elaborated that currently the  state reimbursed for standard                                                                    
major maintenance and school construction  at 70 percent and                                                                    
at 60 percent for  nonstandard construction and maintenance.                                                                    
The  legislation  would  reduce state  reimbursement  to  50                                                                    
percent and 40 percent respectively.                                                                                            
                                                                                                                                
Representative Kawasaki noted that  some ballots had already                                                                    
been mailed for an  upcoming Anchorage election. He referred                                                                    
to  the legislation's  retroactive date  of January  1, 2015                                                                    
and wondered  if there  would be  any legal  implications if                                                                    
the bill passed.                                                                                                                
                                                                                                                                
Ms.  Pierre  replied  that Legislative  Legal  Services  had                                                                    
advised that  the retroactive date  was legal.  However, the                                                                    
bill would need  to be signed prior to the  election date of                                                                    
April 7, 2015.                                                                                                                  
                                                                                                                                
Co-Chair  Thompson noted  that  Representative's Edgmon  and                                                                    
Munoz had joined the meeting.                                                                                                   
                                                                                                                                
Representative  Wilson wondered  why  major maintenance  and                                                                    
school construction  had not been  included given  that they                                                                    
were 100 percent grant funded.  She noted that the state was                                                                    
paid back for a portion on other items.                                                                                         
                                                                                                                                
Ms. Pierre  answered that  the bill  was specific  to school                                                                    
construction and major  maintenance projects. The Department                                                                    
of  Education   and  Early  Development  (DEED)   had  other                                                                    
programs that it reimbursed for other school projects.                                                                          
                                                                                                                                
Representative  Wilson understood.  She stated  "since we're                                                                    
looking at school construction debt,  whether it's through a                                                                    
grant program  or 70/30  or 60/40 -  was that  considered as                                                                    
part of this  bill - and for maybe some  reason that I don't                                                                    
know, that  they went  with just the  bonding and  not these                                                                    
other two programs."                                                                                                            
                                                                                                                                
Ms.  Pierre  replied in  the  negative.  The Senate  Finance                                                                    
Committee specifically wanted to address debt service.                                                                          
                                                                                                                                
Co-Chair Thompson  noted that DEED staff  were available for                                                                    
questions.                                                                                                                      
                                                                                                                                
Vice-Chair  Saddler  asked if  the  bill  would prevent  the                                                                    
legislature  from appropriating  funds  to a  school in  the                                                                    
event   of  an   emergency  (e.g.   damage  from   a  flood,                                                                    
earthquake, or other). Ms. Pierre replied in the negative.                                                                      
                                                                                                                                
Co-Chair   Neuman  asked   for  an   explanation  of   major                                                                    
maintenance  and  how that  type  of  program was  generally                                                                    
funded. He asked for detail  on how programs for school bond                                                                    
debt  reimbursement  for  new  schools  could  also  go  for                                                                    
maintenance. He  noted that there were  separate maintenance                                                                    
programs.                                                                                                                       
                                                                                                                                
1:52:11 PM                                                                                                                    
                                                                                                                                
ELIZABETH   NUDELMAN,   DIRECTOR,    SCHOOL   FINANCES   AND                                                                    
FACILITIES, DEPARTMENT  OF EDUCATION AND  EARLY DEVELOPMENT,                                                                    
answered  that DEED  had two  primary  funding programs  for                                                                    
school  facilities. The  bill  addressed  the debt  program,                                                                    
where  municipal school  districts  applied  for a  project;                                                                    
criteria  that  allowed  projects  to  be  reimbursable  was                                                                    
designated in  statute. She detailed that  the program could                                                                    
be used  in the  event of  needed construction  for unhoused                                                                    
students,  life-safety issues  requiring major  maintenance,                                                                    
necessary  changes  for   improvement  of  instruction,  and                                                                    
other. The project was required  to meet the criteria and to                                                                    
apply for  the debt program;  if requirements were  met, the                                                                    
project would be  either 60 or 70  percent reimbursable. The                                                                    
reimbursable rate  was based on whether  the space qualified                                                                    
within the department's calculation.  She detailed that once                                                                    
the  requirements   had  been  met,  the   municipality  was                                                                    
responsible for selling  the debt and moving  forward on the                                                                    
construction  process.  Additionally, the  municipality  was                                                                    
responsible for  submitting a  request for  reimbursement on                                                                    
an annual basis (for either 60 or 70 percent).                                                                                  
                                                                                                                                
Ms.  Nudelman highlighted  that the  second funding  program                                                                    
was a grant  program. The program was  available to Regional                                                                    
Education  Attendance Areas  (that  did not  have the  legal                                                                    
capacity  to  bond)  and  municipal  school  districts.  All                                                                    
school districts could apply through  the grant program. She                                                                    
stated  that the  grant applications  were  due annually  on                                                                    
September  1;  districts  were  required  to  apply  on  the                                                                    
construction list  or the  major maintenance  list depending                                                                    
on the  project. She elaborated  that the  department ranked                                                                    
the projects  on each list from  1 to 150 (beginning  with 1                                                                    
as the  neediest project). The  lists were provided  by DEED                                                                    
for the governor's budget and  on to the legislature for its                                                                    
consideration.   She   summarized   that   the   bond   debt                                                                    
reimbursement  program was  available to  municipalities and                                                                    
the grant program was available to all districts.                                                                               
                                                                                                                                
1:55:57 PM                                                                                                                    
                                                                                                                                
Co-Chair  Neuman  asked  for  clarification  that  the  bill                                                                    
applied  to  two  separate bond  debt  programs:  bond  debt                                                                    
reimbursement to municipalities  for school construction and                                                                    
major maintenance for indebtedness.                                                                                             
                                                                                                                                
Ms. Nudelman answered in the  affirmative. She detailed that                                                                    
the   debt   program    covered   construction   and   major                                                                    
maintenance.                                                                                                                    
                                                                                                                                
Representative  Gara  asked  what qualified  for  70/30  and                                                                    
60/40    reimbursement    (under   the    legislation    the                                                                    
reimbursement  rate   would  change   to  50/50   and  40/60                                                                    
respectively in five years).                                                                                                    
                                                                                                                                
Ms. Nudelman replied that each  project had to qualify under                                                                    
the statutory requirements as an  educational project in one                                                                    
of the  categories the program  provided for.  She explained                                                                    
that if  a project  would add space  or replace  space there                                                                    
was  a  DEED  calculation  providing for  a  certain  square                                                                    
footage per  Average Daily  Membership. She  elaborated that                                                                    
projects were  eligible for the  60/40 reimbursement  if the                                                                    
new  space was  larger  than the  space calculation  allowed                                                                    
for. She  added that  if the  new space  met the  DEED space                                                                    
guidelines   it   would   be    eligible   for   the   70/30                                                                    
reimbursement.                                                                                                                  
                                                                                                                                
Representative   Gara  asked   for  verification   that  the                                                                    
distinction  was purely  related to  the department's  space                                                                    
guidelines  and was  not related  to  a distinction  between                                                                    
major  maintenance   and  new  construction.   Ms.  Nudelman                                                                    
replied that the space issue  only arose in new construction                                                                    
projects. She explained that there  was not a space criteria                                                                    
related to  major maintenance projects such  as roof repair,                                                                    
fixing out of  date code issues, or repairing  a boiler. The                                                                    
only  time  the  70/30  or  60/40 came  into  play  was  for                                                                    
construction or major renovation projects.                                                                                      
                                                                                                                                
Representative  Gara  asked  for verification  that  general                                                                    
maintenance  was   70/30.  Ms.   Nudelman  replied   in  the                                                                    
affirmative.                                                                                                                    
                                                                                                                                
Representative  Gara understood  the need  for the  state to                                                                    
save money and the proposal to  go from 70/30 and 60/40 down                                                                    
to  50/50  and  40/60  respectively.  However,  he  did  not                                                                    
believe  it was  reasonable  to let  schools dilapidate  for                                                                    
five years [before the reimbursement  rate was reinstated at                                                                    
the lower  rate]. He communicated  that it had been  over 30                                                                    
years since  the last major  maintenance was done on  any of                                                                    
the Anchorage  schools; the schools  had been  built between                                                                    
1956  and  1970.  He  asserted  that it  may  be  much  more                                                                    
expensive to repair  the schools in five years'  time due to                                                                    
their  decreased  condition.  Additionally,  interest  rates                                                                    
were currently  near record lows; when  interest rates rose,                                                                    
schools and debt would be more expensive.                                                                                       
                                                                                                                                
Ms. Nudelman agreed  that it may cost more in  the future to                                                                    
repair a project that further  deteriorated during the five-                                                                    
year  period. She  relayed  that she  could  not guess  what                                                                    
interest rates would be in five years.                                                                                          
                                                                                                                                
Co-Chair Thompson  did not expect the  department to project                                                                    
what kind of  shape schools would be in five  years from the                                                                    
present day.                                                                                                                    
                                                                                                                                
Representative Gara  spoke to a  scenario in  which projects                                                                    
were delayed  for five years.  He asked what  the difference                                                                    
would be  in the state's  annual debt service if  the school                                                                    
construction and  maintenance currently  on the  ballot were                                                                    
allowed, compared to  what it would be if  the projects were                                                                    
blocked from moving forward. He  relayed that Dillingham and                                                                    
other  municipalities had  bond related  ballot propositions                                                                    
for the  current year. He  wondered about the  difference in                                                                    
the  state's annual  debt service  payments if  the projects                                                                    
moved forward or if they were blocked.                                                                                          
                                                                                                                                
Ms. Nudelman  replied that the department's  fiscal note was                                                                    
indeterminate.  She elaborated  that voters  would first  be                                                                    
required to authorize the debt.  The department had not been                                                                    
able to aggregate the cost.                                                                                                     
                                                                                                                                
2:03:43 PM                                                                                                                    
                                                                                                                                
Co-Chair Neuman  stated that currently the  state was paying                                                                    
approximately  $108  million  in debt  service  towards  new                                                                    
school construction and major  maintenance. He wondered what                                                                    
the  debt  payment would  be  in  five  years if  the  state                                                                    
continued to pay  down the current debt but  did not provide                                                                    
any  additional debt  reimbursement  during  the given  time                                                                    
period.                                                                                                                         
                                                                                                                                
Ms.  Nudelman  believed  the department  had  submitted  the                                                                    
information.                                                                                                                    
                                                                                                                                
Co-Chair  Thompson asked  his staff  to copy  and distribute                                                                    
the information to committee members.                                                                                           
                                                                                                                                
Vice-Chair  Saddler  asked if  the  bill  would prevent  the                                                                    
legislature  from appropriating  funds  to  any clear  needs                                                                    
that  arose  in  school  construction  or  maintenance.  Ms.                                                                    
Nudelman replied in the negative.                                                                                               
                                                                                                                                
Vice-Chair Saddler asked how much  money the state had spent                                                                    
on  school construction  and maintenance  over  the past  10                                                                    
years.  He asserted  that the  state  had spent  significant                                                                    
funds  on the  capital budget  over the  past 10  years. Ms.                                                                    
Nudelman replied  that she did  not have the  information on                                                                    
hand.                                                                                                                           
                                                                                                                                
Vice-Chair  Saddler  requested   the  information  from  the                                                                    
department. He wondered whether  the department believed the                                                                    
state  had  been  neglecting school  construction  and  debt                                                                    
reimbursement over the past 10 years.                                                                                           
                                                                                                                                
Ms.  Nudelman replied  that the  two programs  had processed                                                                    
numerous  projects  for  school  districts;  the  state  had                                                                    
reimbursed  the  projects.  She  elaborated  that  the  debt                                                                    
program had  been open  to any  projects that  qualified and                                                                    
the grant  program had  reimbursed as far  down the  list as                                                                    
the governor and legislature deemed appropriate.                                                                                
                                                                                                                                
Vice-Chair  Saddler  believed  it  appeared  that  municipal                                                                    
districts got  to "double dip"  with debt  reimbursement due                                                                    
to  their   capacity  to  issue  bonds;   whereas,  Regional                                                                    
Education Attendance  Areas did not. He  observed that urban                                                                    
districts  also  had  the  capacity  to  utilize  the  grant                                                                    
program as well. He asked for historical detail.                                                                                
                                                                                                                                
Ms. Nudelman answered that she  had read the program back to                                                                    
the 1970s. She  detailed that the state  and legislature had                                                                    
taken action to  meet the times; the grant  program had been                                                                    
used and  revised. She explained  that it had simply  been a                                                                    
choice;  as the  debt  program became  available, the  grant                                                                    
program also remained open to municipalities.                                                                                   
                                                                                                                                
2:08:21 PM                                                                                                                    
                                                                                                                                
Representative   Kawasaki  wondered   about  the   submittal                                                                    
process  for  the  program.  He  referred  to  a  memorandum                                                                    
addressed  to the  superintendent  of  the Anchorage  School                                                                    
District  notifying   the  district  of   approved  projects                                                                    
pending  legislative approval.  He relayed  that his  school                                                                    
district had  talked about the  issue. He wondered  how long                                                                    
it typically took for an  applicant to receive approval from                                                                    
DEED.                                                                                                                           
                                                                                                                                
Ms.  Nudelman answered  that the  requirement  to submit  an                                                                    
application  to  DEED prior  to  going  to voters  for  bond                                                                    
authorization,  had  been  removed.   She  detailed  that  a                                                                    
municipal  district  could apply  prior  to  or after  voter                                                                    
approval.   Therefore,  she   did  not   know  the   precise                                                                    
timelines. She  added that typically most  districts applied                                                                    
to the department for debt as  a first step to determine the                                                                    
eligibility of  their project. She  relayed that  there were                                                                    
also several  other major components  that needed to  be met                                                                    
after a project was deemed eligible.                                                                                            
                                                                                                                                
Representative  Kawasaki asked  if there  were other  school                                                                    
districts  currently  in the  queue  that  had applied.  Ms.                                                                    
Nudelman was  not aware  of any  other districts  aside from                                                                    
Anchorage  that  had  a   letter  seeking  the  department's                                                                    
determination on the project and  its eligibility for the 60                                                                    
or  70 percent  reimbursement.  She had  heard that  perhaps                                                                    
other  districts had  considered submitting  an application;                                                                    
however,   ultimately  a   voter  approved   initiative  was                                                                    
required.                                                                                                                       
                                                                                                                                
Representative  Kawasaki  wondered  how  far  in  advance  a                                                                    
typical school district would seek  the 60 versus 70 percent                                                                    
eligibility  determination  from   DEED.  He  imagined  that                                                                    
typically   it  was   well  before   a  municipality   began                                                                    
advertising  for  elections.  He  wondered  if  the  process                                                                    
typically began a  couple of months prior to  an election or                                                                    
much earlier.                                                                                                                   
                                                                                                                                
Ms.  Nudelman answered  that the  process  could take  place                                                                    
after  an election;  therefore,  the  timeframe varied.  She                                                                    
elaborated that  under current  statute, a  municipal school                                                                    
district could  plan a project,  go to the voters,  and then                                                                    
ask for department approval.                                                                                                    
                                                                                                                                
2:12:39 PM                                                                                                                    
                                                                                                                                
Representative  Guttenberg wondered  whether there  had been                                                                    
an analysis about the  cost-effectiveness of legislation. He                                                                    
believed it boiled down to  what the expense of the projects                                                                    
would be  in five years  versus at present  and a cost  at a                                                                    
range of interest rates.                                                                                                        
                                                                                                                                
Co-Chair Thompson  noted that Representative  Guttenberg was                                                                    
asking for a prediction of interest rates in five years.                                                                        
                                                                                                                                
Representative Guttenberg  wondered if an analysis  had been                                                                    
done on the  cost effectiveness. He noted  that bond issuers                                                                    
modeled  a  range  of  costs  and  estimates.  Ms.  Nudelman                                                                    
replied in the negative.                                                                                                        
                                                                                                                                
Representative Guttenberg  asked for clarification  that Ms.                                                                    
Nudelman was only referring to  the department. Ms. Nudelman                                                                    
replied in the affirmative.                                                                                                     
                                                                                                                                
Representative  Guttenberg asked  if  any consideration  had                                                                    
been given to expanding the  bill to cover other things like                                                                    
highways,  roads,  bridges,  or state  buildings  that  used                                                                    
bonds.                                                                                                                          
                                                                                                                                
Ms.  Pierre  replied  in the  negative.  She  addressed  his                                                                    
previous question  and relayed that when  the Senate Finance                                                                    
Committee considered  the legislation  its goal had  been to                                                                    
avoid incurring  any additional  debt. She  elaborating that                                                                    
sun-setting  the program  for five  years would  prevent the                                                                    
state  from  incurring  additional   debt  during  the  time                                                                    
period. She  relayed that since the  program's inception the                                                                    
state had paid out over $3 billion.                                                                                             
                                                                                                                                
Representative  Guttenberg was  concerned  that the  state's                                                                    
fiscal situation  may not be  considerably improved  in five                                                                    
years.  He hoped  the  worst case  scenario  would mean  the                                                                    
state was  facing the  same thing  with additional  costs in                                                                    
five years' time. He elaborated  that the state may not have                                                                    
the capacity to pay for the  program in the future; it could                                                                    
be debatable whether the state currently had the capacity.                                                                      
                                                                                                                                
2:15:46 PM                                                                                                                    
                                                                                                                                
Co-Chair  Thompson  referred  to a  handout  titled  "School                                                                    
Construction Debt Retirement" dated  February 13, 2015 (copy                                                                    
on file). He noted that  if the state incurred no additional                                                                    
bond debt it would take until  2034 for the state to pay off                                                                    
existing   bonds;  by   that  time   it   would  have   paid                                                                    
$1,212,000,713.   He   remarked    that   the   figure   was                                                                    
significant.                                                                                                                    
                                                                                                                                
Representative  Gara  stated  that  the  way  the  bill  was                                                                    
written  the state's  annual debt  service would  decrease a                                                                    
little each year for five  years; however, the chart did not                                                                    
factor in that schools would come  forward at the end of the                                                                    
five-year period  with two to  four times as  many projects.                                                                    
He discussed  holding off on  elementary school  projects in                                                                    
Anchorage and the rest of  the state and reasoned that there                                                                    
would be  a huge  balloon in applications  for bond  debt in                                                                    
five  years.  He highlighted  that  the  chart showed  a  $6                                                                    
million decrease  in the annual  debt service in  six years.                                                                    
He  stressed that  the decrease  would not  occur and  could                                                                    
balloon  out  to  over  $100 million.  He  wondered  if  the                                                                    
department had  done any analysis  on what the  impact would                                                                    
be in five years when the  state resumed paying for new bond                                                                    
debt.                                                                                                                           
                                                                                                                                
Ms. Nudelman  replied that  the bill did  not come  from the                                                                    
governor. She  relayed that the department  had not reviewed                                                                    
the question.                                                                                                                   
                                                                                                                                
Co-Chair Neuman remarked  that the cost of the  debt in five                                                                    
years was not  known. He disputed the comment  that the cost                                                                    
may exceed $100  million. He elaborated that it  was a known                                                                    
quantity that  municipalities had  the ability to  apply and                                                                    
legislators  had the  ability to  introduce legislation.  He                                                                    
reasoned that  a legislator  could introduce  legislation if                                                                    
they felt  their school district's  population had  grown by                                                                    
thousands.  He  believed  that   asking  the  department  to                                                                    
speculate  was not  applicable. He  thought the  questioning                                                                    
was out of order.                                                                                                               
                                                                                                                                
2:19:22 PM                                                                                                                    
                                                                                                                                
Representative Gara  remarked that he  had not heard  in any                                                                    
answers  during the  meeting that  the bill  would save  the                                                                    
state  money.  He  stressed  that  there  was  no  financial                                                                    
information  to rely  on; no  one had  looked at  what would                                                                    
happen if the  state waited five years  to fund [maintenance                                                                    
or construction]  a 60-year old  school. He  emphasized that                                                                    
waiting five  years to fund  maintenance would  mean schools                                                                    
would  have many  projects needing  bond funding.  He agreed                                                                    
that  the cost  of  the  bonds was  not  known; however,  he                                                                    
believed  it was  pretend to  say  that the  costs would  go                                                                    
away. He  stated that  the legislation  would only  move the                                                                    
costs  out into  the future.  He asserted  that costs  would                                                                    
rise if interest  rates and damage to  schools increased. He                                                                    
believed   it   was   more   responsible   to   adjust   the                                                                    
reimbursement rate.  He opined that the  schools would still                                                                    
have needs in  five years and that the  state would probably                                                                    
have even  less money than  it had currently.  He reiterated                                                                    
that the bill  did not save money. He added  that he did not                                                                    
support the  retroactivity clause. He agreed  that the state                                                                    
could no  longer afford the  70/30 reimbursement  rate given                                                                    
the state's current fiscal situation.                                                                                           
                                                                                                                                
Ms.  Pierre answered  that  the state  could  not afford  to                                                                    
continue   the  program   at   present.  Additionally,   the                                                                    
legislation  did not  prevent districts  from continuing  to                                                                    
bond  or   to  prioritize  needed  projects.   However,  the                                                                    
districts would not receive money from the state.                                                                               
                                                                                                                                
Representative Gara  believed that if localities  had to pay                                                                    
100  percent  of  the  costs  [for  school  maintenance  and                                                                    
construction] the costs  would be passed on  to property tax                                                                    
payers. He opined that it  would mean a massive property tax                                                                    
increase.                                                                                                                       
                                                                                                                                
Representative Wilson  asked for verification that  the debt                                                                    
belonged  to  the  municipalities  and not  the  state.  Ms.                                                                    
Pierre answered in the affirmative.                                                                                             
                                                                                                                                
Representative Wilson  noted that the state  paid 70 percent                                                                    
of the  debt in the  70/30 debt reimbursement  scenario. She                                                                    
asked  for verification  that the  state had  the option  to                                                                    
stop   paying  the   debt.  Ms.   Pierre  answered   in  the                                                                    
affirmative. She detailed  that the state had  the option to                                                                    
stop  paying or  short-fund  the debt.  She  noted that  the                                                                    
state  had  continued  to  pay  the  debt  out  of  a  moral                                                                    
obligation more than anything.                                                                                                  
                                                                                                                                
Representative  Wilson surmised  that it  was all  about the                                                                    
current debt.  She wondered why  the state would  not choose                                                                    
to  discontinue funding  the debt  altogether  until it  had                                                                    
more money.  Ms. Pierre  answered that she  did not  know of                                                                    
any conversation that had taken place on the idea.                                                                              
                                                                                                                                
2:24:22 PM                                                                                                                    
                                                                                                                                
Representative Wilson  did not see  the cost as  the state's                                                                    
obligation.  She  thought  the  state  had  been  more  than                                                                    
generous  with  the  70/30   and  60/40  reimbursement.  She                                                                    
believed the  state's obligation was  to pay only if  it had                                                                    
the money.  She stressed  that the  state did  not currently                                                                    
have  the money.  She believed  the state  could communicate                                                                    
that  it   would  stop  providing   the  funding   and  that                                                                    
municipalities  would be  responsible for  the payment.  She                                                                    
concluded that  there either  needed to  be a  moratorium on                                                                    
state  reimbursement  for  five  years or  the  state  could                                                                    
discontinue   payment.  She   thought   a  conversation   on                                                                    
discontinuing payment would have been prudent.                                                                                  
                                                                                                                                
Co-Chair Thompson  believed that  if the  state did  not pay                                                                    
and a municipality could not  pay the entire amount that the                                                                    
state's bond rating would plummet.                                                                                              
                                                                                                                                
Representative Wilson  thought that it was  determined prior                                                                    
to bond  approval that municipalities  could pay  the entire                                                                    
amount. She hoped  that the state was not  allowing bonds to                                                                    
be approved if municipalities could not pay.                                                                                    
                                                                                                                                
Representative Edgmon highlighted  the collateral damage the                                                                    
bill could bring  to a smaller school. He  detailed that the                                                                    
Bristol Bay Borough School District  was facing some serious                                                                    
structural challenges (a portion of  the school was 45 years                                                                    
old  and the  other portion  was 25  years old).  He guessed                                                                    
that seasonal earnings from the  borough's raw fisheries tax                                                                    
could float a bond, but  it would not leave sufficient funds                                                                    
for  other things.  He  communicated that  the  roof on  the                                                                    
Naknek school  had serious  problems; fortunately  there had                                                                    
not been a  heavy snow load in the past  couple of years. He                                                                    
relayed that in  the event of heavy snowfall  the roof could                                                                    
potentially  collapse. He  elaborated that  the borough  had                                                                    
been  trying to  get  into the  reimbursement program  since                                                                    
2012; it had  received a letter from DEED  that it qualified                                                                    
for the  60/40 split. Additionally,  the borough had  put up                                                                    
$500,000 for design work. He  believed the issue illustrated                                                                    
the dilemma of a smaller  district getting caught in between                                                                    
other things  going on. He  stressed that the  grant program                                                                    
was highly  competitive and that  it could take years  for a                                                                    
school to  make it to  the top  of the list.  He underscored                                                                    
that the cost-benefit analysis was  not currently known on a                                                                    
situation where the state allowed  schools to get to a point                                                                    
of irreparable  damage. The  issue was  of great  concern to                                                                    
him. He asked  what would happen if the roof  on the Bristol                                                                    
Bay school collapsed.  He wondered how the  state would deal                                                                    
with the  problem if $2 million  or other was needed  in the                                                                    
middle of February.                                                                                                             
                                                                                                                                
2:29:58 PM                                                                                                                    
                                                                                                                                
Ms. Nudelman  replied that the  local school  district would                                                                    
need to decide where to  relocate the students. She imagined                                                                    
that  quickly thereafter  the  borough  and the  legislature                                                                    
would be presented  with the decision on the  best avenue to                                                                    
rectify the situation.                                                                                                          
                                                                                                                                
Representative  Edgmon reasoned  that the  legislature could                                                                    
put money  in the  supplemental budget,  which would  be the                                                                    
following February; if the school  could be renovated during                                                                    
the subsequent  construction cycle  it may  be able  to open                                                                    
the following September,  which was almost 1.5  years of the                                                                    
downtime for the school.                                                                                                        
                                                                                                                                
Ms. Nudelman did not disagree with the timelines.                                                                               
                                                                                                                                
Representative Edgmon  was concerned by the  issue. He noted                                                                    
that  the  state  would  still  be  facing  a  $1.2  billion                                                                    
liability if the  current program was stopped  in its tracks                                                                    
with a retroactive date of  January 2015. He appreciated the                                                                    
presence  of  a couple  of  board  members from  his  school                                                                    
district.                                                                                                                       
                                                                                                                                
2:32:12 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Saddler  referred  to   criteria  for  the  debt                                                                    
reimbursement  and grants  program.  He  asked Ms.  Nudelman                                                                    
what  she meant  by necessary  improvements to  construction                                                                    
when discussing program eligibility.                                                                                            
                                                                                                                                
Ms.   Nudelman   clarified   that  she   had   referred   to                                                                    
"improvement to  instruction." For  example, a  school could                                                                    
be eligible  for the program  if it  needed to add  room for                                                                    
special education services or other.                                                                                            
                                                                                                                                
Vice-Chair Saddler  believed there was a  hierarchy of needs                                                                    
for  education  funding  as  there   was  for  anything.  He                                                                    
wondered how much of the  debt reimbursement and grant money                                                                    
spent had gone towards life-safety projects.                                                                                    
                                                                                                                                
2:33:37 PM                                                                                                                    
                                                                                                                                
Ms. Nudelman  did not  want to guess.  She reported  that on                                                                    
the  grant list  all of  the projects  were considered.  She                                                                    
detailed that a leaking roof  that put a structure in harm's                                                                    
way would rank higher than  some other projects. She relayed                                                                    
that the  debt program was  open to all projects;  there was                                                                    
not  a limit  on the  number of  projects. She  communicated                                                                    
that the limit was voter authorization.                                                                                         
                                                                                                                                
Vice-Chair    Saddler    asked   for    verification    that                                                                    
prioritization  was  not  given  to falling  down  roofs  as                                                                    
opposed to renovations, improved cameras, or class systems.                                                                     
                                                                                                                                
Ms.  Nudelman  replied  that  raters  ranked  projects  with                                                                    
points on  a list  of approximately 15  questions; questions                                                                    
included  emergency  and a  life  and  safety category.  She                                                                    
relayed  that  the  life and  safety  category  was  heavily                                                                    
weighted. She shared  that it would not  completely negate a                                                                    
non-life  safety project  from  receiving  enough points  in                                                                    
other categories to rank alongside a life safety project.                                                                       
                                                                                                                                
Vice-Chair  Saddler relayed  the committee  had heard  of 60                                                                    
year old  schools that  were falling  down. He  wondered how                                                                    
many 60 year old schools were operating in Alaska.                                                                              
                                                                                                                                
Representative  Gara interjected  that he  had said  nothing                                                                    
about schools falling down.                                                                                                     
                                                                                                                                
Vice-Chair Saddler asked  how many 60 year  old schools were                                                                    
operating in Alaska.  Ms. Nudelman replied that  she did not                                                                    
have the precise  number. She stated that  there were plenty                                                                    
of  60 year  old  schools  in Alaska;  plenty  of them  were                                                                    
delivering   excellent  education.   She  relayed   that  it                                                                    
depended  on the  useful life  of the  components and  where                                                                    
they  fell on  the  renewal schedule  for  the schools.  She                                                                    
could not tell  the committee if a school was  in average or                                                                    
good condition based on its age.                                                                                                
                                                                                                                                
2:36:28 PM                                                                                                                    
                                                                                                                                
Vice-Chair Saddler  asked if there  was a median age  of the                                                                    
school  structures in  Alaska. Ms.  Nudelman that  she would                                                                    
need  to do  some research  for the  information. She  added                                                                    
that the state's schools were  renovated; therefore, the age                                                                    
of the  initial school and subsequent  renovations needed to                                                                    
be considered.                                                                                                                  
                                                                                                                                
Vice-Chair  Saddler requested  the information.  He wondered                                                                    
what kind  of metrics DEED  had about the age  and condition                                                                    
of Alaska's schools. Ms. Nudelman  responded that DEED had a                                                                    
database  of  all  of the  state's  school  facilities.  She                                                                    
detailed  that   the  information   was  available   on  the                                                                    
department's  website. She  elaborated that  the information                                                                    
about  each facility  based on  school district  was on  the                                                                    
website.  Additionally,  the  website  showed  the  original                                                                    
facility date and any major remodels.                                                                                           
                                                                                                                                
2:38:07 PM                                                                                                                    
                                                                                                                                
Co-Chair  Neuman  believed   committee  questions  had  been                                                                    
asking  a lot  of the  department. He  asked if  the schools                                                                    
belonged to the state or the school district.                                                                                   
                                                                                                                                
Ms. Nudelman  replied that approximately  95 percent  of the                                                                    
schools  belonged to  the school  districts. She  elaborated                                                                    
that some of  those schools belonged to  the school district                                                                    
and others belonged to the  municipal government. There were                                                                    
very few  schools that  perhaps were  once Bureau  of Indian                                                                    
Affairs schools that may belong  to the state. She expounded                                                                    
that   schools  in   Regional  Education   Attendance  Areas                                                                    
typically  belonged  to  the  school  district;  schools  in                                                                    
municipality typically belonged to the municipality.                                                                            
                                                                                                                                
Co-Chair Neuman  stated that  the bottom  line was  that the                                                                    
state  did not  own  the  schools or  decide  when a  school                                                                    
needed repair  or replacement. Ms.  Nudelman replied  in the                                                                    
affirmative; statute  clearly laid  out who  was responsible                                                                    
for school buildings.                                                                                                           
                                                                                                                                
Co-Chair Neuman  wondered if  a municipality's  inability to                                                                    
pay its  portion of  a bond  had any  effect on  the state's                                                                    
debt  or credit  rating.  Ms. Nudelman  replied that  school                                                                    
districts  were their  own entities  and received  their own                                                                    
bond ratings through bonding sources.  She elaborated that a                                                                    
school district would be looked  at to determine if it could                                                                    
carry the debt.                                                                                                                 
                                                                                                                                
Co-Chair  Neuman  clarified  that  it was  not  the  state's                                                                    
responsibility. Additionally, he  referred to Representative                                                                    
Edgmon's  earlier  question  about  what would  occur  if  a                                                                    
school's  roof  collapsed.  He wondered  about  the  state's                                                                    
responsibility under the scenario.                                                                                              
                                                                                                                                
Ms. Nudelman replied  that the school would be  owned by the                                                                    
municipality.  She  did  not know  of  anything  that  would                                                                    
involve the state under the scenario.                                                                                           
                                                                                                                                
2:41:40 PM                                                                                                                    
                                                                                                                                
Representative Guttenberg  asked how  relevant the  bill was                                                                    
if Ketchikan  succeeded in its  law suit against  the state.                                                                    
Ms.  Nudelman replied  that the  issues  were separate.  She                                                                    
added that there were many unknowns.                                                                                            
                                                                                                                                
Ms. Pierre answered agreed.                                                                                                     
                                                                                                                                
Representative Gara  apologized for  getting "amped  up." He                                                                    
relayed that Ms.  Pierre had done a fine  job presenting the                                                                    
bill. He  understood that Senator  MacKinnon was  working to                                                                    
find a  way to deal with  the state's fiscal crisis  as were                                                                    
other  legislators.   He  expressed  frustration   with  the                                                                    
information available on the topic.                                                                                             
                                                                                                                                
SHERI  THOMAS, BRISTOL  BAY SCHOOL  DISTRICT, spoke  against                                                                    
the legislation. She read a prepared statement:                                                                                 
                                                                                                                                
     The  Bristol Bay  Borough and  the Bristol  Bay Borough                                                                    
     School  District have  spent  a  significant amount  of                                                                    
     time  and   money  developing  a   bonded  reimbursable                                                                    
     facility upgrade project. We  started this project back                                                                    
     in 2012. As a small borough  it is taking a lot of time                                                                    
     for  us to  work out  all of  the details.  We are  now                                                                    
     ready to  take this to  the voters before  the original                                                                    
     deadline of May 1. Our  facilities have been well cared                                                                    
     for, but  the buildings have reached  or exceeded their                                                                    
     lifespan.  Our  project is  to  focus  on bringing  our                                                                    
     systems back to an  efficient and sustainable state. We                                                                    
     are currently  spending over $2,900 per  student a year                                                                    
     on  energy  costs  due   to  the  outdated  inefficient                                                                    
     systems  and declining  enrollments. We  struggled with                                                                    
     meeting   the   70    percent   instructional   funding                                                                    
     requirements. Our  community would need to  have access                                                                    
     to the debt reimbursable program  in order to make this                                                                    
     project  a  reality.  Our borough  does  not  have  the                                                                    
     resources to support a project of this magnitude.                                                                          
                                                                                                                                
     We  feel  that  retroactively   changing  the  date  to                                                                    
     January  1  will  effectively cancel  our  project.  We                                                                    
     would appreciate any consideration  that you would make                                                                    
     toward  allowing  the original  May  1  date to  stand.                                                                    
     Additionally, we fear that  the five-year moratorium on                                                                    
     the new projects will have  an adverse fiscal effect on                                                                    
     the   state's   economy    forcing   many   architects,                                                                    
     engineers, and  construction companies to  go elsewhere                                                                    
     for  work. We  hope you  have studied  what the  impact                                                                    
     will  be  and  would  advocate  for  a  review  of  the                                                                    
     moratorium duration.                                                                                                       
                                                                                                                                
MARK FOSTER, CFO, ANCHORAGE  SCHOOL DISTRICT, ANCHORAGE (via                                                                    
teleconference), asked the committee  to consider looking at                                                                    
the  retroactivity provision  in the  bill. He  relayed that                                                                    
the  school  district had  been  working  over one  year  on                                                                    
compiling a  bond proposal that  had approved by  the school                                                                    
board  in  September  2014 and  the  Anchorage  Assembly  in                                                                    
November 2014 (all of which  was long before the legislative                                                                    
proposal to  eliminate new debt reimbursement).  He detailed                                                                    
that DEED had declared all  of the projects on the Anchorage                                                                    
2015 school bond list as  eligible for debt reimbursement in                                                                    
the December  2014 determination. He relayed  that currently                                                                    
voters  were  operating  in  an  environment  where  it  was                                                                    
unclear that state reimbursement  would occur. The Anchorage                                                                    
School  District  believed  clarity   and  moving  the  date                                                                    
forward to  allow its bond  proposition to advance  would be                                                                    
advantageous  for  all  concerned. He  emphasized  that  the                                                                    
bonds  the district  put forward  addressed items  that were                                                                    
frequently  referred   to  as  deferred   maintenance  (i.e.                                                                    
improving roofs  and replacing  worn out  flooring, ceiling,                                                                    
walls,  and   doors).  He   stated  that   the  improvements                                                                    
represented the kinds of things  that accumulated over years                                                                    
that maintenance  cycles could  only keep  up so  much until                                                                    
the time  came to  renovate facilities. The  school district                                                                    
worried that if  the burden was completely  shifted to local                                                                    
municipalities a  problem similar to one  experienced by the                                                                    
University  of Alaska  Fairbanks (UAF)  may be  created (the                                                                    
UAF deferred maintenance had been  mounting over the years).                                                                    
He reiterated  the district's request  for the  committee to                                                                    
consider changing  the retroactivity  provision back  to the                                                                    
original legislation.                                                                                                           
                                                                                                                                
2:47:50 PM                                                                                                                    
                                                                                                                                
DAVID NEES,  SELF, ANCHORAGE (via teleconference),  spoke in                                                                    
favor  of the  current version  of the  bill. He  elaborated                                                                    
that  the  six-year  plan  for  ASD  included  roughly  $500                                                                    
million for  projects in the  upcoming five years;  the cost                                                                    
would put the  state an additional $350 million  in debt. He                                                                    
reasoned that it was necessary  to stop somewhere. He stated                                                                    
that if  the bill allowed  various bonds that  were floating                                                                    
in  municipalities it  would never  "get off  this merry-go-                                                                    
round." He stated that a  five-year timeout allowed everyone                                                                    
to rethink  how to take  care of maintenance in  schools. He                                                                    
continued that prior to the  bond debt reimbursement program                                                                    
instituted  by   former  Governor   Jay  Hammond   in  1972,                                                                    
cigarettes had  paid for  school maintenance.  He elaborated                                                                    
that  tax was  still collected  by  the state  and could  be                                                                    
rededicated  to pay  for school  maintenance; it  brought in                                                                    
approximately  $27   million  annually,  which   was  almost                                                                    
precisely  what  the state  paid  out  annually in  deferred                                                                    
maintenance. He believed the spending needed to stop.                                                                           
                                                                                                                                
2:49:58 PM                                                                                                                    
                                                                                                                                
DEENA   PARAMO,   SUPERINTENDENT,  MAT-SU   BOROUGH   SCHOOL                                                                    
DISTRICT,  MAT-SU  (via teleconference),  communicated  that                                                                    
the  school  bond debt  reimbursement  program  was a  great                                                                    
example  of  a  highly effective  state  government  program                                                                    
working for its  people. She shared that  the Mat-Su Borough                                                                    
had recently benefitted  from a bond package  that built six                                                                    
new educational  facilities in the community.  She continued                                                                    
that the  program was part  of an  integral part of  a sound                                                                    
facility management  strategy as  major maintenance  had its                                                                    
place in providing operational  efficiencies. She cited that                                                                    
according   to   the   National   Center   for   Educational                                                                    
Statistics,  facilities  maintenance   produced  savings  by                                                                    
decreasing   equipment   replacement    costs   over   time,                                                                    
decreasing  renovation  costs  due  to a  reduced  need  for                                                                    
large-scale repair  projects, and decreasing  overhead costs                                                                    
such  as  utility bills  due  to  increased efficiency.  She                                                                    
highlighted  that the  Mat-Su  Borough  School District  had                                                                    
implemented  an effective  preventative maintenance  program                                                                    
aiming  to  extend  the  useful   life  of  its  facilities.                                                                    
However,  even  with  preserving  its  current  assets,  the                                                                    
educational   infrastructure  did   have  a   standard  life                                                                    
expectancy;  therefore, the  district was  appreciative that                                                                    
the  legislation  would  reinstate the  program  after  five                                                                    
years.                                                                                                                          
                                                                                                                                
Ms.  Paramo  communicated  that   the  Mat-Su  district  was                                                                    
growing  and had  needs to  support  unhoused students.  She                                                                    
informed  the committee  that over  the past  ten years  the                                                                    
district had  grown by 232  students per year;  it currently                                                                    
used  80 modular  units to  serve as  additional classrooms.                                                                    
She  stated   that  given  the  program's   importance,  the                                                                    
district did  not support the  discontinuance of  the school                                                                    
bond  debt reimbursement  program  altogether; however,  the                                                                    
district's  board   of  education  understood   the  immense                                                                    
financial  challenges  facing  the state.  She  thanked  the                                                                    
committee  for  its  ongoing support  and  consideration  of                                                                    
education. She reiterated that the  program was an effective                                                                    
and efficient  use of state  resources. She  guaranteed that                                                                    
after the five-year moratorium the  Mat-Su district would be                                                                    
before  the  state with  a  school  bond debt  reimbursement                                                                    
program  application to  support  the needs  of its  growing                                                                    
community.                                                                                                                      
                                                                                                                                
Co-Chair Thompson  CLOSED public testimony. He  notified the                                                                    
committee that going forward any  amendments to bills had to                                                                    
be submitted 24 hours in advance of a bill hearing.                                                                             
                                                                                                                                
2:54:10 PM                                                                                                                    
                                                                                                                                
Representative Gara MOVED to ADOPT Amendment 1:                                                                                 
                                                                                                                                
     By: Representative Gara                                                                                                    
     Page 1, lines 4 - 9:                                                                                                       
     Delete all material.                                                                                                       
                                                                                                                                
     Page 1, line 10:                                                                                                           
     Delete "Sec. 2"                                                                                                            
     Insert "Section l"                                                                                                         
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 7, line 1:                                                                                                            
     Delete "["                                                                                                                 
                                                                                                                                
     Page 7, line 2, through page 13, line 13:                                                                                  
     Delete all material and insert:                                                                                            
                                                                                                                                
     "(18) subject to (h), (i),  and (j)(2), (3), and (5) of                                                                    
     this section,  40 [50]  percent of  payments made  by a                                                                    
     municipality during the fiscal  year for the retirement                                                                    
     of  principal and  interest on  outstanding tax  exempt                                                                    
     bonds, notes,  or other indebtedness authorized  by the                                                                    
     qualified  voters  of  the  municipality  on  or  after                                                                    
     January 1, 2015  [MAY 1, 2015], to pay  costs of school                                                                    
     construction,   additions   to   schools,   and   major                                                                    
     rehabilitation    projects     and    education-related                                                                    
     facilities that exceed $200,000,  are reviewed under AS                                                                    
     14.07.020(a)(11), and  are not reimbursed under  (o) of                                                                    
     this section;  (19) subject to  (h), (i), and  (j)(2) -                                                                    
     (5) of this  section, and after projects  funded by the                                                                    
     tax  exempt bonds,  notes, or  other indebtedness  have                                                                    
     been  approved  by  the  commissioner,  50  percent  of                                                                    
     payments made by a municipality  during the fiscal year                                                                    
     for  the retirement  of principal  of  and interest  on                                                                    
     outstanding   tax  exempt   bonds,   notes,  or   other                                                                    
     indebtedness authorized by the  qualified voters of the                                                                    
     municipality on or after January  l, 2015, to pay costs                                                                    
     of  school  construction,  additions  to  schools,  and                                                                    
     major  rehabilitation  projects  and  education-related                                                                    
    facilities that exceed $200,000, are approved under                                                                         
     AS 14.07.020(a)(11),  and are not reimbursed  under (o)                                                                    
     of this section."                                                                                                          
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 13, line 16:                                                                                                          
     Delete "Sections 1, 2, 4, and 5 of this Act are"                                                                           
     Insert "Section 1 of this Act is"                                                                                          
                                                                                                                                
     Page 13, line 18:                                                                                                          
     Delete all material.                                                                                                       
                                                                                                                                
     Renumber the following bill section accordingly.                                                                           
                                                                                                                                
     Page 13, line 19:                                                                                                          
     Delete "Sections 1, 2, 4, 5, and 7 of this Act take?                                                                       
     Insert "Section 2 of this Act takes"                                                                                       
                                                                                                                                
Co-Chair Neuman OBJECTED.                                                                                                       
                                                                                                                                
Representative   Gara  believed   the   70/30  school   debt                                                                    
reimbursement program  was something the state  could afford                                                                    
in times  of financial  surpluses. He  believed a  good case                                                                    
could  be made  that it  was not  affordable in  the current                                                                    
fiscal  climate.  However,  he  opined  that  the  five-year                                                                    
moratorium  would  not  get  the state  out  of  its  fiscal                                                                    
crisis.   The   amendment   would  switch   to   the   50/50                                                                    
reimbursement  program immediately  instead of  waiting five                                                                    
years. He reasoned  that interest rates were  currently at a                                                                    
near all-time  low. He  rationalized that  it would  be more                                                                    
expensive  to  wait five  years  to  conduct maintenance  on                                                                    
projects that  were needed already.  He believed  the danger                                                                    
in some  schools would increase.  He communicated  that over                                                                    
the long-term  the amendment would  save the state  the same                                                                    
amount of money. He believed  that without the amendment the                                                                    
state would see a  significant balloon of bond reimbursement                                                                    
requests  put forth  by school  districts. Additionally,  he                                                                    
believed the  state would be  spending more in six  to eight                                                                    
years  on  annual  debt service.  He  reasoned  that  fixing                                                                    
maintenance problems  up front  would be less  expensive. He                                                                    
noted that no one had done  an analysis on what would happen                                                                    
to schools  if they waited  five years to do  maintenance or                                                                    
what  the impact  would  be  in five  years  on the  state's                                                                    
annual debt service. He underscored  that the state would be                                                                    
paying  for the  costs when  the moratorium  ended; however,                                                                    
the  costs would  include additional  bonds. He  noted there                                                                    
would probably  be less oil  in the pipeline in  the future.                                                                    
He concluded that the bill  would achieve a goal of reducing                                                                    
the state's  financial liability  and spending.  He believed                                                                    
it would  probably save  the state  money in  the long-term.                                                                    
The amendment  would reduce the state's  reimbursement level                                                                    
by 20 percent  in both of the  two categories. Additionally,                                                                    
the bill  would remove  the retroactivity provision  and the                                                                    
five-year moratorium.  He understood that the  intentions of                                                                    
the  bill were  to save  the  state money.  He believed  the                                                                    
amendment  would save  the  state more  money  and would  do                                                                    
better by the state's school districts.                                                                                         
                                                                                                                                
Co-Chair  Thompson replied  that  there was  a $3.5  billion                                                                    
deficit in the  current year. He stated that  the debt could                                                                    
grow  to $4  billion  if  oil dropped  to  $45  or less  per                                                                    
barrel.  He believed  that  the bill  represented  a way  to                                                                    
prevent from adding more debt to the state.                                                                                     
                                                                                                                                
Co-Chair Neuman  spoke to his  objection. He stated  that no                                                                    
one knew if  there would be more or less  oil or what school                                                                    
costs would  be in  the future. He  discussed that  the bill                                                                    
would  implement  a  five-year  moratorium  on  the  state's                                                                    
portion of school debt  reimbursement for municipalities. He                                                                    
continued  that the  state could  not  currently afford  the                                                                    
reimbursement program;  there were many other  programs that                                                                    
needed to be  funded. He did not support  removing the five-                                                                    
year moratorium.                                                                                                                
                                                                                                                                
Representative  Wilson  spoke  against  the  amendment.  She                                                                    
believed DEED  should be approving  the bonds  on additional                                                                    
criteria  apart from  voter approval.  She had  heard rumors                                                                    
that paying  70/30 did not  get the necessary  analysis. She                                                                    
believed the  five-year moratorium would allow  time to look                                                                    
into the program. She believed that  if a school had a leaky                                                                    
roof  the municipality  should  pay to  fix  it (instead  of                                                                    
waiting   five   years   for  the   reinstatement   of   the                                                                    
reimbursement  program). She  did  not think  municipalities                                                                    
would  let damage  happen  to schools  for  five years  just                                                                    
because the state was not  paying the 70 percent. She opined                                                                    
that it needed to be determined  how the items would be paid                                                                    
for in  the future. She  stated that there was  no guarantee                                                                    
the program  would be  made available  again in  the future.                                                                    
She hoped that  if the program was reinstated  in five years                                                                    
that  there would  be  more  requirements for  reimbursement                                                                    
eligibility.                                                                                                                    
                                                                                                                                
3:01:57 PM                                                                                                                    
                                                                                                                                
Vice-Chair   Saddler   testified   in  opposition   to   the                                                                    
amendment. He  commented that someone else's  money was much                                                                    
easier  to spend.  He  believed the  state  had been  fairly                                                                    
generous and responsible in  funding school construction and                                                                    
maintenance.  He  understood  that  local  school  districts                                                                    
would continue  to have the  ability to  bond if they  saw a                                                                    
clear need  for life safety.  He acknowledged that  it would                                                                    
be  more  expensive  for municipalities;  he  believed  they                                                                    
would  focus  more   on  life  safety  needs   and  less  on                                                                    
renovation  that may  not be  necessary.  He believed  there                                                                    
would  continue to  be a  secondary  avenue towards  funding                                                                    
through  the  state  for construction  and  maintenance  for                                                                    
schools with  significant needs.  He stated that  the bill's                                                                    
goal was  to reduce expenditures  due to the  fiscal deficit                                                                    
facing the  state. He  referred to  testimony by  Ms. Paramo                                                                    
that a  five-year hiatus would focus  people's attention. He                                                                    
believed   the   amendment   could   have   the   unintended                                                                    
consequence of  prompting a land rush  of districts hurrying                                                                    
to issue bonds.                                                                                                                 
                                                                                                                                
Representative   Guttenberg   spoke   in  support   of   the                                                                    
amendment. He did not believe  any school district rushed to                                                                    
increase its  mill rate. He recognized  that the opportunity                                                                    
to receive  70 percent reimbursement was  enticing; however,                                                                    
schools did not just put any  project on the list. There was                                                                    
nothing in  the bill that  prevented a district  from paying                                                                    
100 percent on a bond. He  believed a reduction to 50/50 was                                                                    
appropriate. He thought  that the current bill  may have the                                                                    
result of increasing property taxes,  which he did not want.                                                                    
He  did not  have a  problem  paying for  tax increases  for                                                                    
education and new schools, but  he believed the state needed                                                                    
to be at the table as well.                                                                                                     
                                                                                                                                
Representative Gara addressed  Vice-Chair Saddler's comments                                                                    
on a potential  rush on bond issuances.  He believed schools                                                                    
may hurry  to get  bonds on  the ballot  if they  were given                                                                    
until December  31 followed  by a  five-year freeze.  On the                                                                    
other  hand, the  amendment would  continue the  school debt                                                                    
reimbursement  program,  but  it   would  reduce  the  70/30                                                                    
reimbursement to 50/50.  He asserted that no  one would rush                                                                    
to receive the lower reimbursement  any more than they would                                                                    
under the  existing program. He stressed  that the amendment                                                                    
would save  money. He  reasoned that the  debt would  not be                                                                    
any  smaller in  five years  because schools  would wait  on                                                                    
projects until the reimbursement was offered again.                                                                             
                                                                                                                                
Co-Chair Neuman MAINTAINED his OBJECTION.                                                                                       
                                                                                                                                
A roll call vote was taken  on the motion to adopt Amendment                                                                    
1.                                                                                                                              
                                                                                                                                
IN FAVOR: Edgmon, Gara, Guttenberg, Kawasaki, Munoz                                                                             
OPPOSED: Wilson, Gattis, Pruitt, Saddler, Neuman, Thompson                                                                      
                                                                                                                                
The MOTION to Adopt Amendment 1 FAILED (5/6).                                                                                   
                                                                                                                                
Co-Chair  Neuman  noted  that   committee  decorum  did  not                                                                    
guarantee the right of the  maker of an amendment to provide                                                                    
closing  comments. He  detailed that  House floor  rules did                                                                    
provide that right.                                                                                                             
                                                                                                                                
3:07:38 PM                                                                                                                    
                                                                                                                                
Representative Kawasaki MOVED to ADOPT Amendment 2:                                                                             
                                                                                                                                
     BY: Representative Kawasaki                                                                                                
                                                                                                                                
     Page 1, line 5, following "law,":                                                                                          
     Insert    "and    except     as    provided    in    AS                                                                    
     14.11.100(a)(18),"                                                                                                         
                                                                                                                                
     Page 1, line 8:                                                                                                            
     Delete "January 1"                                                                                                         
     Insert "November 15"                                                                                                       
                                                                                                                                
     Page 6, line 21:                                                                                                           
     Delete "January 1"                                                                                                         
     Insert "November 15"                                                                                                       
                                                                                                                                
     Page 6, line 29:                                                                                                           
     Delete "January l"                                                                                                         
     Insert "November 15"                                                                                                       
                                                                                                                                
     Page 7, line 1:                                                                                                            
     Delete "["                                                                                                                 
                                                                                                                                
     Page 7, lines 2 - 11:                                                                                                      
     20 Delete all material and insert:                                                                                         
     "(18) subject to  (h), (i), and G)(2), (3),  and (5) of                                                                    
     this  section,  50  percent  of   payments  made  by  a                                                                    
     municipality during the fiscal  year for the retirement                                                                    
     of  principal and  interest on  outstanding tax  exempt                                                                    
     bonds, notes,  or other indebtedness authorized  by the                                                                    
     qualified  voters of  the municipality  at a  regularly                                                                    
     scheduled  municipal election  on  or  after January  1                                                                    
     [MAY 1  ], 2015, but  before November 15, 2016,  to pay                                                                    
     costs  of school  construction,  additions to  schools,                                                                    
     and  major   rehabilitation  projects   and  education-                                                                    
     related facilities  that exceed $200,000,  are reviewed                                                                    
     under  AS  14.07.020(a)(11),  and  are  not  reimbursed                                                                    
     under (o) of this 6 section."                                                                                              
                                                                                                                                
     Page 12, line 6:                                                                                                           
     Delete "January 1"                                                                                                         
     Insert "November 15"                                                                                                       
                                                                                                                                
     Page 12, line 14:                                                                                                          
     Delete "January 1"                                                                                                         
     Insert "November 15"                                                                                                       
                                                                                                                                
     Page 12, line 16, following "section":                                                                                     
     Insert";                                                                                                                   
     (18) subject to  (h), (i), and (j)(2), (3),  and (5) of                                                                    
     this  section,  50  percent  of   payments  made  by  a                                                                    
     municipality during the fiscal  year for the retirement                                                                    
     of  principal and  interest on  outstanding tax  exempt                                                                    
     bonds, notes,  or other indebtedness authorized  by the                                                                    
     qualified  voters of  the municipality  at a  regularly                                                                    
     scheduled  municipal election  on or  after January  1,                                                                    
     2015, but  before November  15, 2016,  to pay  costs of                                                                    
     school  construction, additions  to schools,  and major                                                                    
     rehabilitation    projects     and    education-related                                                                    
     facilities that exceed $200,000,  are reviewed under AS                                                                    
     14.07.020(a)(11), and  are not reimbursed under  (o) of                                                                    
     this section."                                                                                                             
                                                                                                                                
     Page 12, line 17:                                                                                                          
     Delete "(18)"                                                                                                              
     Insert "(19"                                                                                                               
                                                                                                                                
     Page 12, line 26:                                                                                                          
     Delete "(19)"                                                                                                              
     Insert "(20)"                                                                                                              
                                                                                                                                
     Page 13, line 4, following "law,":                                                                                         
     Insert    "and    except     as    provided    in    AS                                                                    
     14.11.100(a)(18),"                                                                                                         
                                                                                                                                
     Page 13, line 7:                                                                                                           
     Delete "January 1"                                                                                                         
     Insert "November 15"                                                                                                       
                                                                                                                                
     Page 13, line 9:                                                                                                           
     Delete "The"                                                                                                               
     Insert  "Except  as  provided in  AS  14.11.100(a)(18),                                                                    
     the"                                                                                                                       
                                                                                                                                
     Page 13, line 12:                                                                                                          
     Delete "January 1"                                                                                                         
     Insert "November 15"                                                                                                       
                                                                                                                                
     Page 13, lines 14 - 17:                                                                                                    
     Delete all material.                                                                                                       
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 13, line 19:                                                                                                          
     Delete "Sections 1, 2, 4, 5, and 7"                                                                                        
     Insert "Sections 1, 2, 4, and 5"                                                                                           
                                                                                                                                
Representative Wilson OBJECTED.                                                                                                 
                                                                                                                                
Representative Kawasaki  explained that the  amendment would                                                                    
enable  municipalities with  a last  chance to  put projects                                                                    
forward. He  detailed that many school  districts (including                                                                    
Fairbanks, Anchorage,  and Bristol  Bay) had been  given the                                                                    
impression that  there would  be a  state funding  match. He                                                                    
elaborated that  the projects did  not come in  solely every                                                                    
year. He referred to discussion  that there could be rush to                                                                    
push  projects through.  He referenced  the administration's                                                                    
testimony that  the process the projects  went through could                                                                    
take months to  years in advance of an  election. He relayed                                                                    
that his  community understood that it  would be financially                                                                    
difficult in the  current year and had  communicated that it                                                                    
would not come to the  legislature with capital projects. He                                                                    
reminded the  committee that school  board members  had come                                                                    
forward  in the  November/December 2014  timeframe notifying                                                                    
legislators that they  would need a bond  proposition in the                                                                    
fall election  cycle (instead  of asking  for cash).  One of                                                                    
the  projects would  be the  fourth and  final phase  of the                                                                    
Barnette Magnet  School renovation. Other  projects included                                                                    
the  installation of  district-wide  fire sprinkler  systems                                                                    
for  $750,000 (the  upgrade was  necessary for  most of  the                                                                    
outdated  schools  using  the   local  water  utility,  Wood                                                                    
River/Tanana  mechanical upgrades,  and  a roof  replacement                                                                    
for Joy  Elementary School (the project  would replace major                                                                    
parts of  the roof that had  been part of a  1989 addition).                                                                    
He  underscored  that  the  projects  had  been  vetted  and                                                                    
discussed by  the school board;  the projects had  also been                                                                    
entered into  the school bond major  maintenance by district                                                                    
request. He  added that  Barnette had not  made it  into the                                                                    
list  of qualifying  schools in  the current  year, but  its                                                                    
project was  certainly needed. He believed  it was important                                                                    
for  the  state  to  keep  its  word  related  to  the  bond                                                                    
reimbursement. The  amendment would  extend the  program out                                                                    
to  the fall  election cycle  (most of  the communities  had                                                                    
fall elections including Fairbanks, Mat-Su, and Juneau).                                                                        
                                                                                                                                
Representative Wilson  spoke to her objection.  She stressed                                                                    
that the  state did not have  any money. She added  that the                                                                    
state  was  not obligated  to  pay  any  of the  bonds.  She                                                                    
believed  the state  could tell  districts that  due to  its                                                                    
deficit it  could not  pay the  70 percent  reimbursement in                                                                    
the current year. She  stated that municipalities understood                                                                    
that there was  a chance the state may not  have the ability                                                                    
to  pay  the 70  percent.  She  stressed  the need  to  make                                                                    
changes based  on the state's  budget outlook.  She believed                                                                    
the  legislation's  five-year  moratorium offered  a  milder                                                                    
option versus discontinuing the reimbursement indefinitely.                                                                     
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Kawasaki, Gara, Guttenberg                                                                                            
OPPOSED:  Munoz, Pruitt,  Saddler,  Wilson, Edgmon,  Gattis,                                                                    
Neuman, Thompson                                                                                                                
                                                                                                                                
The MOTION to adopt Amendment 2 FAILED (3/8).                                                                                   
                                                                                                                                
Co-Chair  Neuman  MOVED  to  REPORT   CSSB  64(EDC)  out  of                                                                    
committee   with   individual    recommendations   and   the                                                                    
accompanying fiscal  note. There being NO  OBJECTION, it was                                                                    
so ordered.                                                                                                                     
                                                                                                                                
CSSB 64(EDC) was REPORTED out  of committee with a "do pass"                                                                    
recommendation   and    with   one    previously   published                                                                    
indeterminate fiscal note: FN1 (EED).                                                                                           
                                                                                                                                
3:13:23 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
3:17:58 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
HOUSE BILL NO. 86                                                                                                             
                                                                                                                                
     "An Act relating to investment of the power cost                                                                           
     equalization endowment fund; and providing for an                                                                          
     effective date."                                                                                                           
                                                                                                                                
3:18:04 PM                                                                                                                    
                                                                                                                                
PAM  LEARY,  DIRECTOR,   TREASURY  DIVISION,  DEPARTMENT  OF                                                                    
REVENUE,  provided a  PowerPoint presentation  titled "State                                                                    
of Alaska  Department of  Revenue HB  86 PCE  Endowment Fund                                                                    
Investment"  (copy  on  file).  She relayed  her  intent  to                                                                    
discuss the fund  history and the bill. She  turned to slide                                                                    
2 and communicated  that the fund's purpose was  to fund the                                                                    
Power  Cost Equalization  and Rural  Electric Capitalization                                                                    
Fund, which  helped to  reduce the cost  of energy  in areas                                                                    
with high electrical costs. The  fund also covered the costs                                                                    
associated  with  its  management.   She  continued  that  7                                                                    
percent of the monthly average  market value of the fund for                                                                    
the  previous three  fiscal years  may be  appropriated. She                                                                    
relayed  that the  fund had  been  created in  2000 with  an                                                                    
appropriation  of  $100   million  from  the  Constitutional                                                                    
Budget Reserve  (CBR). In 2002  the Power  Cost Equalization                                                                    
Fund (PCE) received $89.6 million  from proceeds of the sale                                                                    
of the four dam pool  hydroelectric project; it had received                                                                    
two subsequent appropriations of  $182.7 million in 2007 and                                                                    
$400  million  in 2012.  The  fund  balance  at the  end  of                                                                    
February 2015 was $986 million.                                                                                                 
                                                                                                                                
Ms.  Leary discussed  the  bill's purpose  on  slide 3.  She                                                                    
explained  that the  bill would  remove  the stated  nominal                                                                    
return  target of  at least  7 percent  of the  statute. The                                                                    
bill  would  allow the  commissioner  of  the Department  of                                                                    
Revenue  (DOR) to  invest the  fund in  a manner  that would                                                                    
meet the  fund's objectives by  providing flexibility  as it                                                                    
related to  the rate  and the  risk associated  with certain                                                                    
types  of  investments.  She explained  that  the  bill  was                                                                    
important because  it would enable  the DOR  commissioner to                                                                    
invest  in less  risky investments,  when appropriate,  that                                                                    
would continue to  meet the financial needs  of the program.                                                                    
She relayed that the bill had a zero fiscal note.                                                                               
                                                                                                                                
3:20:56 PM                                                                                                                    
                                                                                                                                
JERRY  BURNETT,  DEPUTY   COMMISSIONER,  TREASURY  DIVISION,                                                                    
DEPARTMENT  OF   REVENUE,  highlighted   that  one   of  the                                                                    
fundamentals  of asset  management was  to seek  the highest                                                                    
rate  of  return  with  appropriate  risk  levels.  He  drew                                                                    
attention  to  the  2015  capital  market  expectations  for                                                                    
return and risk  from Callan Associates (slide  4). He noted                                                                    
that  Callan Associates  was the  financial  advisor to  the                                                                    
Alaska  Retirement  Management  Board   and  to  the  Alaska                                                                    
Permanent  Fund  Corporation  (APFC).   He  pointed  to  the                                                                    
arithmetic  and  geometric  return  and  standard  deviation                                                                    
(projected risk). He remarked  that the geometric return was                                                                    
less  than  the arithmetic  return.  He  highlighted the  19                                                                    
percent  standard deviation  for the  broad domestic  equity                                                                    
category, meaning  that two-thirds of the  time returns were                                                                    
expected  to  be  within  19 percent  of  the  9.15  percent                                                                    
arithmetic  return  (-10  to  29).  He  explained  that  the                                                                    
arithmetic  return  over  time  was used  to  calculate  the                                                                    
geometric  average  (some  years  would be  well  below  the                                                                    
arithmetic average,  while some years would  be well above).                                                                    
He  noted  that the  [10-year]  geometric  return for  broad                                                                    
domestic  equity  was  7.6 percent.  He  remarked  that  7.6                                                                    
percent  was  one  of  the highest  returns  on  the  chart;                                                                    
emerging market  equities had a  return of 7.9  percent, but                                                                    
with a 28 percent standard deviation).                                                                                          
                                                                                                                                
Mr. Burnett discussed that when  constructing a portfolio to                                                                    
achieve  a   7  percent  return  (given   the  2015  capital                                                                    
markets), nearly  90 percent of  assets should  be equities.                                                                    
He explained that based on  a 19 percent standard deviation,                                                                    
a -10  percent return would occur  in one out of  six years.                                                                    
He discussed that  equity markets had been  positive for six                                                                    
years  in  a  row;  therefore, it  was  fairly  likely  that                                                                    
negative returns  would occur sometime  in the  next several                                                                    
years.  He  relayed  that  DOR   did  not  feel  comfortable                                                                    
building  or recommending  a portfolio  that was  90 percent                                                                    
equities   because  it   was  currently   beyond  the   risk                                                                    
tolerance. He elaborated that in  2002 a portfolio achieving                                                                    
an 8  or 9 percent  return could have been  constructed with                                                                    
similar risk  as at  present. He noted  that it  varied from                                                                    
year to  year. He communicated  that inserting 7  percent in                                                                    
statute could  create a situation  where the  department was                                                                    
managing to a  risk that was beyond what  was reasonable for                                                                    
the markets.  He stated  that APFC had  an expected  rate of                                                                    
return of  approximately 6.17 percent  in the  current year.                                                                    
The  department  wanted  to   have  the  ability  to  manage                                                                    
appropriate risk while achieving  the highest rate of return                                                                    
within the risk tolerance rather  than to a fixed number. He                                                                    
noted  that the  Treasury  Division managed  over 40  unique                                                                    
asset allocations; the Power Cost  Equalization Fund was the                                                                    
only  major   fund  that  had   a  specific   target  return                                                                    
identified in statute.                                                                                                          
                                                                                                                                
3:24:59 PM                                                                                                                    
                                                                                                                                
Representative  Edgmon  asked why  a  lower  number was  not                                                                    
identified.  Mr.  Burnett did  not  believe  a lower  number                                                                    
should be identified. For example,  if the target return was                                                                    
5 percent, the asset allocation  may be less risky than what                                                                    
was responsible over  time. He relayed that  no number would                                                                    
be durable; what  may be good at present may  be very bad at                                                                    
another time. He noted that  in 1982, money market rates had                                                                    
been  at  10 or  11  percent  and  mortgage bonds  could  be                                                                    
purchased with 18 percent interest  rates. He explained that                                                                    
a  portfolio   constructed  for   that  time  may   be  very                                                                    
different. He reiterated  that it was not possible  to set a                                                                    
durable number that made sense in the long-term.                                                                                
                                                                                                                                
Representative Edgmon  asked for verification that  it would                                                                    
be at the discretion of DOR  and its fund managers to manage                                                                    
the target year after year.  He surmised that the target may                                                                    
be  6 percent  in some  years and  5 percent  in others.  He                                                                    
wondered  why  the department  had  not  elected to  pick  a                                                                    
target  that was  more commensurate  with the  state's other                                                                    
long-term endowments such as the CBR.                                                                                           
                                                                                                                                
Mr.  Burnett  answered  that  DOR would  look  at  an  asset                                                                    
allocation that was durable and  would set the expected rate                                                                    
of return off  of a reasonable risk  asset allocation rather                                                                    
than looking at  setting an allocation to  a specific target                                                                    
number.  Management  factored  in  that the  fund  needed  a                                                                    
certain amount of  income annually; there was  a payout rule                                                                    
that  was  7  percent  of the  prior  three  years'  monthly                                                                    
rolling average  balance. The fund  was managed to  meet its                                                                    
intent,  but the  asset allocation  was  not set  to a  hard                                                                    
number.                                                                                                                         
                                                                                                                                
Representative Edgmon asked what  assurance he would have as                                                                    
a rural legislator  that the fund was being  managed for the                                                                    
long-term.  Mr.  Burnett  answered  that  the  returns  were                                                                    
available  for review.  Additionally,  the DOR  commissioner                                                                    
and  staff  were  available  to  discuss  the  strategy  and                                                                    
returns. He  noted that the legislature  had annual hearings                                                                    
on fund performance.  He explained that other  funds did not                                                                    
have  target returns  identified  in statute.  He cited  the                                                                    
CBR,  the Alaska  Permanent Fund,  and the  Higher Education                                                                    
Fund  as   examples.  He  explained  that   the  flexibility                                                                    
provided more  assurance in an environment  like the present                                                                    
that the  commissioner would not try  to set to a  7 percent                                                                    
level, which may result in lost money the following year.                                                                       
                                                                                                                                
3:28:45 PM                                                                                                                    
                                                                                                                                
Representative  Edgmon stated  that the  PCE endowment  fund                                                                    
was large  enough that if  managed in a  conservative manner                                                                    
it should be able to satisfy  the annual outlay of PCE costs                                                                    
(approximately  $42 million  to  $45  million). He  wondered                                                                    
what return  the fund would  target. He noted that  the fund                                                                    
was close to  $1 billion and small number of  4 or 5 percent                                                                    
was needed. He surmised that  management would want to stick                                                                    
to a target  rate over time. He wanted to  ensure that money                                                                    
managers would  not have free  reign to ride the  market and                                                                    
make more risky investments when they were not needed.                                                                          
                                                                                                                                
Mr. Burnett  replied that each  of the funds managed  by DOR                                                                    
had  a  purpose  including  expected  payout,  duration  and                                                                    
other. The department set new  asset allocations annually on                                                                    
July 1 based on  capital market expectations; the allocation                                                                    
did  not necessarily  change  every  year. Department  staff                                                                    
analyzed risk  and program  needs on  a full-time  basis. He                                                                    
noted  that under  the  legislation  the commissioner  would                                                                    
manage the fund to meet the needs of the PCE program.                                                                           
                                                                                                                                
Representative  Edgmon  surmised  that the  probability  was                                                                    
that the  department would be  managing the fund for  a rate                                                                    
below  7  percent. Mr.  Burnett  replied  that it  was  most                                                                    
likely that  the fund would  be managed  for a rate  below 7                                                                    
percent in  2015. He could  not predict the target  rate for                                                                    
2016.                                                                                                                           
                                                                                                                                
Representative Guttenberg  asked how the objectives  for the                                                                    
PCE fund were defined. He  wondered about the definition and                                                                    
objective of the Rural Electric  and Capitalization Fund. He                                                                    
believed the objectives  may be different or  in conflict if                                                                    
the  7  percent target  was  removed  from statute.  He  was                                                                    
concerned  about what  the  state was  "letting  out of  the                                                                    
box."                                                                                                                           
                                                                                                                                
Mr.  Burnett responded  that  determining asset  allocations                                                                    
was based  on the  legal purpose  of each  of the  funds. He                                                                    
explained that  the PCE fund's  purpose was to  equalize the                                                                    
power cost per  kilowatt hour, making grants  and power cost                                                                    
equalization  available to  eligible electric  utilities. He                                                                    
relayed that  a payout rule  of 7 percent of  previous years                                                                    
was currently in statute. He  communicated that the PCE fund                                                                    
had earned  about 20 percent  in 2014  and an average  of 14                                                                    
percent over  the past  five years;  since inception  it had                                                                    
earned  just   over  6  percent.   He  explained   that  the                                                                    
department would  look at the  fund's specific  purpose just                                                                    
like  it did  for each  of the  other funds  it managed.  He                                                                    
added that there  was nothing unique about the  fund and its                                                                    
purpose  that  created  a  different  look.  The  department                                                                    
considered the  fund's legal requirements, its  purpose, its                                                                    
timeframe, and other.                                                                                                           
                                                                                                                                
3:33:59 PM                                                                                                                    
                                                                                                                                
Ms.  Leary  added  that  7  percent  had  been  the  target;                                                                    
however,  having  the  target   identified  in  statute  had                                                                    
resulted in a  return of -13.87 percent in  2009. The return                                                                    
had been  negative 4 years  out of 15;  it had also  been as                                                                    
high as  21.8 percent with  the same target.  She elaborated                                                                    
that  a  target may  come  to  fruition,  but may  not.  She                                                                    
clarified  that   capital  market  expectations   were  only                                                                    
expectations   based  on   known  economic   factors;  there                                                                    
generally tended to be a 10-year expectation.                                                                                   
                                                                                                                                
Representative   Guttenberg   asked  if   the   department's                                                                    
responsibility  would  fit  inside   the  successes  of  the                                                                    
permanent fund. He wondered how  the end result would differ                                                                    
if  the  department  had  moved   its  management  into  the                                                                    
permanent fund portfolio.                                                                                                       
                                                                                                                                
Mr. Burnett replied that the  permanent fund had some unique                                                                    
assets  that  the  Treasury   Division  would  not  consider                                                                    
holding due to their  illiquidity. He explained that because                                                                    
the PCE  fund was non-dedicated  it had to be  available and                                                                    
liquid at some level at all  times. He stated that DOR would                                                                    
not make  the recommendation,  but if the  legislature chose                                                                    
to  change the  purpose  of the  fund  [the portfolio  could                                                                    
invest in illiquid assets]. He  furthered that the permanent                                                                    
fund was  a constitutionally dedicated fund  and held assets                                                                    
that  could  not provide  money  for  5  to 10  years  (e.g.                                                                    
private equity or long-term  real estate investments), which                                                                    
would  never   be  considered  for  a   state-managed  fund.                                                                    
Additionally,  the  permanent  fund  may  hold  assets  that                                                                    
Treasury was  not allowed to hold  under Securities Exchange                                                                    
Commission rules.                                                                                                               
                                                                                                                                
Co-Chair Thompson  asked committee  members to  be cognizant                                                                    
of the time  and relayed that the bill would  be heard again                                                                    
at a later date.                                                                                                                
                                                                                                                                
Vice-Chair Saddler  wondered if  the bill had  been prompted                                                                    
by the desire  to revert to more a  prudent investment rule,                                                                    
the  declining  revenue  stream  required  by  lower  energy                                                                    
prices,  or by  fear of  the coming  market correction.  Mr.                                                                    
Burnett  answered that  there had  been no  consideration of                                                                    
the declining  need for a  revenue stream. The  decision had                                                                    
been   based  on   a  prudent   investment   rule  and   the                                                                    
unwillingness to take on risks beyond what were prudent.                                                                        
                                                                                                                                
Vice-Chair  Saddler  stated  that  when  the  AKLNG  gasline                                                                    
project came to  fruition 25 percent of  its royalties would                                                                    
be dedicated towards the energy  needs of rural Alaskans off                                                                    
the  Railbelt. He  asked if  the  bill would  allow the  PCE                                                                    
endowment fund management to adjust  to the reality of a new                                                                    
funding source with the same purpose.                                                                                           
                                                                                                                                
Mr. Burnett  answered that if  the money went into  the fund                                                                    
it would allow  for changes. He elaborated  that the purpose                                                                    
of  the fund,  the  realities of  the  marketplace, and  the                                                                    
fiscal  realities   of  the  state   were  all   taken  into                                                                    
consideration by the department.                                                                                                
                                                                                                                                
3:38:00 PM                                                                                                                    
                                                                                                                                
Representative Edgmon  clarified that  it was 20  percent of                                                                    
the  royalty  revenues [that  would  be  dedicated to  rural                                                                    
Alaska  energy   needs  when  the  AKLNG   project  came  to                                                                    
fruition].                                                                                                                      
                                                                                                                                
Representative Munoz asked if  the fund was managed in-house                                                                    
or by outside  managers. Mr. Burnett replied  that the fixed                                                                    
income  component  was  managed  internally;  the  rest  was                                                                    
managed by external managers.                                                                                                   
                                                                                                                                
Representative  Munoz  asked  if the  management  fees  were                                                                    
typical.  Mr.  Burnett  agreed. Representative  Munoz  asked                                                                    
about  14  percent  earnings from  the  previous  year.  Mr.                                                                    
Burnett clarified  that the earnings  had been  20.7 percent                                                                    
the previous  year and averaged  14.5 percent over  the past                                                                    
five years. He  added that the fund had  grown quite rapidly                                                                    
over the past several years.                                                                                                    
                                                                                                                                
Representative Munoz  asked for  the growth in  dollars. Ms.                                                                    
Leary replied that earnings had been $171 million in 2014.                                                                      
                                                                                                                                
Representative  Munoz  spoke  to  a payout  of  roughly  $45                                                                    
million to communities.  She wondered if the  balance of the                                                                    
earnings was deposited  directly into the fund  or for other                                                                    
purposes  as well.  Mr. Burnett  answered that  the earnings                                                                    
that were  not used for  fund management or the  PCE program                                                                    
remained in the fund.                                                                                                           
                                                                                                                                
Representative  Gattis  asked  why  the  PCE  fund  had  not                                                                    
originally been  set up like the  other state-managed funds.                                                                    
Mr. Burnett answered  that he did not  recall the discussion                                                                    
on the  original language related  to the  fund's investment                                                                    
purposes. He relayed  that the fund had  been implemented in                                                                    
2002. He was  not certain that any changes had  been made to                                                                    
the fund's  investment since inception.  He relayed  that it                                                                    
was not  the first  year DOR had  requested the  change; the                                                                    
department  had  identified  the  issue  as  problematic  in                                                                    
previous administrations as well.                                                                                               
                                                                                                                                
Representative Gattis asked if it  was the first time a bill                                                                    
had been presented. Mr. Burnett replied in the negative.                                                                        
                                                                                                                                
Representative  Gattis surmised  that a  bill had  failed in                                                                    
the past and  the department was giving  it another attempt.                                                                    
Mr.  Burnett  replied in  the  affirmative.  He thanked  the                                                                    
committee for hearing the bill.                                                                                                 
                                                                                                                                
Ms.  Leary  informed the  committee  that  DOR had  a  great                                                                    
website that included significant  information about the PCE                                                                    
fund  and  other funds  managed  by  the Treasury  Division.                                                                    
Additionally, the  website included cash management  and all                                                                    
aspects of the division.                                                                                                        
                                                                                                                                
HB  86  was   HEARD  and  HELD  in   committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                
Co-Chair  Thompson discussed  the agenda  for the  following                                                                    
day.                                                                                                                            
                                                                                                                                
Vice-Chair  Saddler  informed  committee  members  that  the                                                                    
Department   of   Health    and   Social   Services   budget                                                                    
subcommittee  would hear  a  Medicaid  101 presentation  the                                                                    
following morning.                                                                                                              
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
3:42:54 PM                                                                                                                    
                                                                                                                                
The meeting was adjourned at 3:42 p.m.                                                                                          

Document Name Date/Time Subjects
HB 68 CS WorkDraft I version.pdf HFIN 3/30/2015 1:30:00 PM
HB 68
SB 64 Legal Opinion Retro Date.pdf HFIN 3/30/2015 1:30:00 PM
SB 64
SB 64 EDC- Sectional Analysis.pdf HFIN 3/30/2015 1:30:00 PM
SB 64
SB 64 - Sponsor Statement.pdf HFIN 3/30/2015 1:30:00 PM
SB 64
SB 64 - Explanation of Changes.pdf HFIN 3/30/2015 1:30:00 PM
SB 64
HB86 Sponsor Statement.pdf HFIN 3/30/2015 1:30:00 PM
HB 86
HB86 PCE presentation March 30 2015.pdf HFIN 3/30/2015 1:30:00 PM
HB 86
SB 64 Amendment 1 Gara.pdf HFIN 3/30/2015 1:30:00 PM
SB 64
SB 64 Amendment #2 Kawasaki.pdf HFIN 3/30/2015 1:30:00 PM
SB 64
SB 64 Support Material - MultiYearAllocationTotals.pdf HFIN 3/30/2015 1:30:00 PM
SB 64
SB 64 Support Material - State Debt Liability.pdf HFIN 3/30/2015 1:30:00 PM
SB 64