Legislature(2007 - 2008)SENATE FINANCE 532

05/10/2007 09:00 AM FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved SCS CSHB 229(FIN) Out of Committee
Heard & Held
Heard & Held
Scheduled But Not Heard
+ Bills Previously Heard/Scheduled TELECONFERENCED
                    SENATE FINANCE COMMITTEE                                                                                  
                          May 10, 2007                                                                                        
                           9:41 a.m.                                                                                          
CALL TO ORDER                                                                                                               
Co-Chair  Bert  Stedman  convened the  meeting  at  approximately                                                               
9:41:26 AM.                                                                                                                   
Senator Bert Stedman, Co-Chair                                                                                                  
Senator Lyman Hoffman, Co-Chair                                                                                                 
Senator Charlie Huggins, Vice Chair                                                                                             
Senator Kim Elton                                                                                                               
Senator Joe Thomas                                                                                                              
Senator Donny Olson                                                                                                             
Senator Fred Dyson                                                                                                              
Also Attending:  MARIT CARLSON-VON  DORT, Staff to  Senator Lesil                                                             
McGuire; CHIP  THOMA; MICHAEL PAWLOWSKI, Staff  to Representative                                                               
Kevin Meyer;  BRIAN ANDREWS,  Deputy Commissioner,  Department of                                                               
Revenue; LARRY  DIETRICK, Director, Division of  Spill Prevention                                                               
and Response, Department of Environmental Conservation;                                                                         
Attending  via  Teleconference:  From  an  Offnet  location:  PAT                                                           
GAMBLE, President  and Chief  Executive Officer,  Alaska Railroad                                                               
Corporation; LISA  PARKER, Manager, Government  Relations, Agrium                                                               
Inc.;  JOHN DUFFY,  Borough Manager,  Matanuska Susitna  Borough;                                                               
PATTI MACKEY, Executive Director,  Ketchikan Visitors Bureau, and                                                               
Chair of the Board of Directors, ATIA.                                                                                          
SUMMARY INFORMATION                                                                                                         
9:41:33 AM                                                                                                                    
HB 229-KENAI GASIFICATION PROJECT; RAILROAD BOND                                                                                
The Committee  heard from  the Alaska  Railroad, Agrium,  and the                                                               
Matanuska Susitna  Borough. The  Committee adopted  one amendment                                                               
and the bill reported from Committee.                                                                                           
SB 144-TOURISM CONTRACT MATCHING FUNDS                                                                                          
The Committee heard  from the bill's sponsor,  a tourism industry                                                               
representative, and a member of the  public. The bill was held in                                                               
HB 238-OIL & HAZARD SUBSTANCE RESPONSE ACCOUNT                                                                                  
The Committee  heard from the  bill's sponsor, the  Department of                                                               
Revenue  and the  Department of  Environmental Conservation.  The                                                               
bill was held in Committee.                                                                                                     
HB 162-MORTGAGE LENDING                                                                                                         
This bill was scheduled but not heard.                                                                                          
9:41:38 AM                                                                                                                    
     HOUSE BILL NO. 229 am                                                                                                      
     "An  Act  authorizing  the Alaska  Railroad  Corporation  to                                                               
     participate  in a  project  consisting  of the  acquisition,                                                               
     construction,   improvement,   maintenance,  equipping,   or                                                               
     operation   of  real   and   personal  property,   including                                                               
     facilities  and   equipment,  for  the   Kenai  gasification                                                               
     project  and  Port  MacKenzie  rail  link,  authorizing  the                                                               
     corporation to  issue bonds to  finance all or a  portion of                                                               
     the  project,   and  identifying  these  as   bonds  for  an                                                               
     essential  public and  governmental  purpose; and  providing                                                               
     for an effective date."                                                                                                    
This was the  second hearing for this bill in  the Senate Finance                                                               
9:42:30 AM                                                                                                                    
PAT  GAMBLE,  President  and   Chief  Executive  Officer,  Alaska                                                               
Railroad Corporation,  testified that  this bill would  allow the                                                               
Railroad to  utilize its tax-free  bonding authority to  issue up                                                               
to  $2.9 billion  in  bonds  to enable  the  construction of  the                                                               
Agrium  Gasification  Plant in  Kenai.  He  identified the  three                                                               
components of the bond proposition  as funding for the plant, the                                                               
ability to  purchase assets necessary to  facilitate the movement                                                               
of coal for  the plant, and the authorization of  the Railroad to                                                               
use its bonding  authority to support a  potential rail extension                                                               
from Willow to Port MacKenzie.                                                                                                  
9:44:39 AM                                                                                                                    
Mr. Gamble reminded  that tax free bonds would  carry no recourse                                                               
to  State.  The bonds  would  carry  no  recourse to  the  Alaska                                                               
Railroad for  the Agrium or  the portions of the  bonds dedicated                                                               
to the  rail extension. The  Railroad would finance the  costs of                                                               
two trains to be used to transport materials to the plant.                                                                      
9:45:18 AM                                                                                                                    
Co-Chair  Stedman asked  if these  would  be considered  "conduit                                                               
Mr. Gamble  affirmed that the  bill called for  conduit financing                                                               
for the rail extension and the gasification plant.                                                                              
9:45:26 AM                                                                                                                    
Co-Chair  Stedman asked  the  expected length  of  time that  the                                                               
Railroad would retain authorization for this type of financing.                                                                 
Mr. Gamble understood  the question to relate to the  term of the                                                               
Co-Chair Stedman  clarified that he  wanted to know how  long the                                                               
Railroad  would  continue  to  hold  the  authorization  for  the                                                               
issuance of the bonds.                                                                                                          
9:46:01 AM                                                                                                                    
Mr.   Gamble  replied   that,   for   accounting  purposes,   the                                                               
authorization  would not  be "carried  on  the company's  balance                                                               
sheet." The period  of authorization was not  specified and would                                                               
carry  no  commitment,  but would  remain  in  perpetuity  unless                                                               
exercised or amended within the bill.                                                                                           
9:46:52 AM                                                                                                                    
Co-Chair Stedman  proposed that the authorization  be accompanied                                                               
by a  termination date to stipulate  that if the project  did not                                                               
reach fruition, the authorization would expire.                                                                                 
Mr. Gamble  replied that he  would not expect a  termination date                                                               
on  the bond  authorization to  affect the  Railroad's financing,                                                               
and deferred to Agrium to respond independently.                                                                                
9:47:44 AM                                                                                                                    
LISA   PARKER,  Manager,   Government  Relations,   Agrium  Inc.,                                                               
informed that  Agrium had experienced difficulties  operating its                                                               
plants at  capacity due to declining  resources. Agrium currently                                                               
operated  its  plant at  50  percent  capacity, yet  intended  to                                                               
operate permanently at full capacity  as soon as possible. Agrium                                                               
would potentially  be prepared to  bring the project  "online" by                                                               
late 2011 or early 2012.                                                                                                        
9:49:25 AM                                                                                                                    
Co-Chair  Stedman asked  regarding a  "reasonable" timeframe  for                                                               
the  authorization  of  the  $300 million  for  the  Mat-Su  rail                                                               
Mr.  Gamble responded  that  the  Environmental Impact  Statement                                                               
(EIS) would take  a minimum of two years to  complete. Due to the                                                               
fact  that construction  would be  possible  only seasonally,  he                                                               
estimated  project completion  at a  minimum of  five years,  but                                                               
deferred  to   the  Mat-Su  Borough   for  verification   of  his                                                               
9:50:53 AM                                                                                                                    
Senator Elton  understood the definition  of a "mega  project" to                                                               
be a project  exceeding one or two billion  dollars. According to                                                               
that  definition,  this  proposal  would  be  considered  a  mega                                                               
project.  He  asked  the  types   of  preparation  and  diligence                                                               
performed by the  Railroad's board of directors in  relation to a                                                               
mega project.                                                                                                                   
9:51:41 AM                                                                                                                    
Mr. Gamble informed that the  board of directors was a management                                                               
board rather  than an  oversight board.  The board  delegated the                                                               
authority to run  the day to day operations of  the Railroad. The                                                               
bonds  would not  be  issued  all at  once  and  the board  would                                                               
approve  each   issuance  of  bonds   separately,  based   on  an                                                               
evaluation of the risks related to each phase of the project.                                                                   
9:53:11 AM                                                                                                                    
Senator  Elton inquired  as  to the  diligence  exercised by  the                                                               
board with regard to financial matters.                                                                                         
9:53:35 AM                                                                                                                    
Mr.  Gamble told  of the  debt management  office managed  by the                                                               
Chief Financial  Officer of the  Railroad which was  dedicated to                                                               
that work.  Additionally, the market  itself would  determine the                                                               
risk and the  interest rates, allowing the  buyers to participate                                                               
in the diligence process.                                                                                                       
9:54:41 AM                                                                                                                    
Ms. Parker added  that Agrium had been a  publicly traded company                                                               
on  the New  York and  Toronto stock  exchanges for  the past  12                                                               
years. The  company would conduct  internal due  diligence before                                                               
the project was initiated.                                                                                                      
9:55:26 AM                                                                                                                    
Senator Thomas  was unsure  of the  source of  the aforementioned                                                               
$300 million figure.                                                                                                            
Mr. Gamble answered  that that amount would be  "rolled into" the                                                               
general bonding authorization.                                                                                                  
Senator Thomas understood that those  funds would specifically be                                                               
Railroad bonding and not associated with State liability.                                                                       
Mr. Gamble confirmed  that the funds would  be conduit financing,                                                               
akin to the Agrium project financing.                                                                                           
9:56:09 AM                                                                                                                    
Senator Thomas observed that when  an extension of exportation of                                                               
natural gas from Cook Inlet  seemed likely, the expected reserves                                                               
increased.  He asked  if  this trend  would  impact the  proposed                                                               
9:57:07 AM                                                                                                                    
Ms. Parker  reiterated that  Agrium would  prefer to  continue to                                                               
utilize natural gas,  which would save the company  $2 billion on                                                               
this  project. However,  natural gas  reserves were  diminishing,                                                               
and the plant was currently operating  for only half of the year,                                                               
at 50 percent  capacity. The North Slope would not  be a supplier                                                               
of gas  for at least ten  years. Agrium's intent was  to purchase                                                               
gas from Cook Inlet producers to  operate the plant at 50 percent                                                               
capacity until its  conversion to coal, and then  to remain using                                                               
9:58:51 AM                                                                                                                    
Senator Olson  asked if  a market for  the plant's  product would                                                               
develop if it were operating at 100 percent capacity.                                                                           
Ms. Parker affirmed.                                                                                                            
Senator  Olson  identified a  five  year  difference between  the                                                               
estimated  completion dates  of  the gasification  plant and  the                                                               
natural gas  pipeline from the  North Slope. He asked  how Agrium                                                               
planned to repay the bond debt in that five year time frame.                                                                    
9:59:41 AM                                                                                                                    
Ms.  Parker explained  that if  Agrium converted  the plant  to a                                                               
coal gasification facility, it would  continue to employ coal and                                                               
would  not return  to natural  gas. The  bond repayment  would be                                                               
negotiated  with   the  bond  market  and   the  Alaska  Railroad                                                               
Senator  Olson commented  that the  public  was "very  satisfied"                                                               
with the impacts of natural gas  usage, and asked the reaction of                                                               
residents of  the Kenai  Peninsula to  the proposed  coal burning                                                               
Ms.  Parker shared  that Agrium  had  received positive  comments                                                               
from people in the community.  New technologies would make a coal                                                               
project  much  cleaner than  in  the  past. Extensive  permitting                                                               
would be  required, including air  and water quality  permits and                                                               
an environmental assessment.                                                                                                    
10:01:16 AM                                                                                                                   
Senator Huggins stated that Agrium  was one of the few industrial                                                               
production   bases  in   Alaska.  The   rail  spur   would  serve                                                               
approximately  50  percent  of  the  State's  population  in  the                                                               
Anchorage  and   Kenai  areas,  as  well   as  provide  alternate                                                               
transportation for  hauling construction  materials to  the North                                                               
Slope  for the  erection of  a  natural gas  pipeline. The  State                                                               
built very  little new  infrastructure, and  the rail  spur would                                                               
decrease  the wear  on  area roads,  thus  decreasing the  needed                                                               
maintenance  and  upkeep  of   the  existing  infrastructure.  He                                                               
relayed  that  the communities  he  had  contacted supported  the                                                               
10:04:25 AM                                                                                                                   
Senator Elton  asked for clarification  that the only  asset that                                                               
the  Railroad  would  commit  to the  project  was  the  "rolling                                                               
Mr. Gamble affirmed.                                                                                                            
10:04:49 AM                                                                                                                   
Senator  Thomas  asked  if Agrium  intended  to  sell  electrical                                                               
surplus energy back into "the grid".                                                                                            
Ms.  Parker affirmed.  She elaborated  that  the arrangement  was                                                               
currently to produce  190 megawatts of power, of  which the plant                                                               
would use  120 megawatts and sell  70 megawatts to the  grid. The                                                               
Homer   Electric  Association   had   been   involved  in   those                                                               
10:05:27 AM                                                                                                                   
Senator Dyson asked  if the project would require  a new intertie                                                               
line to transport the power produced.                                                                                           
Ms. Parker  responded that  the project would  not require  a new                                                               
intertie line.                                                                                                                  
10:06:00 AM                                                                                                                   
Senator Dyson had received contradictory information.                                                                           
10:06:08 AM                                                                                                                   
JOHN   DUFFY,  Borough   Manager,   Matanuska  Susitna   Borough,                                                               
testified via  teleconference from an offnet  location in support                                                               
of  the project  and the  bill  as amended.  He referenced  three                                                               
studies that examined  the impact of the proposed  rail spur, and                                                               
informed  that the  studies supported  the project,  as it  would                                                               
allow  for increased  efficiency and  mining development.  He set                                                               
forth that  Alaska currently imported  cement, but  could produce                                                               
its  own cement  and transport  that product  to market  with the                                                               
construction of  the rail spur.  The railroad would  also provide                                                               
savings for  the transportation of  materials to the  North Slope                                                               
when construction of the gasline  began. The Borough would assist                                                               
in the attainment of an EIS.                                                                                                    
10:08:25 AM                                                                                                                   
Co-Chair Stedman  shared that the  Committee was  considering the                                                               
inclusion  of   a  termination  date   of  five  years   for  the                                                               
authorization  of  the  Mat-Su  rail  extension,  and  asked  Mr.                                                               
Duffy's reaction.                                                                                                               
10:09:01 AM                                                                                                                   
Mr. Duffy  agreed with  Mr. Gamble that  a five  year termination                                                               
date was "appropriate".                                                                                                         
10:09:09 AM                                                                                                                   
Co-Chair  Stedman   proposed  an   eight  year  time   frame  for                                                               
authorization of  Agrium's bonding portion of  the project, after                                                               
which time Agrium could request reauthorization if necessary.                                                                   
10:09:39 AM                                                                                                                   
Mr. Gamble voiced  that Railroad's support of  that proposal, and                                                               
deferred to Agrium.                                                                                                             
Ms. Parker concurred.                                                                                                           
10:09:58 AM                                                                                                                   
Amendment #1: This conceptual amendment reads as follows.                                                                       
     Place a five year sunset date on the portion of                                                                            
     authorization ($300 million) in the bill allocated to the                                                                  
     Mat-Su Rail extension to Pt. Mackenzie.                                                                                    
     Place an eight year sunset date on the balance of the                                                                      
     authorization ($2.6 billion) to finance the facilities and                                                                 
     equipment  associated  with  the Agrium  Kenai  Gasification                                                               
Co-Chair Stedman moved for adoption.                                                                                            
There was no objection and the amendment was ADOPTED.                                                                           
10:10:40 AM                                                                                                                   
Co-Chair  Hoffman  offered  a  motion to  report  the  bill  from                                                               
Committee   as  amended   with  individual   recommendations  and                                                               
accompanying fiscal note.                                                                                                       
There  was no  objection  and SCS  HB 229  (FIN)  was MOVED  from                                                               
Committee with previous  zero fiscal note #1  from the Department                                                               
of Commerce, Community and  Economic Development, Alaska Railroad                                                               
10:11:32 AM                                                                                                                   
     CS FOR SENATE BILL NO. 144(STA)                                                                                            
     "An  Act  relating  to  matching   funds  in  state  tourism                                                               
     marketing  contracts with  trade associations;  establishing                                                               
     the  Alaska  Tourism  Marketing   Funding  Task  Force;  and                                                               
     providing for an effective date."                                                                                          
This was  the first hearing for  this bill in the  Senate Finance                                                               
10:11:51 AM                                                                                                                   
MARIT  CARLSON-VON DORT,  Staff  to Senator  Lesil McGuire,  read                                                               
portions of the sponsor statement  [copy on file] into the record                                                               
as follows.                                                                                                                     
     In 2001 the State of  Alaska privatized the functions of the                                                               
     tourism  marketing program  by contracting  with the  Alaska                                                               
     Travel   Industry   Association.   Prior  to   the   current                                                               
     structure,  Alaska's  travel  industry  was  promoted  by  a                                                               
     membership organization which was  comprised of both private                                                               
     sector and  State officials. Since that  time the Department                                                               
     of   Commerce,  Community   and  Economic   Development  has                                                               
     contracted with  the Alaska  Travel Industry  Association to                                                               
     design  and implement  Alaska's  tourism marketing  program.                                                               
     State  statute  currently  requires  50/50  matching  funds;                                                               
     State  general funds  matched by  private industry  dollars.                                                               
     The recent passage of the  travel industry taxes has had the                                                               
     dual  effect  of  generating  significant  revenues  to  the                                                               
     State's   general  funds,   and   also   the  potential   of                                                               
     eliminating  the viability  of  voluntarily raising  private                                                               
     sector  dollars  required to  meet  that  50 percent  match.                                                               
     Without the  commitment of the  cruise industry  funding the                                                               
     Alaska    Travel   Industry    Association's   ability    to                                                               
     successfully  market Alaska  and compete  with travelers  in                                                               
     the   national   and   worldwide  marketplace   is   greatly                                                               
     compromised, particularly with  respect to those independent                                                               
     travelers, those people  that are coming to  Alaska on their                                                               
     own via the  Alcan highway or flying into  our airports, and                                                               
     this  is a  particular area  of visitors  that has  remained                                                               
     relatively stagnant  and even declined  in the  last several                                                               
10:13:40 AM                                                                                                                   
Ms. Carlson-Von Dort continued her testimony as follows.                                                                        
     Senate  Bill  144 will  allow  Alaska's  travel industry  to                                                               
     continue to receive State funds  by temporarily changing the                                                               
     statutory  match  required in  AS  44.33.125  from 50/50  to                                                               
     70/30.This  change  will be  repealed  on  July 1  of  2008.                                                               
     Additionally,  Senate Bill  144  will create  a nine  member                                                               
     task  force operating  from  September  through December  of                                                               
     2007 to  investigate long term marketing  funding solutions.                                                               
     This  task  force would  be  made  up  of one  House  member                                                               
     appointed by the Speaker [of  the House of Representatives],                                                               
     one Senate  member, appointed by  the Senate  President, two                                                               
     members  of  the  Alaska Travel  Industry  Association,  two                                                               
     members  of  the  cruise  industry,   which  would  both  be                                                               
     appointed  by their  respective  organizations, one  member,                                                               
     which  would   be  the   Governor's  Special   Assistant  to                                                               
     Commerce,  one   member  of  the  Department   of  Commerce,                                                               
     Community and  Economic Development, to be  appointed by the                                                               
     Governor,  as well  as one  member  to be  appointed at  the                                                               
     Governor's  discretion. This  task  force  shall submit  its                                                               
     findings  and  recommendations  to   the  Governor  and  the                                                               
     legislature by  the 30th day  of the second  regular session                                                               
     of the 25th Alaska State Legislature.                                                                                      
     The purpose of  this temporary statutory change  would be to                                                               
     insure  the  maintenance  of   the  Alaska  Travel  Industry                                                               
     Association's  marketing budget,  therefore maintaining  and                                                               
     stabilizing  visitor numbers  while allowing  the State  and                                                               
     the industry to  better evaluate how the  cruise industry is                                                               
     going  to  participate, will  or  will  not participate,  in                                                               
     additional funding. Tourism,  as I'm sure you  all know, Mr.                                                               
     Chairman, has proven to be  a tremendous economic engine for                                                               
     the State. It is one  of Alaska's largest industries with an                                                               
     estimated $2.4  billion annual economic  impact, as  well as                                                               
     being one  of Alaska's leading generators  of employment. It                                                               
     is essential for the State's  economic well-being to support                                                               
     this renewable  resource industry  and foster its  growth. I                                                               
     think that  Senate Bill 144  strikes a very good  balance by                                                               
     helping the  industry continue to market  itself through its                                                               
     time  of  financial  uncertainty, i.e.  this  year,  without                                                               
     mandating  increased State  expenditure. Really,  what we're                                                               
     concerned  about  is  whether   or  not  the  Alaska  Travel                                                               
     Industry is  going to be able  to take advantage of  all the                                                               
     dollars  that  are  currently,   the  $5  million  that  are                                                               
     currently in  the core program  budget. I mean, it  would be                                                               
     certainly a  shame to not  be able to, to  essentially leave                                                               
     those dollars on  the table and not be able  to utilize them                                                               
     to market Alaska.                                                                                                          
10:16:28 AM                                                                                                                   
Senator  Olson  understood  the  task  force  would  "expire"  on                                                               
December 31 of 2007.                                                                                                            
Ms. Carlson-Von Dort affirmed.                                                                                                  
Senator Olson observed a zero fiscal  note, and asked if the task                                                               
force  would  be able  to  produce  a meaningful  report  without                                                               
funding and in such a short amount of time.                                                                                     
Ms. Carlson-Von Dort affirmed, responding  that the Department of                                                               
Commerce,  Community and  Economic Development  had reviewed  the                                                               
fiscal impact.                                                                                                                  
10:17:21 AM                                                                                                                   
Senator  Thomas identified  two  task force  appointees from  the                                                               
Alaska  Travel  Industry  Association  (ATIA) and  two  from  the                                                               
cruise  industry.  He pointed  out  that  the cruise  lines  were                                                               
members of  ATIA, and asked  if there  was a mechanism  to ensure                                                               
that the cruise industry would not  be represented by four of the                                                               
task force members.                                                                                                             
Ms.  Carlson-Von   Dort  understood  that  the   cruise  industry                                                               
representatives  would not  embody  the interests  of ATIA,  thus                                                               
representation would be equally allocated.                                                                                      
10:18:06 AM                                                                                                                   
PATTI MACKEY, Executive Director,  Ketchikan Visitors Bureau, and                                                               
Chair   of  the   Board  of   Directors,   ATIA,  testified   via                                                               
teleconference from  an offnet location  in Ketchikan  in support                                                               
of  the  bill.   The  proposed  70/30  match  with   a  one  year                                                               
termination  provision  was  the   most  reasonable  proposal  to                                                               
address the current  tourism marketing needs. She  added that the                                                               
composition of  the task force  should be as diverse  as possible                                                               
in order to  best represent tourism in Alaska,  and urged support                                                               
of the bill.                                                                                                                    
10:20:46 AM                                                                                                                   
CHIP  THOMA,  Juneau Resident,  testified  in  opposition to  the                                                               
bill. He provided  written testimony [copy on file]  and read his                                                               
testimony as follows.                                                                                                           
     The  state funding  request by  the  Alaska Travel  Industry                                                               
     Association   (ATIA)  is   a  dramatic   change  from   past                                                               
     agreements in  Alaska tourism promotion. Going  from a 50/50                                                               
     percent share to  a 70/30 percent state-industry  split is a                                                               
     fiscal departure  that should be based  both on demonstrated                                                               
     need and a logical advertising  strategy for the future. Yet                                                               
     neither situation  has occurred; it's all  speculative. It's                                                               
     speculative that  the cruise industry  is going to  drop its                                                               
     support, it's speculative  whether ATIA is going  to be able                                                               
     to raise the money. They should be able to.                                                                                
     The ATIA has failed to make  the case that in the past state                                                               
     appropriations  were well  spent,  or  that increased  70/30                                                               
     funding  is  the simple  answer.  Instead,  ATIA blames  the                                                               
     cruise  ship  initiative  as the  'probable'  cause  of  its                                                               
     funding woes,  while ignoring the obvious  fact that private                                                               
     advertising for  cruises in  Alaska now  tops $70  million a                                                               
     year. Market forces  appear to be working  naturally to make                                                               
     the ATIA irrelevant in the  big picture of advertising for a                                                               
     $2.5 billion  a year  Alaska tourism industry.  ASMI [Alaska                                                               
     Seafood Marketing  Institute] and  other private  Alaska ads                                                               
     may  total  $20 million  more,  bringing  the total  'other'                                                               
     spending on Alaska  tourism to $90 million. That's  a lot of                                                               
     money, and I don't think the  ATIA is going to have one dent                                                               
     in that. All the advertising I  see in the magazines I read,                                                               
     it's all  Holland America, Princess, these  are all fold-out                                                               
     ads. These  people are doing  a lot of advertising.  All the                                                               
     glaciers,  the water,  the kayaks,  the  whales, that's  all                                                               
     cruise ship  type advertising,  and the  ATIA should  not be                                                               
     involved in that and yet they are.                                                                                         
     Governor Jay  Hammond determined the participation  rate for                                                               
     state funding  for new industry  over three decades  ago: no                                                               
     subsidies.  ATIA  should  wake   up,  use  its  considerable                                                               
     marketing skills  to raise monies  for the 50  percent share                                                               
     agreement they  now enjoy,  before it  all dissolves  in the                                                               
     wake of  a wealthy  cruise ship  industry. I  know a  lot of                                                               
     organizations  that hire  fund  raisers and  they have  fund                                                               
     raisers on commission,  and I think the ATIA  would be very,                                                               
     very wise to  bring somebody on board who  really knows what                                                               
     they are  doing, can raise  some money for this  group, give                                                               
     them 10 percent of what they're  going to raise and let them                                                               
     try  to match  that 50/50.  If they  think they  have to  go                                                               
     above $10 million,  then they should raise $5  million or $6                                                               
     million and try to match with that.                                                                                        
     Finally, I  hope you  set an  appropriate funding  level and                                                               
     participation rate  by the state  and the  tourism industry.                                                               
     Please  reject SB  144 as  an inappropriate  level of  state                                                               
     tourism  funding,   and  return  to  the   50/50  share  and                                                               
     participation rate.                                                                                                        
10:24:09 AM                                                                                                                   
Senator Huggins asked Mr. Thoma's affiliation with ATIA or other                                                                
involved parties.                                                                                                               
Mr.  Thoma   declared  that  he  represented   only  himself.  He                                                               
explained that  his interest in  this issue  was due to  the fact                                                               
that  ATIA received  State funding  to  advertise tourism,  while                                                               
other industries  did not enjoy  similar support. He  opined that                                                               
the healthy tourism industry did not require State support.                                                                     
Senator Huggins repeated his query  as to Mr. Thoma's involvement                                                               
in this issue.                                                                                                                  
10:25:34 AM                                                                                                                   
Mr.  Thoma   replied  that  he   was  Juneau  resident   and  was                                                               
"inundated"  with   ATIA  advertisements  on   television.  These                                                               
advertisements urged viewers  in Alaska to "go out  and enjoy the                                                               
outdoors," and he  considered them an inappropriate  use of State                                                               
10:25:58 AM                                                                                                                   
Senator Olson  informed that  ATIA and  the tourism  industry had                                                               
positive  effects  in  his  community, and  asked  if  Mr.  Thoma                                                               
supported  the establishment  of a  task force  to determine  the                                                               
proper use of tourism funding.                                                                                                  
10:26:53 AM                                                                                                                   
Mr. Thoma had no comment or  opposition to the creation of a task                                                               
force,  but  reiterated  his opposition  to  the  proposed  70/30                                                               
funding ratio.                                                                                                                  
10:27:07 AM                                                                                                                   
Senator Olson  asked how long  Ms. Mackey had been  involved with                                                               
the  tourism  industry,  and  if  she  recalled  any  information                                                               
regarding a tourism task force created 10 to 15 years prior.                                                                    
10:28:05 AM                                                                                                                   
Ms.  Mackey replied  that she  had been  employed in  the tourism                                                               
industry  for  approximately  12  years,  and  had  an  extensive                                                               
marketing  background. She  shared that  the previous  task force                                                               
presented  the  "millennium plan"  to  the  legislature seven  to                                                               
eight years ago. That plan recommended  a change in the trends in                                                               
the  industry to  consolidate all  entities  involved in  tourism                                                               
marketing. The  State had been  operating under that  model since                                                               
it was proposed by the task force.                                                                                              
10:29:13 AM                                                                                                                   
Co-Chair Stedman asked for a  brief synopsis of Ms. Mackey's work                                                               
Ms.  Mackey   shared  that  her  background   was  in  marketing,                                                               
specifically  communications,  which  included  broadcasting  and                                                               
journalism.  She  was also  the  former  chair of  the  marketing                                                               
committee utilized by ATIA to create its statewide budget.                                                                      
Co-Chair Stedman  asked if any  recent studies were  available to                                                               
demonstrate  the  fiscal return  for  the  State's investment  in                                                               
tourism advertising.                                                                                                            
Ms.  Mackey  responded  that  studies  were  conducted  with  the                                                               
cooperation  of   the  Department  of  Commerce,   Community  and                                                               
Economic Development,  and return  on investment  information had                                                               
been provided.                                                                                                                  
10:30:58 AM                                                                                                                   
Co-Chair   Stedman  requested   the  aforementioned   "return  on                                                               
investment" information.                                                                                                        
10:31:03 AM                                                                                                                   
Senator Thomas asked the composition of the ATIA board.                                                                         
10:31:22 AM                                                                                                                   
Ms. Mackey answered  that board members were elected  by the ATIA                                                               
membership,   and  those   positions  were   based  on   regional                                                               
representation.  Seats  on the  board  were  also designated  for                                                               
members  of the  cruise  industry to  ensure  its inclusion.  The                                                               
board   was  currently   comprised   of  23   members,  and   was                                                               
representative of many facets of the tourism industry in Alaska.                                                                
10:32:13 AM                                                                                                                   
Senator Thomas  asked if seats  on the board were  designated for                                                               
each region of the state.                                                                                                       
Ms.  Mackey  affirmed.  Seats  were   designated  by  region,  in                                                               
addition to some "at large" seats.                                                                                              
10:32:53 AM                                                                                                                   
Ms.  Carlson-Von Dort  informed of  a table  distributed to  each                                                               
member  titled "The  Net  Return  to the  State  of Alaska  from:                                                               
Timber, Tourism,  Minerals, Commercial Fisheries" [copy  on file]                                                               
dated March 21, 2006.                                                                                                           
10:33:33 AM                                                                                                                   
Co-Chair Stedman ordered the bill HELD in Committee.                                                                            
10:33:38 AM                                                                                                                   
     CS FOR HOUSE BILL NO. 238(FIN)                                                                                             
     "An Act relating to the response account of the oil and                                                                    
     hazardous substance release prevention and response fund;                                                                  
     and providing for an effective date."                                                                                      
This was  the first hearing for  this bill in the  Senate Finance                                                               
10:33:53 AM                                                                                                                   
MICHAEL   PAWLOWSKI,  Staff   to   Representative  Kevin   Meyer,                                                               
testified that  Section 3 of  the bill would create  a subaccount                                                               
within   the  State's   oil  and   hazardous  substance   release                                                               
prevention and  response account. The response  account contained                                                               
$50 million and  was established in reaction to  the Exxon Valdez                                                               
oil spill  to provide for emergency  clean-up in the event  of an                                                               
oil or  other hazardous  substance spill. Section  3 of  the bill                                                               
would add  language similar to  that used for  the Constitutional                                                               
Budget   Reserve  subaccount   to  create   a  response   account                                                               
subaccount  by  transferring  $40 million  into  the  subaccount.                                                               
Section  2 of  the bill  would allow  realized earnings  from the                                                               
subaccount  to  be deposited  into  the  prevention account.  The                                                               
subaccount   would  be   managed  more   aggressively  than   the                                                               
prevention  account,  and  earnings  from  the  subaccount  would                                                               
provide operating funds to the Department.                                                                                      
Mr.  Pawlowski continued  that Section  1  addressed concerns  of                                                               
market  fluctuations,  providing  for   a  one  cent  per  barrel                                                               
surcharge on  oil in the  event that the  balance of the  oil and                                                               
hazardous  substance release  prevention  and  response fund  was                                                               
calculated to  be less than  $50 million. The surcharge  would be                                                               
triggered  by  expenditures  from  the  account  in  relation  to                                                               
prevention or response  activities, but would not  be employed to                                                               
compensate for losses from the subaccount.                                                                                      
Mr.  Pawlowski  identified  a  decline  in  the  balance  of  the                                                               
prevention  and  response  account  due   to  a  decline  in  oil                                                               
production. This bill was an  attempt to provide "extra operating                                                               
income"  to  the fund  in  the  future  by investing  the  fund's                                                               
"underutilized resource".                                                                                                       
10:37:02 AM                                                                                                                   
Co-Chair Hoffman informed that he  served in the legislature when                                                               
the  prevention and  response account  was initially  created. He                                                               
asked the  amount of  funds expended from  the account  since its                                                               
inception, and how  that figure would compare  to the anticipated                                                               
revenue generated from the subaccount.                                                                                          
10:37:57 AM                                                                                                                   
Mr.  Pawlowski   referred  to  a  table   titled  "Department  of                                                               
Environmental  Conservation,  Division  of Spill  Prevention  and                                                               
Response,  Response Account  Expenditure History  Since Inception                                                               
(10/2/1994 to Present)"  [copy on file]. He pointed  out that the                                                               
largest  disbursement of  funds was  $2.1 million,  and concluded                                                               
that "not that much has been spent."                                                                                            
Co-Chair Hoffman  asked if the legislation  contained a mechanism                                                               
to enable the  State to access the $40 million  in the investment                                                               
account in the event of a major spill incident.                                                                                 
Mr. Pawlowski  deferred to the  Department of Revenue  to respond                                                               
to questions regarding access to the funds in the subaccount.                                                                   
10:39:21 AM                                                                                                                   
BRIAN  ANDREWS,  Deputy   Commissioner,  Department  of  Revenue,                                                               
responded that the  $40 million would be invested  in a portfolio                                                               
of stocks and  bonds, and would be fully  accessible within three                                                               
10:39:55 AM                                                                                                                   
Senator Thomas asked if the  bill contained a provision to ensure                                                               
that the $50 million balance  of the account would be maintained,                                                               
regardless of  whether the money was  in the regular fund  or the                                                               
10:40:38 AM                                                                                                                   
Mr. Pawlowski  replied that  the bill would  not provide  for the                                                               
reinstatement of  a surcharge  in the  event of  investment loss.                                                               
The surcharge  would be triggered  only by expenditures  from the                                                               
account. The  management of  realized earnings  in excess  of the                                                               
$50  million  balance  of  the  account  would  be  "left  up  to                                                               
regulation and discussion."                                                                                                     
10:41:18 AM                                                                                                                   
Senator Thomas asked  if the earnings of the  subaccount would be                                                               
used to replenish the original response and prevention account.                                                                 
Mr.  Pawlowski  explained that  the  earnings  of the  investment                                                               
account  in excess  of $50  million would  be deposited  into the                                                               
prevention  account and  utilized  to respond  to  oil spills  or                                                               
other emergency scenarios.                                                                                                      
10:41:45 AM                                                                                                                   
Senator Thomas  clarified that his  question related  to earnings                                                               
above the original fund balance of $50 million.                                                                                 
Mr.  Pawlowski  was  unsure.  He   estimated  that  the  realized                                                               
earnings  would  "probably  be   deposited  into  the  prevention                                                               
account."  The  prevention  account   would  not  lapse  and  the                                                               
earnings  would  create  a positive  balance  in  the  prevention                                                               
account. He directed  the Committee's attention to  four pages of                                                               
graphs relating to  the response fund [copy on  file] prepared by                                                               
Representative Meyer's office.                                                                                                  
10:43:11 AM                                                                                                                   
Senator  Huggins asked  the activities  the  response funds  were                                                               
allocated to, and  how the State "recouped" those  costs from the                                                               
parties responsible for the spill.                                                                                              
Mr. Pawlowski informed that existing  statutes were "very clear",                                                               
and  provided that  all expenditures  from  the response  account                                                               
were "cost  recoverable". The State  would pursue  repayment from                                                               
the responsible party for the full amount of the response costs.                                                                
10:43:58 AM                                                                                                                   
LARRY  DIETRICK,  Director,  Division  of  Spill  Prevention  and                                                               
Response,  Department  of  Environmental  Conservation,  informed                                                               
that the  full amount of  expenditures related to  spill response                                                               
would be  recovered by  the State. He  exampled a  spill incident                                                               
involving the  M/V Selendang Ayu,  and shared that the  State was                                                               
currently in  settlement discussions  to recover the  funds spent                                                               
in response to the accident  involving that vessel. Approximately                                                               
80 percent  of expenses  associated with  that response  had been                                                               
recovered thus far.                                                                                                             
10:44:50 AM                                                                                                                   
Senator  Huggins  deduced  that   expended  funds  would  not  be                                                               
available for investment,  and asked if there was  a provision to                                                               
compensate  the State  for  lost  investment opportunities  while                                                               
awaiting settlement.                                                                                                            
10:45:21 AM                                                                                                                   
Mr.  Pawlowski  answered  that the  sponsor  had  considered  the                                                               
issue, but  decided not to  pursue lost "opportunity  costs". The                                                               
statutory  fines,   penalties,  and  damage  costs   were  deemed                                                               
"sufficient" by the sponsor.                                                                                                    
10:46:01 AM                                                                                                                   
Co-Chair  Hoffman  asked  if  the industry  would  be  liable  to                                                               
replenish the response  fund if poor investment returns  led to a                                                               
balance lower  than the  required $50  million. He  reminded that                                                               
the industry  would benefit from  good investment returns  by not                                                               
paying the  surcharge, and  asked if it  would contribute  to the                                                               
fund during times of poor returns.                                                                                              
Mr. Pawlowski responded in the  negative. He pointed out that the                                                               
industry currently  was not required  to compensate the  State in                                                               
times of extra earnings.                                                                                                        
10:47:06 AM                                                                                                                   
Co-Chair Hoffman remarked  that the State was assuming  a risk by                                                               
passing  this legislation.  If  the  investment account  suffered                                                               
losses, the State  would be liable for the decrease,  and the oil                                                               
companies  would  not  be  charged.  If  however  the  investment                                                               
account had realized earnings, the  industry would benefit as the                                                               
surcharge would not  be triggered by the balance  of the account.                                                               
He opined  that realized earnings from  the investment subaccount                                                               
should be deposited into the general fund.                                                                                      
10:47:59 AM                                                                                                                   
Co-Chair  Stedman  asked Mr.  Pawlowski  to  speak to  the  "risk                                                               
Mr. Pawlowski agreed  that the State would  assume financial risk                                                               
in the  establishment of an  investment subaccount. If  the State                                                               
was required to  access funds in the investment  account during a                                                               
time  of poor  market conditions,  the State  could be  forced to                                                               
"buy in at a loss". As  currently in statute and specified in the                                                               
proposed  legislation,  the  only recoverable  dollars  would  be                                                               
actual expenditures.  The current  spill prevention  and response                                                               
account  assumed very  little  risk, but  had  earned only  $1.25                                                               
million the previous year.                                                                                                      
10:49:02 AM                                                                                                                   
Co-Chair  Hoffman  articulated   that  the  original  legislation                                                               
provided  a mechanism  that  would require  the  oil industry  to                                                               
replenish the  account as funds were  expended through prevention                                                               
and  response activities.  Under  the  proposed legislation,  the                                                               
State would assume the responsibility  to maintain the balance of                                                               
the fund.  If the investments  did not return profits,  the State                                                               
would be  liable for the  full fund balance  without contribution                                                               
from  the   industry.  If  the  investments   proved  successful,                                                               
industry would  not be required  to contribute in  that situation                                                               
either, thus relieving it of  participation in the funding of the                                                               
spill   prevention  and   response   account.  Co-Chair   Hoffman                                                               
concluded that if  the legislature sought to ensure  that the $50                                                               
million balance  was always available  to abate spills,  it would                                                               
not pass this bill.                                                                                                             
Mr. Pawlowski granted that Co-Chair  Hoffman's logic was correct.                                                               
He  characterized  the  issue  as   a  "policy  call",  balancing                                                               
potential  earnings with  potential losses.  He pointed  out that                                                               
the  funding for  the Division  had been  consistently declining,                                                               
and this  bill would provide  a mechanism for  continued funding.                                                               
He  elaborated  that industry  would  be  financially liable  for                                                               
clean-up if  a spill  occurred via direct  cost recovery  and the                                                               
imposition of the surcharge.                                                                                                    
10:51:02 AM                                                                                                                   
Co-Chair Stedman asked the Department  of Revenue to speak to the                                                               
fiscal note.                                                                                                                    
Co-Chair  Hoffman  asked  Mr.  Dietrick   if  the  Department  of                                                               
Environmental Conservation supported the legislation.                                                                           
Mr. Dietrick deferred to the Department of Revenue.                                                                             
10:51:32 AM                                                                                                                   
Mr. Andrews informed  that the entire $50 million  balance of the                                                               
account was  currently invested  in a  "short term  money market"                                                               
portfolio,  and   would  be  reinvested  into   a  moderate  risk                                                               
portfolio comprised of  stocks and bonds. The  costs reflected on                                                               
the  fiscal note  would be  investment management,  custodial and                                                               
accounting  expenses. The  costs associated  with the  investment                                                               
account  would represent  approximately  10 basis  points of  the                                                               
entire investment, which he considered reasonable.                                                                              
10:52:46 AM                                                                                                                   
Senator  Elton asked  why the  bill would  invest a  "hard dollar                                                               
amount".  He  exampled the  Permanent  Fund,  which was  invested                                                               
based on  percentages. He asked  if the "hard dollar  amount" was                                                               
problematic for the Department of Revenue.                                                                                      
Mr. Pawlowski replied that the  investment figure was selected as                                                               
a "beginning  point". The figure  was "relatively  arbitrary" and                                                               
was  selected  to allow  the  Division  of Spill  and  Prevention                                                               
Response to continue to function  as distinct investment policies                                                               
were established.                                                                                                               
10:53:51 AM                                                                                                                   
Senator Elton asked  if funds would be moved  from the investment                                                               
account when the balance exceeded $40 million.                                                                                  
Mr. Andrews  responded that the  existing account had  never been                                                               
drawn   below  $40   million,   therefore   the  Department   was                                                               
"comfortable" with that figure as  the initial investment amount.                                                               
He  explained  that  realized  earnings   which  would  fund  the                                                               
operating  expenses  of  the   Division  were  generated  through                                                               
transactions.    The    unrealized    earnings    were    "market                                                               
appreciation", which  could vary  year to  year depending  of the                                                               
condition of the market.                                                                                                        
10:55:03 AM                                                                                                                   
Senator Elton  suggested that  an investment  account based  on a                                                               
percentage of the total balance  of the spill response fund would                                                               
simplify  the calculation  and  include  consideration of  market                                                               
Mr.  Pawlowski  responded  that  a  "percentage  approach"  would                                                               
require  the Department  to engage  in continuous  accounting and                                                               
monitoring activities,  and would  be unduly burdensome.  The $40                                                               
million figure was a "transitional  investment", and would not be                                                               
the required balance of the subaccount.                                                                                         
10:56:08 AM                                                                                                                   
Senator  Thomas   agreed  with   the  underlying   philosophy  of                                                               
increasing  the  return  on the  spill  response  and  prevention                                                               
account,  but  recommended that  the  oil  industry maintain  its                                                               
responsibility to contribute to the fund through the surcharge.                                                                 
10:57:22 AM                                                                                                                   
Co-Chair Stedman ordered the bill HELD in Committee.                                                                            
AT EASE 10:57:42 AM/11:06:03 AM                                                                                             
Co-Chair Bert Stedman adjourned the meeting at 11:06:16 AM                                                                    

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