Legislature(2005 - 2006)BUTROVICH 205
04/11/2006 03:30 PM Senate STATE AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| Confirmation Hearing: Alaska Human Rights Commission - Randy Eledge | |
| SB234 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 234 | TELECONFERENCED | |
SB 234-COMMUNITY DIVIDEND PROGRAM
CHAIR GENE THERRIAULT announced SB 234 to be up for
consideration.
3:41:47 PM
MIKE BLACK, Director of the Division of Community Advocacy in
the Department of Commerce, Community & Economic Development,
introduced SB 234 on behalf of the administration. He explained
that the Community Dividend Program would provide a sustainable
community dividend using the estimated $27.6 million in annual
earnings of the Alaska Capital Income Fund {"Amerada Hess"
account} as the funding source. The bill proposes to establish
an annual $10 million base grant for distribution to all cities
and boroughs as follows:
· Cities with less than 100 residents receive $25,000
· Cities with 100 to 249 residents receive $30,000
· Cities with 250 to 500 residents receive $35,000
· Cities with more than 500 residents receive $40,000
· Boroughs receive $50,000
· Balance of funds distributed on a per capita basis
The bill also provides financial incentives for areas to
organize into boroughs. Incorporation grants would be provided
as follows: 1) a $1 million grant in year one; 2) a $1 million
grant in year two; 3) a $500,000 grant in year three.
SB 234 also provides supplemental grants to organized boroughs
such that approximately $16.6 million would be distributed to
each organized borough on a per capita basis.
The bill describes the essential public services for which the
money could be used including: public safety, infrastructure
maintenance, education, and fuel.
3:44:40 PM
SENATOR WAGONER questioned what interest rate the Alaska Capital
Income Fund is earning.
MR. BLACK said he'd get the information.
SENATOR WAGONER mused the earnings would be about the same as
the Permanent Fund.
CHAIR THERRIAULT added that fund has averaged a bit better than
10 percent.
SENATOR WAGONER said he was thinking that 6.5 percent would keep
up with inflation over time so as the dollar devaluates needed
increases could come from the interest income.
MR. BLACK said the fiscal note indicates that the annual
interest earnings on $424 million have been about 6.5 percent so
that's where the $27.6 million came from.
SENATOR WAGONER countered he thought the money was invested
along with the Permanent Fund and earned more than that.
CHAIR THERRIAULT remarked the way the particular instruments are
invested could be a factor.
SENATOR WAGONER mentioned the Amerada Hess court case and
counseled using caution to avoid past pitfalls.
JOHN BOUCHER, Senior Economist with the Office of Management &
Budget, explained that the $27.6 projection is based on the mid
case scenario earnings projections for the Permanent Fund. The
actual return could vary up or down.
SENATOR ELTON questioned why the administration decided to
identify Amerada Hess as the funding source.
MR. BLACK responded he couldn't explain the thought process but
he did know that the administration wanted a funding source that
was sufficient.. Furthermore, Amerada Hess is identifiable and
has no direct connection to the Permanent Fund.
SENATOR ELTON said he would prefer to appropriate general funds
on an annual basis. The problem with using a Permanent Fund sub-
account is that the amount that can be spun off each year may
prove to be constraining.
MR. BLACK argued that using the earnings from the Alaska Capital
Income Fund is more predictable than general fund
appropriations.
SENATOR ELTON responded this creates problems. For the first
time a Permanent Fund sub-account would be used for annual
expenditures and this may constrain future Legislatures if the
earnings aren't sufficient to fund the program.
CHAIR THERRIAULT advised that the proceeds from Amerada Hess are
general fund.
SENATOR ELTON said he didn't disagree, but this establishes it
as a funding source. You could say the same thing about the
earnings and everyone knows about the political risk associated
with spending Permanent Fund earnings.
CHAIR THERRIAULT said the difference is that the money that
spins off from the retained earnings increases the annual
dividend while the money that spins off from Amerada Hess
doesn't increase the annual dividend.
SENATOR ELTON pointed out two anomalies: First, unincorporated
boroughs are left out of the program and second a system of
inequity is created for unincorporated communities and cities
that haven't consolidated with borough governments. He asked for
an explanation.
MR. BLACK replied the department believes that boroughs and
cities are the proper recipient for revenue sharing. They have
specific requirements under state law to provide services and to
meet operation requirements. Unincorporated communities don't
have the same requirements and that's the reason for excluding
them from this formula.
SENATOR ELTON questioned whether there couldn't be a formula to
qualify unincorporated communities that provided certain public
services.
MR. BLACK replied if that approach is taken the department would
recommend that the money flow through the borough so that the
decisions are made at that level.
SENATOR ELTON offered a comparison. Ketchikan has a city and a
borough government and Juneau has a consolidated government. As
currently written, Ketchikan would receive $90,000 and Juneau
would receive $50,000. He asked if there had been discussion of
that anomaly.
MR. BLACK said he was unaware of any direct discussions related
to unified boroughs, but it could be argued that the base
overhead is higher when separate city and borough governments
serve the same area. Except for the $10 million base amount, the
money would be distributed based on population.
SENATOR ELTON responded some governments have unified to keep
from spending public dollars on excess overhead.
CHAIR THERRIAULT noted that the $2.5 million provides incentive
for unorganized areas to become organized, but there is no
allowance for funds to flow to an unorganized municipality.
MR. BLACK responded the per capita amount would be provided to
boroughs and unincorporated areas would be included in the per
capita count. Then the boroughs could distribute money based on
services that are provided.
CHAIR THERRIAULT asked him to address municipalities that are
organized under federal law.
MR. BLACK replied that provision addresses the Metlakatla Indian
Reservation.
4:02:28 PM
RON LONG, Kenai, stated that he was representing himself. He
asked the committee to consider a sustainable funding mechanism
for communities and suggested that SB 234 is a good start.
He described the Kenai Peninsula Borough. As a Second Class
Borough, it provides basic mandated services with additional
levels of service being available within the various cities. He
opined that the bill would offset some of the taxes that are
imposed on citizens to carry out the state mandates. It also
provides meaningful tax relief for residential property owners
and businesses. He expressed the hope that the Legislature and
the administration identify a funding source that is sustainable
and transparent so that it's possible to build a better budget
for citizens.
He asked members to keep in mind that the unincorporated areas
have no unfunded mandates. That is an important distinction and
it's another reason that SB 234 makes sense, he concluded.
CHAIR THERRIAULT asked for his perspective on which unfunded
mandates might not be provided if there were no mandates.
MR. LONG responded the $150,000 senior property tax exemption is
the first that comes to mind and another is the reduction of
school debt reimbursement from 90 percent to 60 percent.
4:06:14 PM
PAUL FUHS, Lobbyist for the Kuskoquim Corporation, described the
corporation, which includes 10 villages on the Kuskoquim that
value self-determination. He informed members that the people in
the area have formed an exploratory committee for the purpose of
petitioning to become a borough. Although the area is poor, it
has promise because of the Donlin Creek Mine. However, the mine
has said it won't go forward until some kind of government is
formed so that a tax rate can be negotiated. That situation is a
catch-22, but SB 234 helps provide a solution. He encouraged the
committee to pass the bill on to the Finance Committee.
Speaking for himself and as a former mayor he said that Title 29
is one of the strongest elements of democracy in the state and
it's sad that some local governments are going by the wayside
because they can't afford basic administration.
4:09:26 PM
JOHN HOZEY, Valdez City Manager, spoke in support of revenue
sharing in general. Observing that times are tough for local
municipalities, he informed members that communities need help
at a level that will make a difference. SB 234 is a good start,
but you need to find a larger funding source than Amerada Hess
can provide, he said.
Responding to earlier comments, he urged caution in penalizing
communities like Valdez for not forming a borough if there isn't
any discussion about making Title 29 changes to make forming a
borough more user friendly.
SENATOR HUGGINS asked him to describe three rules that ought to
be changed.
MR. HOZEY replied the Model Borough philosophy is a stranglehold
on forming new boroughs. If a proposed borough doesn't conform
to the model boundaries the proposal won't go forward. He
mentioned the task force that worked through the Alaska
Municipal League to recommend changes to Title 29 to give the
Local Boundary Commission increased authority to amend
petitions. The main difficulty is that there is no flexibility
for putting petitions together that make sense from a municipal
point of view.
4:15:12 PM
KEVIN RITCHIE, Executive Director for the Alaska Municipal
League (AML), introduced himself and explained that the 75/75
button his lapel describes a method for crafting a revenue
sharing program. $75,000 is the minimum amount necessary to run
a local government regardless of size. The second number
represents $75 million, which is the recommended overall funding
level for the program.
MR. RITCHIE noted that when Governor Murkowski spoke to AML he
discussed putting more money into a revenue sharing program than
is provided under SB 234. Using the earnings from Amerada Hess
would provide enough to save small communities, but it isn't
enough to provide substantial tax relief and assistance to
larger communities. He further noted that the State Chamber of
Commerce chose revenue sharing and PERS as its top lobbying
priorities because of the strong connection between having a
strong business community and affordable taxes. Taxation in
communities is becoming more of an issue with business and the
public, he said.
Referencing Mr. Long's testimony related to mandates, he
suggested that it's more about partnership and shared
responsibility between the state and its political subdivisions.
Whether citizens are paying state or local taxes, it clear that
it takes a certain amount to maintain an appropriately high
quality of life. Sharing revenue with municipalities to reduce
taxes or to provide better services or to keep small communities
viable is a high constitutional priority of the state, he
asserted.
With regard to Senator Elton's question about the difference
between unified and non-unified boroughs, he opined that the
issue is addressed the best in the bill that came from the local
government commission. Essentially it has three levels of
funding: $75,000 for cities; $150,000 for non-unified boroughs;
and $300,000 for unified boroughs.
4:19:46 PM
SENATOR HUGGINS asked for the total amount under 75/75 as well
as the funding source.
MR. RITCHIE reiterated AML recommends that $75 million is an
appropriate amount for a revenue sharing program and $75,000 is
the minimum to allow a small city to operate. With regard to the
source, AML urges that it be sustainable. Because there is no
dedicated funding source under the constitution, there must be a
political will to fund any program annually. Discussions have
included: Amerada Hess earnings, constitutional budget reserve
(CBR) earnings, and general fund appropriations. He noted that
the latter sustained the program for 30 years. He agreed to
provide the committee with a briefing paper, which would answer
the question more fully.
CHAIR THERRIAULT asked Mr. Ritchie to comment on the issue of
the unincorporated communities.
MR. RITCHIE used the six cities in the Lake and Peninsula
Borough as an example. Under the AML proposal for revenue
sharing each community would receive $75,000. He noted that if
the borough were to receive $75,000 to take care of the other
half of the population it would be inequitable. What makes sense
and what is reflected in SB 247 is to provide a larger amount of
base funding for boroughs than for cities.
Revenue sharing under SB 247 proposes $75,000 for
municipalities, $150,000 for non-consolidated boroughs and
$300,000 for consolidated boroughs. Allowing that the last two
numbers might be low, he said there are two advantages in
providing sufficient base funding for boroughs. First it would
provide incentive for boroughs to form and second it would
address the inequities that have been described.
4:23:49 PM
MARK HICKEY, Lobbyist for the Lake and Peninsula Borough (LPB),
stated support for a meaningful and sustainable revenue sharing
program. Although the borough hasn't endorsed a particular
option, it recognizes that the AML 75/75 program has merit. Of
particular importance is minimum funding for cities.
He referenced his April 11 memo discussing unincorporated
communities within the borough boundaries and said that LPB has
16 communities: 6 cities and 10 unincorporated communities that
are primarily Native villages with populations of 200 or less.
Many of the unincorporated communities have been in existence
for years and provide services such as fire protection,
emergency medical service, search & rescue, and sewer & water.
Typically the services are administered through a village
administrator and a tribal council.
Citing aspects of different bills he cautioned against the
unintended consequence in which it's actually a disincentive in
the future to be a borough. He noted that SB 234 doesn't suffer
that deficiency and that Mr. Ritchie's idea of increasing the
base for boroughs provides a simple approach.
MR. HICKEY cited Senator Elton's suggestion as another solution.
That is to establish a standard such that unincorporated
communities receive money only if they are real and if they
provide certain services. The issue is confusing, but you need
to look at the basic question of what's equitable, he concluded.
4:29:30 PM
LUKE HOPKINS, Fairbanks North Star Borough Assembly Member and
AML Board Member, described the bill as a good starting point.
He expressed the view that the overall funding level ought to be
increased and that the 75/75 proposal would work. He asked the
committee to consider a $75,000 floor.
With regard to the funding source he agreed with others that
Amerada Hess wouldn't provide sufficient funds. He suggested
that those funds could be combined with CBR earnings and/or a
general fund appropriation.
4:32:07 PM
PEGGY COWAN, Superintendent of the Juneau School District,
reminded members that a strong community makes strong schools.
Juneau is fortunate, she said, because the borough traditionally
funds schools to the cap. She encouraged the committee to
support revenue sharing.
CHAIR THERRIAULT proposed holding the bill to give members time
to consider amendments.
SENATOR ELTON responded his understanding is that one committee
would review all the revenue sharing proposals at one time so
he'd prefer to move the bill.
CHAIR THERRIAULT said if members didn't anticipate any
amendments then he would entertain a motion.
SENATOR ELTON motioned to report SB 234 and attached fiscal
note(s) from committee with individual recommendations.
CHAIR THERRIAULT announced that without objection SB 234 would
move to the Finance Committee.
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