Legislature(1999 - 2000)

02/03/2000 08:13 AM House CRA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
        HOUSE COMMUNITY AND REGIONAL AFFAIRS                                                                                    
                 STANDING COMMITTEE                                                                                             
                  February 3, 2000                                                                                              
                     8:13 a.m.                                                                                                  
                                                                                                                                
MEMBERS PRESENT                                                                                                                 
                                                                                                                                
Representative John Harris, Co-Chairman                                                                                         
Representative Andrew Halcro                                                                                                    
Representative Lisa Murkowski                                                                                                   
Representative Fred Dyson                                                                                                       
Representative Reggie Joule                                                                                                     
Representative Albert Kookesh                                                                                                   
                                                                                                                                
MEMBERS ABSENT                                                                                                                  
                                                                                                                                
Representative Carl Morgan, Co-Chairman                                                                                         
                                                                                                                                
COMMITTEE CALENDAR                                                                                                              
                                                                                                                                
HOUSE BILL NO. 137                                                                                                              
"An Act relating to the municipal dividend program; and providing                                                               
for an effective date."                                                                                                         
                                                                                                                                
     - MOVED CSHB 137(CRA) OUT OF COMMITTEE                                                                                     
                                                                                                                                
HOUSE BILL NO. 233                                                                                                              
"An Act granting authority to each municipality to be a debtor                                                                  
under 11 U.S.C. (Federal Bankruptcy Act) and to take any                                                                        
appropriate action authorized by federal law relating to bankruptcy                                                             
of a municipality."                                                                                                             
                                                                                                                                
     - MOVED CSHB 233(CRA) OUT OF COMMITTEE                                                                                     
                                                                                                                                
                                                                                                                                
PREVIOUS ACTION                                                                                                                 
                                                                                                                                
BILL: HB 137                                                                                                                    
SHORT TITLE: MUNICIPAL DIVIDEND PROGRAM                                                                                         
                                                                                                                                
Jrn-Date    Jrn-Page           Action                                                                                           
 3/15/99       454     (H)  READ THE FIRST TIME - REFERRAL(S)                                                                   
 3/15/99       454     (H)  CRA, STA, FIN                                                                                       
 2/03/00               (H)  CRA AT  8:00 AM CAPITOL 124                                                                         
                                                                                                                                
BILL: HB 233                                                                                                                    
SHORT TITLE: MUNICIPAL BANKRUPTCY                                                                                               
                                                                                                                                
Jrn-Date    Jrn-Page           Action                                                                                           
 5/12/99      1340     (H)  READ THE FIRST TIME - REFERRAL(S)                                                                   
 5/12/99      1340     (H)  CRA, JUD                                                                                            
 2/01/00               (H)  CRA AT  8:00 AM CAPITOL 124                                                                         
 2/01/00               (H)  Heard & Held                                                                                        
 2/01/00               (H)  MINUTES(CRA)                                                                                        
 2/03/00               (H)  CRA AT  8:00 AM CAPITOL 124                                                                         
                                                                                                                                
WITNESS REGISTER                                                                                                                
                                                                                                                                
REPRESENTATIVE MOSES                                                                                                            
Alaska State Legislature                                                                                                        
Capitol Building, Room 500                                                                                                      
Juneau, Alaska  99801                                                                                                           
POSITION STATEMENT:  Testified as sponsor of HB 137.                                                                            
                                                                                                                                
TIM BENINTENDI, Staff                                                                                                           
     to Representative Moses                                                                                                    
Alaska State Legislature                                                                                                        
Capitol Building, Room 500                                                                                                      
Juneau, Alaska  99801                                                                                                           
POSITION STATEMENT:  Answered questions.                                                                                        
                                                                                                                                
KEVIN RITCHIE, Executive Director                                                                                               
Alaska Municipal League                                                                                                         
217 Second Street, Suite 220                                                                                                    
Juneau, Alaska 99801                                                                                                            
POSITION STATEMENT:  Supported concept of HB 137.  Supported HB
233.                                                                                                                            
                                                                                                                                
MAYOR FRANK KELTY, Mayor                                                                                                        
City of Unalaska                                                                                                                
P.O. Box 610                                                                                                                    
Unalaska, Alaska 99685                                                                                                          
POSITION STATEMENT:  Supported HB 137.                                                                                          
                                                                                                                                
MARK HENNIGH, City Manager                                                                                                      
King Cove                                                                                                                       
P.O. Box 37                                                                                                                     
King Cove, Alaska 99612                                                                                                         
POSITION STATEMENT:  Encouraged the committee to forward HB 137.                                                                
                                                                                                                                
JIM KELLY, Research & Liaison Officer                                                                                           
Alaska Permanent Fund Corporation                                                                                               
PO Box 25500                                                                                                                    
Juneau, Alaska 99801-5500                                                                                                       
POSITION STATEMENT:  Discussed the fiscal note.                                                                                 
                                                                                                                                
JONATHON LACK, Legislative Assistant                                                                                            
     to Representative Halcro                                                                                                   
Alaska State Legislature                                                                                                        
Capitol Building, Room 418                                                                                                      
Juneau, Alaska  99801                                                                                                           
POSITION STATEMENT:  Presented HB 233 and answered questions.                                                                   
                                                                                                                                
                                                                                                                                
ACTION NARRATIVE                                                                                                                
                                                                                                                                
TAPE 00-6, SIDE A                                                                                                               
Number 0001                                                                                                                     
                                                                                                                                
CO-CHAIRMAN HARRIS called the House Community and Regional Affairs                                                              
Standing Committee meeting to order at 8:13 a.m.  Members present                                                               
at the call to order were Representatives Harris, Halcro, Dyson,                                                                
Joule and Kookesh.  Representative Murkowski arrived as the meeting                                                             
was in progress.  Representative Morgan was not in attendance.                                                                  
                                                                                                                                
HB 137-MUNICIPAL DIVIDEND PROGRAM                                                                                               
                                                                                                                                
CO-CHAIRMAN HARRIS announced that the first order of business                                                                   
before the committee would be HOUSE BILL NO. 137, "An Act relating                                                              
to the municipal dividend program; and providing for an effective                                                               
date."                                                                                                                          
                                                                                                                                
Number 0094                                                                                                                     
                                                                                                                                
REPRESENTATIVE MOSES, Alaska State Legislature, testified as                                                                    
sponsor of HB 137.  He commented that HB 137 should be part of the                                                              
long-range fiscal plan.  In the last decade, the legislature has                                                                
"boxed" itself in by promising to cut the budget and by promising                                                               
no taxes.  This has placed the municipalities in a precarious                                                                   
position, which has resulted in some municipalities raising                                                                     
property taxes and cutting services.  Representative Moses                                                                      
emphasized that there is only so much cutting that can occur and                                                                
then it is passed on to the local government.  Providing the local                                                              
governments with financial help is long overdue.  He acknowledged                                                               
that user fees could be implemented, but he viewed those as no                                                                  
different than taxes.                                                                                                           
                                                                                                                                
REPRESENTATIVE MOSES said that he realized that HB 137 is not                                                                   
perfect and requires some fine-tuning.  He further realized the                                                                 
difficulty in developing an equitable formula to distribute funds                                                               
to the different classes of municipalities.  In the long run,                                                                   
Representative Moses believes that HB 137 would encourage                                                                       
communities to upgrade their municipal status or to incorporate.                                                                
He informed the committee that HB 137 would help alleviate the                                                                  
threat of the Internal Revenue Service (IRS) taxing the fund as                                                                 
there would be a method of using the fund for government.                                                                       
Representative Moses envisioned the formula being based on $500 per                                                             
capita.  Creating a formula on a flat per capita basis would not be                                                             
equitable.                                                                                                                      
                                                                                                                                
Number 0500                                                                                                                     
                                                                                                                                
REPRESENTATIVE MOSES noted that the way HB 137 is written could be                                                              
interpreted to mean that all of the surplus funds would have to go                                                              
to the Municipal Dividend Program.  When this bill was introduced                                                               
three years ago, the anticipated surplus earnings was much smaller.                                                             
Therefore, the intent is not for all the surplus funds to go into                                                               
this method of distribution.  He reiterated that an approximately                                                               
$500 per capita, depending upon the service the local government                                                                
provides, would be a good benchmark.  Representative Moses felt                                                                 
that revenue sharing should be doubled or tripled and return some                                                               
of the services now provided by the state to the local governments.                                                             
Alaska, unlike any other state, provides many services that are                                                                 
normally provided by counties or local governments in other states.                                                             
He expressed the need for the state to turn road maintenance to the                                                             
local governments.  However, he re-emphasized that the local                                                                    
government must be given funds to operate, which is a method of                                                                 
cutting the budget.  Therefore, the local government can decide if                                                              
and what it wants to cut.  Representative Moses informed the                                                                    
committee that he knew of an area in the state where the state                                                                  
still maintains the driveways.  Although that started in order to                                                               
get the milk to market, it continues today.                                                                                     
                                                                                                                                
REPRESENTATIVE HALCRO asked if Representative Moses envisioned the                                                              
services being transferred from the state to the local governments,                                                             
after the program is established.                                                                                               
                                                                                                                                
REPRESENTATIVE MOSES commented that he was not in the position to                                                               
say whether the state should transfer the court system to the local                                                             
government, but he was sure that the state should get out of                                                                    
maintaining roads.  He also envisioned passing on a higher                                                                      
percentage of education [funding] to the local governments, which                                                               
could eliminate many frills that the local government would put                                                                 
into the state budget.   Again, he emphasized that if cuts are                                                                  
desired at the local level those cuts could be made.                                                                            
                                                                                                                                
Number 0895                                                                                                                     
                                                                                                                                
CO-CHAIRMAN HARRIS inquired as to the effect this program would                                                                 
have on the dividend program.                                                                                                   
                                                                                                                                
REPRESENTATIVE MOSES answered that undoubtedly, implementation of                                                               
this program would slow an increase in the [permanent fund]                                                                     
dividend.  He commented that the dividend should probably be                                                                    
capped.  In further response to Co-Chairman Harris, Representative                                                              
Moses hoped that slowing the increase in the dividend would not be                                                              
an obstacle to HB 137.  He posed a situation in which the dividend                                                              
increased to $10,000, which he believed would result in an influx                                                               
of people and the population would not care whether it worked or                                                                
not.  All that would be a retardant to the economy of the state.                                                                
Representative Moses emphasized the need to have nonresident                                                                    
workers pay for their share of the service.  He said that these                                                                 
nonresident workers  come to the state make money, but do not spend                                                             
any while in the state.  Furthermore, he estimated that there are                                                               
probably tens of thousands of people in the state, who are here to                                                              
make a nest egg and then leave the state.  These people are not                                                                 
true residents.  No other state in the nation is faced with such a                                                              
situation.                                                                                                                      
                                                                                                                                
CO-CHAIRMAN HARRIS understood that the dividend is to be based on                                                               
population figures.  He noted that many complain that during the                                                                
census, the smaller villages do not get counted accurately.  How                                                                
would one ensure that those areas receive their fair share [of the                                                              
Municipal Dividend Program]?                                                                                                    
                                                                                                                                
REPRESENTATIVE MOSES responded that there is no easy answer, but                                                                
some formula has to be used in order to have such a program.                                                                    
                                                                                                                                
Number 1157                                                                                                                     
                                                                                                                                
REPRESENTATIVE KOOKESH commented that HB 137 is something that                                                                  
should be kept around for discussion.  With regard to the                                                                       
possibility that this program would be inequitable based on                                                                     
population, Representative Kookesh did not believe that to be the                                                               
case.  He informed the committee that he is from a small community                                                              
of 800 people and if that municipality received even $50 per                                                                    
capita, that would be more money than it presently has coming in.                                                               
This would be a good use of the permanent fund's earnings reserve,                                                              
even if based on population.  Representative Kookesh mentioned that                                                             
this plan probably had its genesis as far back as former Governor                                                               
Hickel.  Perhaps, this plan does come with a price tag and a                                                                    
transfer of some of the state's responsibilities to those                                                                       
communities.                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOULE asked if any thought had been given with                                                                   
regards to a top end amount.  Have any numbers been run?                                                                        
                                                                                                                                
REPRESENTATIVE MOSES said that he had not run any numbers.                                                                      
Although it will be difficult to develop an equitable formula, he                                                               
could envision a minimum for small villages.  In order to be fair                                                               
and equitable, one must consider economies of scale and the size of                                                             
the community.  Representative Moses announced that he would like                                                               
to see HB 137 passed on to House Finance.                                                                                       
                                                                                                                                
REPRESENTATIVE HALCRO agreed with Representative Kookesh that some                                                              
communities are under great pressure due to the 10 mill cap, which                                                              
will devastate some communities.  He then turned to the September                                                               
vote.  He attributed a high percentage of the "No" vote to be                                                                   
because people did not want to feed this mythical bloated state                                                                 
government.  If the Municipal Dividend Program is created, people                                                               
feel they have more control.  He agreed with Representative Moses                                                               
that this program may be the only way to achieve public support for                                                             
using of the earnings.  Therefore, he hoped that HB 137 does not                                                                
die in the next committee of referral.                                                                                          
                                                                                                                                
Number 1529                                                                                                                     
                                                                                                                                
REPRESENTATIVE DYSON moved that the committee adopt CSHB 137,                                                                   
Version LS0591\D, Cook, 1/25/00.  There being no objection, it was                                                              
so ordered.                                                                                                                     
                                                                                                                                
REPRESENTATIVE DYSON noted that the only difference seems to be the                                                             
statute referenced on page 2, line 7 and the year of the effective                                                              
date.  He understood that HB 137 merely sets up the fund and is                                                                 
subject to the appropriations made by the legislature.  He inquired                                                             
as to which department calculates the dividend.  To which                                                                       
department does AS 29.66.670 refer?                                                                                             
                                                                                                                                
TIM BENINTENDI, Staff to Representative Moses, Alaska State                                                                     
Legislature, answered that the Department of Community and Economic                                                             
Development would manage the program.                                                                                           
                                                                                                                                
REPRESENTATIVE MURKOWSKI asked if Representative Moses had reviewed                                                             
Representative Davis' legislation, which she recalled set up the                                                                
Community Dividend Endowment.  Representative Davis came before the                                                             
committee last year with his bill that seemed to be similar to this                                                             
legislation.  She asked Representative Moses if he was familiar                                                                 
with Representative Davis' legislation and if so, how do the two                                                                
compare?                                                                                                                        
                                                                                                                                
REPRESENTATIVE MOSES replied that he was not familiar with                                                                      
Representative Davis' bill.                                                                                                     
                                                                                                                                
MR. BENINTENDI stated that Representative Davis' legislation does                                                               
set up an endowment, but he did not recall the specifics.                                                                       
                                                                                                                                
Number 1759                                                                                                                     
                                                                                                                                
KEVIN RITCHIE, Executive Director, Alaska Municipal League (AML),                                                               
turned to Representative Davis' legislation.  He recalled that                                                                  
Representative Davis' legislation set up an endowment of $750                                                                   
million and 2 percent of the earnings of the permanent fund.  That                                                              
endowment would be distributed to municipalities on a per capita                                                                
basis.                                                                                                                          
                                                                                                                                
MR. RITCHIE then addressed HB 137.  He pointed out that the                                                                     
constitution calls for maximum local government.  Since 1986 the                                                                
primary source of state funding for local government municipal                                                                  
revenue sharing programs has been cut from approximately $140                                                                   
million to a little over $31 million last year.  That is a cut of                                                               
77 percent.  Mr. Ritchie said that all of Representative Moses'                                                                 
comments regarding the communication and negotiation with regard to                                                             
how services are delivered to the public are valid.  Municipalities                                                             
can do more and the constitution says that they should do more.  He                                                             
believes the municipalities are ready to do more.  The question, in                                                             
the urban areas, is what should the tax be.  In areas with little                                                               
or no tax base, how will such an area perform services?                                                                         
                                                                                                                                
MR. RITCHIE informed the committee that last month the Conference                                                               
of Mayors performed a survey regarding the impacts [resulting from                                                              
the cuts to municipal revenue sharing].  The survey found that                                                                  
50-75 percent of the municipal officials surveyed felt that the                                                                 
level of service from police, Emergency Medical Services (EMS),                                                                 
fire protection and roads were now inadequate.  In discussions with                                                             
the state EMS, they reported that about 17 EMS departments are not                                                              
functional due to lack of training and equipment.  Without the                                                                  
training and support, it is difficult to keep volunteers prepared                                                               
to provide service.  He pointed out that most of these declines                                                                 
occurred in the last five years, with many occurring last year.                                                                 
From the survey, it was discovered that some municipalities that                                                                
once had full-time police service now do not.  Some communities                                                                 
with Village Public Safety Officers (VPSOs) had to lay them off.                                                                
Therefore, people have an increased chance of dying because of the                                                              
lack of fire and EMS protection.  He did not believe that had been                                                              
the intention with cutting the state's budget.                                                                                  
                                                                                                                                
Number 1983                                                                                                                     
                                                                                                                                
MR. RITCHIE informed the committee that AML performed a survey of                                                               
the states that are similar to Alaska in terms of large areas with                                                              
small populations.  Those states were Montana, Wyoming, North                                                                   
Dakota and South Dakota.  In those states, the state acts as the                                                                
county for many services such as public assistance.  However,                                                                   
Alaska differed with these states in the provision of county                                                                    
sheriffs and jails.  Mr. Ritchie informed the committee that AML's                                                              
policy statement says that Representative Moses' and Representative                                                             
Davis' proposals are valid, especially when developing a long range                                                             
financial plan.  He further informed the committee that AML and the                                                             
Alaska Conference of Mayors passed a resolution, in November,                                                                   
strongly wanting to work with the state.  In conclusion, Mr.                                                                    
Ritchie said that AML does support the concept of HB 137 as one of                                                              
the tools which should be presented to the public as a possibility                                                              
for continuing services.                                                                                                        
                                                                                                                                
Number 2121                                                                                                                     
                                                                                                                                
REPRESENTATIVE HALCRO emphasized that he wholly supported and                                                                   
endorsed Representative Moses' efforts.  He then turned to the                                                                  
January 31, 2000, letter from AML which included the following                                                                  
sentence:  "We believe that rising property taxes due to state cuts                                                             
have strengthened support for the proposed property tax cap                                                                     
initiative."  Representative Halcro expressed frustration that two                                                              
years ago in Anchorage, the voters overwhelmingly voted to amend                                                                
the city's charter to require a super majority for any new taxes.                                                               
Before that in 1993, a sales tax on the ballot was defeated by 70                                                               
percent to 30 percent.  Anchorage residents have expressed an                                                                   
overwhelming distaste for taxes.                                                                                                
                                                                                                                                
REPRESENTATIVE HALCRO turned to the 10 mill tax cap initiative,                                                                 
which would devastate the community.  Anchorage alone would                                                                     
experience a loss of $80 million.  Representative Halcro emphasized                                                             
that people do not want to pay, they do not want to pay for local                                                               
services or state services.  Therefore, how can the state continue                                                              
to provide a level of commitment to local communities when the                                                                  
local community does not want to provide services.  He specified                                                                
that his comments refer to his community.  Representative Halcro                                                                
said, "If my neighbors don't want to pay for government, why should                                                             
we provide government?"                                                                                                         
                                                                                                                                
MR. RITCHIE mentioned that he has been involved in local government                                                             
for some time.  He felt that the tax cap is not absolutely going to                                                             
pass.  Although there has not yet been a statewide effort to                                                                    
educate the public, an early professional poll found that 50                                                                    
percent of Anchorage did not support the tax cap.  Therefore, he                                                                
felt that the tax cap is beatable if the public knows the                                                                       
consequences.  Mr. Ritchie pointed out that, in general, the public                                                             
will not vote for an issue when they feel the issue is complex and                                                              
they do not know what is happening with the money.  Both of those                                                               
are probably true in regard to the September 14 vote.  Therefore,                                                               
he interpreted the public as saying that they did not understand.                                                               
He informed the committee that in areas where taxes have been voted                                                             
in such as Sitka, the formula has been to inform the public what                                                                
the money will be used for and sunset the tax.  Such actions help                                                               
build public confidence.  The Alaska Conference of Mayors felt that                                                             
when the state and local officials are not viewed as working                                                                    
together, it makes it less likely that the public supports it.                                                                  
However, Mr. Ritchie was optimistic that there are formulas that                                                                
the public can be approached on and the public will pay for those                                                               
areas that it can see direct connections.                                                                                       
                                                                                                                                
Number 2427                                                                                                                     
                                                                                                                                
REPRESENTATIVE MURKOWSKI asked if there had been any polling                                                                    
outside the Anchorage area with regards to the tax cap initiative.                                                              
                                                                                                                                
MR. RITCHIE replied no.  He mentioned that he had given a                                                                       
presentation before the Sitka Chamber of Commerce, who did not                                                                  
understand the other side of the 10 mill cap.  He explained that                                                                
there is also an assessment cap.  For example, Sitka has a 6 mill                                                               
property tax cap in its charter.  The 10 mill cap statewide would                                                               
cap Sitka's assessment increases, and therefore Sitka would no                                                                  
longer be taxing on the fair market value.  Therefore, he believes                                                              
that as more people understand the tax cap, there will be more                                                                  
opposition to it.  In further response to Representative Murkowski,                                                             
Mr. Ritchie said that AML will be doing an education campaign.                                                                  
                                                                                                                                
REPRESENTATIVE DYSON expressed his interest in moving the bill from                                                             
committee.                                                                                                                      
                                                                                                                                
CO-CHAIRMAN HARRIS said that, out of courtesy he would like to                                                                  
allow those on the teleconference to testify.                                                                                   
                                                                                                                                
Number 2605                                                                                                                     
                                                                                                                                
MAYOR FRANK KELTY, Mayor, City of Unalaska, testified via                                                                       
teleconference.  He informed the committee that the Unalaska City                                                               
Council supports the legislation and would urge the committee to                                                                
move it forward.  This program would be an excellent way for                                                                    
communities to offset the loss of municipal revenue sharing.                                                                    
Furthermore, this legislation would allow each community to address                                                             
its own needs.  He informed the committee that Unalaska subsidizes                                                              
the state contracted jail by about $200,000 per year.  A program                                                                
such as this would help offset that subsidy.  Furthermore, Unalaska                                                             
recently lost its food safety office and its inspector.  If                                                                     
Unalaska had to take that over, this program would be helpful as                                                                
well.  He also envisioned the possibility of a community holding                                                                
back its revenue in order to invest it for use later.  Mayor Kelty                                                              
informed the committee that Unalaska has an 11.75 mill rate, a 3                                                                
percent sales tax, a 2 percent landing tax on fish delivered to the                                                             
city, and the city funds the school to the maximum amount allowed.                                                              
In conclusion, he urged the committee move HB 137 forward.                                                                      
                                                                                                                                
Number 2727                                                                                                                     
                                                                                                                                
MARK HENNIGH, City Manager, King Cove, testified via teleconference                                                             
from King Cove.  He acknowledged the ongoing voracity of                                                                        
Representative Moses on HB 137.  He noted that Southwest Alaska                                                                 
tries to pay its own way as much as possible.  Sales taxes and user                                                             
fees have been raised on every city service provided since 1996.                                                                
He indicated that HB 137 would provide a bit of a revenue stream,                                                               
which would provide some much needed capital improvements.  In                                                                  
conclusion, Mr. Hennigh encouraged the committee to forward HB 137.                                                             
                                                                                                                                
CO-CHAIRMAN HARRIS closed public testimony and the committee took                                                               
a brief at-ease.                                                                                                                
                                                                                                                                
Number 2804                                                                                                                     
                                                                                                                                
REPRESENTATIVE DYSON moved to report CSHB 137 out of committee with                                                             
individual recommendations and the accompanying zero fiscal                                                                     
note(s).                                                                                                                        
                                                                                                                                
JIM KELLY, Research & Liaison Officer, Alaska Permanent Fund                                                                    
Corporation, said that a fiscal note was prepared and passed on to                                                              
[the Department of] Revenue.  It is a zero fiscal note with a                                                                   
letter attached.                                                                                                                
                                                                                                                                
CO-CHAIRMAN HARRIS asked if there were any objections.  There being                                                             
no objection, CSHB 137(CRA) was reported out of committee.                                                                      
                                                                                                                                
The committee stood at-ease from 8:58 a.m. to 9:02 a.m.                                                                         
                                                                                                                                
HB 233-MUNICIPAL BANKRUPTCY                                                                                                     
                                                                                                                                
                                                                                                                                
CO-CHAIRMAN HARRIS announced the next order of business before the                                                              
committee would be HOUSE BILL NO. 233, "An Act granting authority                                                               
to each municipality to be a debtor under 11 U.S.C. (Federal                                                                    
Bankruptcy Act) and to take any appropriate action authorized by                                                                
federal law relating to bankruptcy of a municipality."                                                                          
                                                                                                                                
JONATHON LACK, Legislative Assistant to Representative Halcro,                                                                  
Alaska State Legislature, informed the committee that the federal                                                               
law changed in 1994 to require a state's specific authority to                                                                  
local governments to file Chapter 9 bankruptcy reorganization.  The                                                             
State of Alaska has been slow to respond to that change, and                                                                    
therefore HB 233 would fix that.                                                                                                
                                                                                                                                
REPRESENTATIVE MURKOWSKI asked if any communities have suffered due                                                             
to the change in the federal law [and the state not being in                                                                    
compliance].                                                                                                                    
                                                                                                                                
TAPE 00-6, SIDE B                                                                                                               
                                                                                                                                
MR. LACK said that he did not know of any cities or local                                                                       
governments that had experienced problems.  He noted that the City                                                              
of Whittier had some problems that may or may not of necessitated                                                               
this type of use [bankruptcy].  Furthermore, one of the Rural                                                                   
Education Attendance Areas (REAA) may have had some difficulties in                                                             
the past few years and need some reorganization.                                                                                
                                                                                                                                
Number 2865                                                                                                                     
                                                                                                                                
CO-CHAIRMAN HARRIS asked if any city in Alaska had ever went                                                                    
bankrupt.                                                                                                                       
                                                                                                                                
MR. LACK indicated that the committee packet should include a case                                                              
note on the Copper River School District.  The Copper River School                                                              
District did go through Chapter 9 reorganization.  He explained                                                                 
that in 1986 the legislature did an across the board 10 percent cut                                                             
in assistance to REAAs.  Therefore, the REAAs could not restructure                                                             
their contracts with the teachers' union and thus went into                                                                     
collective bargaining.  The arbitrator decided against the Copper                                                               
River School District, which was told it had to pay on the                                                                      
contracts.  The legislature then made a one-time appropriation of                                                               
about $.5 million, which solved the problem for the 1986-1987                                                                   
school year but not for the 1988 school year.  He explained that                                                                
the Copper River School District sought protection from the                                                                     
Bankruptcy Court under Chapter 9 in order to reorganize the debt.                                                               
The Bankruptcy Court stepped in and renegotiated the contracts for                                                              
the REAA because the school district could not.                                                                                 
                                                                                                                                
CO-CHAIRMAN HARRIS posed a situation in which someone had a                                                                     
contract with a community for a very large sum.  Would the project                                                              
be bonded under normal circumstances?                                                                                           
                                                                                                                                
MR. LACK explained that for something like construction of a new                                                                
school, if an entity is bonded then the entity would be first in                                                                
line to recover in Bankruptcy Court because the entity has a                                                                    
secured interest.  When dealing with a nongovernmental entity, a                                                                
secured creditor will receive its security interest.  However, that                                                             
is not necessarily the case with a governmental entity because "you                                                             
don't want a creditor coming in and grabbing a school, grabbing an                                                              
ambulance, grabbing a fire truck."  Mr. Lack further explained that                                                             
Chapter 9 does not allow a local government to discharge debts but                                                              
rather Chapter 9 allows a local government to reorganize in order                                                               
to prevent a creditor from seizing assets.  Therefore, if there is                                                              
a bond for insurance, the insurance agent will probably have to                                                                 
pay.                                                                                                                            
                                                                                                                                
CO-CHAIRMAN HARRIS returned to the issue of schools and posed a                                                                 
situation in which the community is giving at its cap and                                                                       
enrollment is decreasing, but the teachers' contracts continue.                                                                 
Would this legislation allow the school to go bankrupt in order to                                                              
reorganize?                                                                                                                     
                                                                                                                                
MR. LACK replied yes.  With regard to REAAs, the first                                                                          
responsibility is that of the legislature to fund them.  In the                                                                 
case when the legislature does fund the REAA, the Bankruptcy Court                                                              
would have the authority to reorganize that school district and                                                                 
renegotiate those contracts.  All the parties would be at the table                                                             
at Bankruptcy Court.                                                                                                            
                                                                                                                                
MR. LACK, in response to Representative Joule, informed the                                                                     
committee that with no effective date the legislation would become                                                              
effective 90 days after passage [after the governor signs the                                                                   
legislation] or July 1.                                                                                                         
                                                                                                                                
Number 2624                                                                                                                     
                                                                                                                                
REPRESENTATIVE DYSON commented that it appears that the state is                                                                
moving towards state recognition of tribes.  From his limited                                                                   
understanding, he believes that tribal organizations cannot be                                                                  
sued.  If the state does recognize tribes, then will this                                                                       
legislation apply to them.                                                                                                      
                                                                                                                                
MR. LACK answered that tribes cannot be sued as a state or local                                                                
government cannot generally be sued unless that entity has given                                                                
authorization.  For instance, the City of Anchorage has given                                                                   
authorization to sue in tort, which most cities and states do.  Mr.                                                             
Lack explained that as a general concept, when tribes contract or                                                               
have agreements, the tribe generally waives its rights to be sued                                                               
under that contract or agreement.  Otherwise, the states or the                                                                 
federal governments would not contract with them.  Mr. Lack was not                                                             
sure how HB 233 would apply to tribes, but he offered to research                                                               
that and report back.                                                                                                           
                                                                                                                                
REPRESENTATIVE DYSON said that he sensed that this legislation does                                                             
not apply to tribes.                                                                                                            
                                                                                                                                
KEVIN RITCHIE, Executive Director, Alaska Municipal League,                                                                     
testified in support of HB 233 as it provides an additional option                                                              
to municipalities.                                                                                                              
                                                                                                                                
CO-CHAIRMAN HARRIS pointed out that the sponsor statement says that                                                             
the Congress changed the Bankruptcy Code to require states to give                                                              
local governments specific authority to protection.  If the                                                                     
Congress passes a bill requiring such, do the states have to do so                                                              
or can they decide not to do it.                                                                                                
                                                                                                                                
MR. RITCHIE said that he believes that it is an option of state                                                                 
governments.                                                                                                                    
                                                                                                                                
REPRESENTATIVE MURKOWSKI interjected that such would be necessary                                                               
if they want to avail themselves of protection under Chapter 9.                                                                 
                                                                                                                                
CO-CHAIRMAN HARRIS closed public testimony.                                                                                     
                                                                                                                                
Number 2427                                                                                                                     
                                                                                                                                
REPRESENTATIVE HALCRO moved to report CSHB 233, Version LS0948\G,                                                               
Cook, 1/26/00, out of committee with individual recommendations.                                                                
There being no objection, it was so ordered and CSHB 233(CRA) was                                                               
reported out of committee.                                                                                                      
                                                                                                                                
ADJOURNMENT                                                                                                                     
                                                                                                                                
There being no further business before the committee, the House                                                                 
Community and Regional Affairs Standing Committee meeting was                                                                   
adjourned at 9:14 p.m.                                                                                                          

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