Legislature(1995 - 1996)
03/16/1995 01:05 PM CRA
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HOUSE COMMUNITY AND REGIONAL AFFAIRS STANDING COMMITTEE March 16, 1995 1:05 p.m. MEMBERS PRESENT Representative Ivan, Co-Chair Representative Alan Austerman, Co-Chair Representative Kim Elton Representative Al Vezey Representative Pete Kott MEMBERS ABSENT Representative Jerry Mackie Representative Irene Nicholia COMMITTEE CALENDAR * HB 223: "An Act relating to joint insurance arrangements; and providing for an effective date." HEARD AND HELD HB 192 "An Act relating to housing programs of the Alaska Housing Finance Corporation, the corporation's supplemental housing development grants to regional housing authorities, and to housing programs of regional housing authorities, and permitting regional housing authorities to make, originate, and service loans for the purchase and development of residential housing." PASSED OUT OF COMMITTEE HB 185: "An Act relating to an exemption from municipal property taxes for certain primary residences; and providing for an effective date." HEARD AND HELD HB 154: "An Act requiring the Department of Law to provide guidelines regarding unconstitutional state and municipal takings of private real property; relating to the taxation of private real property taken unconstitutionally by state or municipal action; establishing a time limit for bringing an action for an unconstitutional state or municipal taking of private real property; and providing for an effective date." BILL POSTPONED (* First public hearing) WITNESS REGISTER TOM WRIGHT, Legislative Assistant to Representative Ivan State Capitol Building, Room 503 Juneau, AK 99801 Telephone: (907) 465-4942 POSITION STATEMENT: Introduced HB 223 and HB 185 DAN KOCH, Chief of Market Surveillance Division of Insurance Department of Commerce and Economic Development P.O. Box 110805 Juneau, AK 99801 Telephone: (907) 465-2577 POSITION STATEMENT: Testified against HB 223 STEVE WELLS, Director of Risk Management Alaska Municipal League 626 F St., Ste. 100 Anchorage, AK 99501 Telephone: (907) 258-2625 POSITION STATEMENT: Testified in support of HB 223 REPRESENTATIVE RICHARD FOSTER Alaska State Legislature State Capitol Building, Room 410 Juneau, AK 99801 Telephone: (907) 465-3789 POSITION STATEMENT: Introduced HB 192 ELIZABETH DRONKERT, Legislative Assistant Representative Richard Foster State Capitol Building, Room 410 Juneau, AK 99801 Telephone: (907) 465-3789 POSITION STATEMENT: Answered questions regarding HB 192 LES CAMBELL, Budget Specialist Alaska Housing Finance Corporation 520 East 34th Avenue Anchorage, AK 99503-4199 Telephone: (907) 561-1900 POSITION STATEMENT: Testified in support of HB 192 DAN FAUSKE, Chief Executive Officer Alaska Housing Finance Corporation 520 East 34th Avenue Anchorage, AK 99503-4199 Telephone: (907) 561-1900 POSITION STATEMENT: Testified in support of HB 192 JUDY DESPAIN Alaska Housing Finance Corporation P.O. Box 101020 Anchorage, AK 99510 Telephone: (907) 561-1900 POSITION STATEMENT: Testified in support of HB 192 JACQUELINE JOHNSON Association of Alaska's Housing Authorities Box 32237 Juneau, AK 99803 Telephone: (907) 780-6868 POSITION STATEMENT: Testified in support of HB 192 BRUCE KOVARIK, Executive Director Bering Straits Regional Housing Authority P.O. Box 995 Nome, AK 99762 Telephone: (907) 443-5256 POSITION STATEMENT: Testified in support of HB 192 KEVIN RITCHIE, Executive Director Alaska Municipal League 217 2nd St., Ste. 200 Juneau, AK 99801 Telephone: (907) 586-1325 POSITION STATEMENT: Answered questions regarding HB 185 STEVE VAN SANT, State Assessor Department of Community and Regional Affairs 333 W. 4th Ave., Ste. 319 Anchorage, AK 99501 Telephone: (907) 269-4500 POSITION STATEMENT: Commented on HB 185 PAT CARLSON, Assessor Kodiak Island Borough 710 Mill Bay Road Kodiak, AK 99615 Telephone: (907) 486-9350 POSITION STATEMENT: Testified in support of HB 185 CONNIE SIPE, Director Division of Senior Services Department of Administration 3601 C St., Ste. 260 Anchorage, AK 99510 Telephone: (907) 563-5654 POSITION STATEMENT: Testified on HB 185 GENE DAW American Association of Retired Persons Veterans of Foreign Wars Box 32237 Juneau, AK 99802 Telephone: (907) 586-3816 POSITION STATEMENT: Testified in support of HB 185 JOHN HOPE Alaska Native Brotherhood Box 20311 Juneau, AK 99802 Telephone: (907) 789-0971 POSITION STATEMENT: Testified against HB 185 PREVIOUS ACTION BILL: HB 223 SHORT TITLE: JOINT INSURANCE ARRANGEMENTS SPONSOR(S): REPRESENTATIVE(S) IVAN JRN-DATE JRN-PG ACTION 03/03/95 564 (H) READ THE FIRST TIME - REFERRAL(S) 03/03/95 564 (H) CRA AND LABOR & COMMERCE 03/16/95 (H) CRA AT 01:00 PM CAPITOL 124 BILL: HB 192 SHORT TITLE: AHFC HOUSING LOANS SPONSOR(S): REPRESENTATIVE(S) FOSTER,Ivan JRN-DATE JRN-PG ACTION 02/22/95 448 (H) READ THE FIRST TIME - REFERRAL(S) 02/22/95 448 (H) COMMUNITY & REGIONAL AFFAIRS, FINANCE 02/27/95 511 (H) COSPONSOR(S): IVAN 03/07/95 (H) CRA AT 01:00 PM CAPITOL 124 03/07/95 (H) MINUTE(CRA) 03/16/95 (H) CRA AT 01:00 PM CAPITOL 124 BILL: HB 185 SHORT TITLE: MUNICIPAL PROPERTY TAX EXEMPTIONS SPONSOR(S): REPRESENTATIVE(S) IVAN JRN-DATE JRN-PG ACTION 02/20/95 418 (H) READ THE FIRST TIME - REFERRAL(S) 02/20/95 418 (H) COMMUNITY & REGIONAL AFFAIRS, FINANCE 03/09/95 (H) CRA AT 01:00 PM CAPITOL 124 03/09/95 (H) MINUTE(CRA) 03/16/95 (H) CRA AT 01:00 PM CAPITOL 124 BILL: HB 154 SHORT TITLE: REGULATORY TAKING OF PRIVATE PROPERTY SPONSOR(S): REPRESENTATIVE(S) KOHRING,Rokeberg JRN-DATE JRN-PG ACTION 02/03/95 237 (H) READ THE FIRST TIME - REFERRAL(S) 02/03/95 237 (H) CRA, JUD, FIN 02/16/95 (H) CRA AT 01:00 PM CAPITOL 124 02/16/95 (H) MINUTE(CRA) 02/21/95 (H) CRA AT 01:00 PM CAPITOL 124 02/21/95 (H) MINUTE(CRA) 03/01/95 550 (H) COSPONSOR(S): ROKEBERG 03/09/95 (H) CRA AT 01:00 PM CAPITOL 124 03/09/95 (H) MINUTE(CRA) 03/16/95 (H) CRA AT 01:00 PM CAPITOL 124 ACTION NARRATIVE TAPE 95-7, SIDE A Number 000 CO-CHAIR IVAN called the House Community and Regional Affairs Committee to order at 1:05 p.m. Members present at the call to order were Representatives Alan Austerman, Pete Kott and Kim Elton. Absent were Representatives Jerry Mackie, Irene Nicholia and Al Vezey. Co-Chair Ivan went over the meeting agenda, HB 223, HB 192 and HB 185. He said testifiers would be on teleconference from Anchorage, Fairbanks, Kodiak, Mat-Su, Nome, Sitka and Soldotna. HCRA - 03/16/95 HB 223 - JOINT INSURANCE ARRANGEMENTS Co-Chair Ivan invited his staff aide, Tom Wright to introduce HB 223. Number 034 TOM WRIGHT, Legislative Assistant to Representative Ivan, read the sponsor statement for HB 223. He said the bill was a response to needs of quasi-governmental entities such as Native tribal councils, port authorities and others who either can't obtain insurance or find the cost of insurance prohibitively expensive. HB 223 gives these entities an option to obtain affordable liability coverage they currently don't have under current statutes. The current joint insurance statute limits participation to municipalities and their public corporations, school districts and Rural Education Attendance Areas (REAA). This bill expands the scope of poolings so that pools, either those in existence or additional pools, can serve the unmet needs of tribal councils and other quasi-governmental entities. Those that would be eligible for coverage must perform at least two of the general municipal powers described in Alaska Statute 29.35.101. Number 062 CO-CHAIR IVAN welcomed any questions from committee members. Number 065 REPRESENTATIVE PETE KOTT asked if Mr. Wright could list some examples of the duties the entities would have to perform. Number 074 MR. WRIGHT stated some of the requirements are to establish prescribed salaries for an elected or appointed municipal official or employee, to combine two or more appointive or administrative offices, to sue and be sued, to regulate the operational use of a municipal right of way facility or service. He said there were 14 different powers that were in statute regarding this. Number 086 REPRESENTATIVE KOTT stated he wanted to ensure those that would be eligible could perform at least two of those functions. Number 091 CO-CHAIR IVAN again welcomed comments from the committee. He invited Mr. Dan Koch from the Division of Insurance to testify. Number 097 DAN KOCH, Chief of Market Surveillance, Division of Insurance, Department of Commerce and Economic Development, said the bill before the committee was one the division did not favor. In 1986, AS 21.76 was formed to allow municipalities, REAAs and school districts to form joint insurance arrangements (JIA). Up until that point, the division had argued the insurance code had within it, the ability to permit entities to group together to form a mutual insurance company or a reciprocal insurance exchange. The latter is probably the appropriate vehicle for most entities that would like to do the kinds of things spoken to in this bill. The reason why the division shifted position when the municipalities wanted to form a JIA, was because of the statute that is referred to in the bill, AS 29.35.101, which listed the general powers of a municipality. In those 14 items, there are 2 the division thought were particularly pertinent and removed some of the concerns the division had as to solvency issues. The first of those was item 6 which levies a tax or special assessment and imposes a lien for its enforcement. They have a tax base that takes the place of the capitalization and surplus requirements you would normally want to see for the formation of any sharing of liabilities. The second was to enforce an ordinance and prescribe a penalty for violation of an ordinance so they had some policing authority as well. The JIA indicated they didn't want to be considered an insurance entity even though that particular chapter had been placed within the insurance code. At that time, there was careful drafting to ensure anything the JIA did was not subject to any oversight or regulation by the division. The division's concern was if additional entities without a tax base were permitted to form JIAs, there was nothing to say they would join the same arrangement already existing for municipalities. There would be concern about the solvency of those entities and their ability to meet any obligations they may have. In effect, they are acting as an insurer and they are sharing each other's liabilities. This is the division's biggest concern. This, coupled with the fact the division believes the existing statutes already make a provision for forming something that will do what an entity wants, was the division's biggest concern. Number 172 CO-CHAIR IVAN welcomed comments and questions from committee members. Number 175 REPRESENTATIVE KOTT asked if there was a potential recommendation or change that would bring the Division of Insurance in on this. Number 183 MR. KOCH replied the division contended the statute in the insurance code which deals with reciprocal exchanges is their best vehicle. That has reduced capital on surplus requirements so they wouldn't have to come up with the same kind of money you would normally have with a stock insurer, for example, or a mutual insurer. The owners of a reciprocal exchange are the members of a reciprocal exchange. There are reduced costs for operating a reciprocal exchange that don't exist with insurance companies because they don't have the same kind of management you would have with a stock company. Typically, the management of their insurance arrangement is done through an attorney and that person conducts operations for them, usually under some form of contract. There are currently two such organizations existing in the state and both have been fairly successful. One is the Alaska Timber Insurance Exchange which was initially formed by the Alaska Loggers Association. This has operated smoothly for at least 15 years. They are able to offer rates to their members less than the going market rate for other insurers. The other organization is the Alaska Rural Electrification Co-op Association (ARECA). They insure around 15-16 power plants around the state that are members of that particular exchange. They have been operating successfully for the last ten years. The division is pleased with the operation of both of those exchanges. The division also amended the section of law this reciprocal exchange appears to allow other cooperative kinds of ventures at reduced levels of capital and surplus. One doesn't have to have large numbers of participants to do it. One of the ingredients one would typically find in these arrangements is they have insurance and there is a very careful review of what they are capable of bearing. If there is no oversight on one of these things, the division is very much concerned that people will view it as insurance and not have the financial capability of withstanding a large loss. Another concern the division has is nonprofit corporations, who often enter into contracts with the state, would present this as being their insurance coverage. If that vehicle were not sufficiently capitalized, one may find that on audit, it won't hold up to the scrutiny of what the Feds think ought to be an insurer and could lose any of those grants or kinds of funds. Mr. Koch believed it placed some things into real question. The division would prefer to see something that has financial oversight. The division has examination teams and are in often enough to ensure the entities are able to meet their obligations. Mr. Koch said insurance is an agreement on paper to pay some money at some future point given certain contingencies. If that entity isn't sufficiently well healed to meet those kinds of obligations, it has a problem. He wanted to know who this would fall back to. If the state effectively creates this mechanism and says `Do it,' who do they look to if the arrangement fails? Other insurers have guarantee funds to back them to make sure if one does go down, one has some mechanism to support it. The JIA doesn't have this and relies on the participants. This doesn't mean this arrangement can't purchase insurance or excess insurance, but the division is concerned with the solvency and structure of one of those arrangements. Number 288 CO-CHAIR IVAN recognized the attendance of Representative Al Vezey. Number 292 CO-CHAIR ALAN AUSTERMAN asked if the division was concerned about entities other than a municipality entering an arrangement without being secure or solvent. Number 300 MR. KOCH said a municipality was more secure in the sense if the entity had a demand on cash they had a tax base to fall back on. This was the division's view when this issue was originally thought up. The argument presented at that time was if there was a deficiency, either in the insurance mechanism they had for themselves or in the sharing of liabilities, there was always a tax base to go back to. Number 313 CO-CHAIR IVAN asked if there had been requests by local municipalities in Alaska and/or tribal governments for the division's assistance or direction on how to address their insurance needs. Number 320 MR. KOCH replied the division occasionally received questions, but not typically from municipalities or Native corporations. The division has had questions arise from nonprofit corporations and the common complaint is it costs too much. The legislature made some revisions to the tort system to provide some level of immunity for the officers of nonprofit corporations so they are not as exposed as they used to be. To some degree it alleviates the problem, being it is almost inherent in a nonprofit corporation, they are not going to be sufficiently well-healed to meet the kinds of liabilities they may be exposed to in doing what they do. The division tries to tell them ways to go about buying insurance and will provide what help they can. The division can generally find a broker where they might be able to find the kinds of coverage they want. The cost of that coverage is a problem as the cost of that insurance has to cover the losses that arise out of it. Number 345 REPRESENTATIVE AL VEZEY asked where the risk is. This isn't referring to pooling together to buy insurance. Number 348 MR. KOCH replied this was pooling together to cover each other's liabilities and the entity could either do this through purchase of insurance or by insuring themselves. Number 351 REPRESENTATIVE VEZEY said if they insure themselves, then they have to meet the requirements of a self-insured entity. Number 353 MR. KOCH stated that under this arrangement they don't. The JIA doesn't have to meet the standards of self-insurance requirements. The way this statute is structured, the entity is considered to be the insurer, but isn't one in fact. If what the groups are trying to do is combine as a purchasing power, there are ways to do this under existing statute. One of the most common ways is if an entity has an association, they can purchase as a group. If the entity has an association that has a safety plan, they have another purpose other than insurance, they then can under existing statute buy insurance as a group. They have to find a buyer, but they can do it. The division's problem with this proposal is it lets the entity be their own insurer. The JIA is not just a purchasing unit but shares each other's liabilities as well. This is a big difference. Number 375 REPRESENTATIVE VEZEY asked about a section of statute he didn't have in front of him. Number 377 MR. KOCH listed the statute called AS 21.36.190 pertaining to fictitious groups. There are provisions within this statute that describe the conditions under which an entity could purchase as a group. If this isn't clear enough, it's a good point of attack to revise so one could have the purchasing group. There was also a federal law, the Product Liability Act, that set up risk retention and risk purchasing groups. Already existing under federal law is the ability for nonprofit corporations to gather as a purchasing group and buy insurance as a mechanism but not to insure. Number 390 REPRESENTATIVE VEZEY said he didn't understand we had statutes allowing municipalities and certain public corporations to self- insure without meeting insurance requirements. He thought the government would get into a big lawsuit with this. Number 393 MR. KOCH said this was what the JIA did and while they were not required to do it that way, they were enabled to do it this way by statute. Number 396 REPRESENTATIVE VEZEY asked why the city of Fairbanks got in a big dispute with the Department of Labor over not being adequately insured under their self-insurance program. Number 399 MR. KOCH replied he could only assume they weren't part of the JIA and they were depending upon their own resources for their self- insurance application. When a self-insurance application is made to the Department of Labor (DOL), the DOL looks at the resources of that self-insured to see if the entity would meet its obligations. The DOL wants to see enough cash flow and support for the shock loss through excess coverage or insurance to satisfy the entity so they are able to meet their obligations in the future. Number 413 CO-CHAIR IVAN stated he would appreciate knowing the division's position prior to the hearing. He referred to Mr. Koch's statements on these municipalities that have a tax base to fall on. He said that he understood the existing REAAs did not have a tax base to fall on in rural Alaska. He couldn't see how these nonprofit organizations incorporated under the state or Native associations couldn't participate. Insurance fears of the unknown have always been a hinderance to development and activities that could have potential. Some of these organized municipalities try to provide these basic services to citizens in that community and in the area. The committee's interest through this legislation is to give them that opportunity to further expand some of the services they could provide. Number 440 MR. KOCH said his purpose in saying what has been said so far is not to oppose that notion. He said the REAAs are viewed as reliant on the tax base of the state itself. Municipalities obviously have their own. The division did see a distinction, but if what the legislature is intending to do is allow a greater voice in purchase in terms of pooling the entity's resources to buy insurance, it is a very easy thing to accomplish and there is an existing audit that would do this. The division's concern is by placing it in this particular statute, this mechanism not only allows the purchase of the arrangement, it allows an insuring arrangement by those same entities. In effect, with this language, a group of nonprofits could come together and say they were going to insure each other and not go out and buy anything but just insure each other. The argument currently is they don't have the resources to buy it so how are they going to be able to meet the obligations if a suit comes along. They won't take down just the one, but would take down all the participants, too. As far as the purchase mechanism, there is a federal statute that helps and if need be, further revision to 21.36.190. The division could help draft some language that would meet needs in that area. The purpose of the division is not to oppose what is described as the intent of encouraging people to better their lives. Number 471 REPRESENTATIVE KIM ELTON asked what happened to the exposure of those people already participating in the Alaska Municipal League, Joint Insurance Association (AML/JIA). It seemed their exposure increased with the additions made in this legislation. Number 478 MR. KOCH responded if these entities were joined into the same pooling arrangement, they would have their exposures added to whatever else the municipalities were in. This statute says any one of these groups could form a JIA. The JIA isn't a single mechanism of which only one currently exists, but the statute language didn't require just one. The JIA would have to react to how they would feel about having other entities join their arrangement. Number 491 CO-CHAIR IVAN asked if committee members had any questions. He invited Steve Wells to testify. Number 496 STEVE WELLS, Director of Risk Management, Alaska Municipal League, Joint Insurance Association (AML/JIA), disagreed with the division's insurance analysis of HB 223. He stated that about 7 percent of cities in the United States self-insure or pool providing they have chosen this mechanism to cover their various losses. The intent is to bring in those intertwined in local governments to join the poolings. Currently, there are about 400 pools nationwide covering a variety of districts and not one failure in the 20 years of pooling existence. Insurance companies can't make this statement proving that pooling is quite successful by creating conservative cohesiveness. He believed having risk retention groups was a good idea. He said the AML/JIA sees a need for small entities to pool together to provide public services but can't because they are too small. The AML/JIA is a $16 million operation, with a $1.1 million budget and was canceled this year due to being too small, so small groups are having a difficult time with insurance. HB 223 brings in small groups allowing them to pool by bringing them into an organization creating stable coverage. Number 550 REPRESENTATIVE VEZEY said this bill talks about a current statute providing for JIA in which municipalities self-insure without meeting the necessary requirements. Number 555 MR. WELLS said current legislation allows the small entity to self- insure and pool and help cover the load of one entity's loss. Pooling takes the place of insurance throughout the nation and not just in Alaska because the program was structured to succeed. Number 570 REPRESENTATIVE VEZEY stated the statutes for municipalities fall under this category aren't the same for any other entity wishing to self-insure. The entity would be required to show assets to cover their insurance exposure, but the Division of Insurance states that municipalities are allowed to use their tax base as an asset. He wondered if municipalities were given a special standard lesser than a poor profit corporation wishing to self-insure. Number 578 MR. WELLS asked if Representative Vezey questioned the operation of a pooling arrangement. Number 579 REPRESENTATIVE VEZEY said there was a variety of arrangements under the statutes, pooling, assuming risks and other options. Number 582 MR. WELLS said requirements for pooling was an annual audit and proof that the program was funded appropriately. These requirements are built into the current statute, but bylaws and cohesive units are necessary to have a pooling. Number 585 REPRESENTATIVE VEZEY stated the operative word was funding. The entity didn't have to fund the program but HB 223 gives the government entity special consideration due to their standing. Number 588 MR. WELLS said pooling arrangements had to fund the program or it can't exist. Upon the creation of a pool, actuaries are hired and a rate is stated that will fund the program. The rate is charged to fund the self-insurance portion and the insurance and administrative costs. The pooling arrangement has to be fully funded before it can be started. Number 596 CO-CHAIR IVAN asked if the committee had any other questions or comments. He asked if there were any other witnesses wishing to testify on HB 223. He asked the desire of the committee concerning HB 223. Number 606 REPRESENTATIVE ELTON made a motion to move the bill out of committee with the attached zero fiscal note and individual recommendations, only because he was on the next committee of referral. It would give him the opportunity to follow up with the Division of Insurance to see their intent. He was willing to concede to the wishes of the bill sponsor. Number 612 CO-CHAIR IVAN asked the Division of Insurance to work with the AML/JIA agency to make an opportunity to further discuss HB 223. He said he would hold the bill until further discussions could be held. Number 619 REPRESENTATIVE KOTT stated he was going to object to the motion posed by Representative Elton. He said he thought he understood the intent of the committee, but after the testimony given by Mr. Wells, he believed there was confusion between the parties. Number 628 CO-CHAIR IVAN said he would hold the bill to allow for more opportunity for coordination between all agencies. Number 629 REPRESENTATIVE VEZEY stated there was a movement across the nation for public entities to turn their operations over to certain segments of their systems to for-profit corporations for management, including schools districts, sanitation, etc. He's heard of cities that have turned their entire management over to for-profit corporations. He suggested instead of considering nonprofit corporations the bill just refer to other persons, following the statute definition of persons. Number 641 CO-CHAIR IVAN again stated the bill would be held over for further consideration. He invited any last minute comments before proceeding to the next item on the agenda, HB 192. HCRA - 03/16/95 HB 192 - AHFC HOUSING LOANS CO-CHAIR IVAN asked for a motion to adopt the proposed committee substitute for HB 192. Number 656 REPRESENTATIVE KOTT made the motion to adopt the committee substitute. CO-CHAIR IVAN heard no objections and it was so ordered. He invited Representative Foster to introduce HB 192. Number 658 REPRESENTATIVE RICHARD FOSTER expressed his appreciation at the willingness of the committee to hear his bill. He honored the presence of all the veterans in the audience. He stated HB 192 didn't change the Alaska Housing Finance Corporation's (AHFC) role of retaining control of final approval of loans, but allows regional housing authorities the power to make, originate and service loans within their jurisdiction, making home mortgages available for rural Alaskans. HB 192 also changes the percentage of matching amounts from 20 to 30 percent, and the amount of monies available in the bush hasn't been enough to leverage the balance of the federal monies. In the current fiscal year, AHFC has contributed $8 million corporate funds to 11 regional housing authorities to leverage $48.8 million in HUD funds resulting in the building of 259 homes in 19 villages. He stated his staff aide, Elizabeth Dronkert, would also be available to help answer questions. Number 690 CO-CHAIR IVAN asked if committee members had any questions. Number 692 REPRESENTATIVE FOSTER stated that an identical bill passed through the House, 38-1 last year, but HB 192 was in better form. Number 696 REPRESENTATIVE KOTT asked about Representative Foster's reference to last year's `identical' bill. Number 698 CO-CHAIR IVAN stated programs like AHFC are taken advantage of in more urban areas. Rural Alaskans find costs too high to participate in, but Co-Chair Ivan has received comments from rural citizens interested in expanding this program and HB 192 encourages more rural participation. This bill provides the economy an improvement of lifestyle in the rural areas for well-meaning families pursuing housing from this program. Number 710 REPRESENTATIVE KOTT asked if there was anyone signed up to testify who could answer questions pertinent to HB 192. TAPE 95-7, SIDE B Number 002 ELIZABETH DRONKERT, Legislative Aide to Representative Foster, stated Mr. Don Fauske, the new Chief Executive Officer, Alaska Housing Finance Corporation, was available to help answer any questions. Number 006 CO-CHAIR IVAN invited Don Fauske to testify, but Les Cambell spoke on his behalf as Mr. Fauske wasn't currently present. Number 024 LES CAMBELL, Budget Specialist, Alaska Housing Finance Corporation (AHFC), supported, on behalf of AHFC, HB 192. The AHFC believed it would be beneficial for the state of Alaska if passed. Number 039 CO-CHAIR IVAN asked for questions from committee members. Number 045 REPRESENTATIVE KOTT asked about the provision in Section 3 which increased the percentage from 20 to 30, the amount dispersed in developing a unit and what effects it would have on the overall program as far as spreading the money evenly around categories within the AHFC. He also asked if the AHFC had the actual money. Number 061 MR. CAMBELL stated that the AHFC had the corporate receipts to provide funding for the assets added into the capital budget. The AHFC has currently submitted a request for 30 percent funds as the federal funds are declining and this would leverage more state funds toward the federal funds in order to bring it into the state. He noted Don Foske's presence in the audience. Number 081 DAN FAUSKE, Chief Executive Officer, Alaska Housing Finance Corporation, said the fiscal amount was estimated to be around a $5 million change by moving from the 20 to the 30 percent contribution level coming from corporate receipts, cash of the corporation from programs managed in the past. He said there were witnesses on teleconference from Anchorage wishing to testify. He stated to get into more detail, he would need the information supplied by those hooked onto the teleconference line. The AHFC did discuss the language in Section 1, subsections 1 and 2, where it has been changed. The AHFC was concerned about the original wording of the bill. Number 091 CO-CHAIR IVAN stated there were several on-line waiting to testify. Number 123 JUDY DESPAIN, Director, Operations, Alaska Housing Finance Corporation, testified via teleconference that Kay Murphy and Duane White were on-line to help answer any questions. Number 125 MR. FAUSKE stated the language needed to be changed and came up with an agreement between the AHFC employees and rural housing authorities. Originally, the bill would have created a situation where loans could be initiated at 1 percent below market rate in all areas and the AHFC wanted to change the wording to state in the rural areas. This was the AHFC's main concern with HB 192. Number 142 CO-CHAIR IVAN asked if there were any questions for Mr. Fauske. He invited Jacqueline Johnson to testify. Number 156 JACQUELINE JOHNSON, Executive Director, Tlingit and Haida Regional Authority, supported HB 192. She explained the necessity of the proposed increase. The 20 percent was set up a long time ago, but regional housing authorities develop a whole community upon the development of housing. The flexibility between 20 to 30 percent is necessary to make a project work at a particular site which was unable to be developed before. She used the example in Craig, where she waited three years to come up with additional funding sources through different entities, during which citizens were without money and the cost of construction rose. She believed the flexibility would help a rural community meet some of the public responsibilities such as providing safe water and sewer services. She mentioned another portion of the bill which addressed the ability for housing authorities seller services of the AHFCs loans. Currently, several housing authorities are able to run a rural loan program which used to be under Community and Regional Affairs before it merged with the AHFC. Some other regional housing authorities aren't able to service the rural loan program because the statutes state if there is an AHFC office within that area, loans can't be serviced. She said that by becoming a seller servicer for the AHFC loans, it is not in competition with banks because the program markets to a different class of people. The AHFC markets toward those programs not profitable for a bank and in many cases, the AHFC looks toward the reduction of Housing and Urban Development (HUD) funds and potential lost HUD funds. She stated the AHFC was looking at other ways to leverage their money to be able to meet their mandate of providing housing to low income people. She said it wasn't directed toward the Native Alaskan but the AHFC had a public responsibility to the whole region. To meet this mandate, this program needs the flexibility to use equity funds within the housing authority or use other public or private funds to make loans happen and even be creative with the developing to reduce the cost to smaller groups of people. She stated requesting the flexibility was a reason to ensure the rural housing authorities had the ability and right to utilize future programs instigated by the AHFC. Number 229 CO-CHAIR IVAN asked committee members if they had questions or comments. He invited Bruce Kovarik from Nome to testify. Number 236 BRUCE KOVARIK, Executive Director, Bering Straits Regional Housing Authority, testified via teleconference from Nome in support of HB 192. His housing authority serves 17 communities including Nome. He stated the loan program providing federal funds for new housing is not sufficient to meet the needs for housing in rural Alaska. Alternative means for developing and financing new housing needed to be found with substantial rehabilitation of existing substandard housing. He listed two provisions of HB 192 to help in this regard. First, in terms of participation in the AHFC's loan programs, several currently available programs are severely under utilized in rural Alaska. The reason is village economics and the lack of village access to information and basic mechanics of the loan program. He stated there were moderate income families who could benefit from these programs and achieve their goals of home ownership. An accessible home loan would require more effort in rural areas than in an urban community. HB 192 would help regionalize the loan program and offer familiar faces to families trying to participate in the loan programs. Second, the expansion of the supplemental housing grant program including all site sewer, water and infrastructure facilities would benefit those in rural communities. He said that in every program they are promoting, the housing authority was also developing the community. Mr. Kovarik believed the authorization of offsite sewer/water facilities in the supplemental housing grant program would be helpful, but he would still try to remain active in supporting the needs of the village and village housing. Number 292 CO-CHAIR IVAN asked for questions from the committee. He asked whether there were others signed up to testify regarding HB 192. Number 303 REPRESENTATIVE KOTT referred to page 3, which called for the AHFC to establish a party system for the allocation of monies in advance to pay the offsite water/sewer facility improvements authorized by the statute. He asked how the AHFC anticipated prioritizing the projects. He also mentioned the fiscal note didn't require additional personnel to be hired to work the projects. Number 318 MR. FAUSKE called on the staff who worked on this to answer the question. Number 326 MS. DESPAIN stated she understood it established the prime release system and the job could be done with existing staff. Number 329 REPRESENTATIVE KOTT asked if Ms. DeSpain could give him a basic idea on how a priority system would be set up for the allocation of grant monies for the purpose of offsite sewer/water facility improvements. Number 335 MS. DESPAIN stated the first priority considered would be the funds available. The allocation would be on a first come, first served basis depending on the accessible funds. Number 347 CO-CHAIR IVAN welcomed other questions or comments from the committee. He asked the desire of the committee concerning HB 192. Number 350 REPRESENTATIVE KOTT made a motion to pass CSHB 192(CRA) out of committee with individual recommendations. Number 354 CO-CHAIR IVAN heard no objections and it was so ordered. HCRA - 03/16/95 HB 185 - MUNICIPAL PROPERTY TAX EXEMPTIONS CO-CHAIR IVAN stated his staff aide, Tom Wright would present changes made from the original bill. He asked the committee to entertain the motion to adopt the committee substitute for discussion purposes. Number 371 REPRESENTATIVE KOTT made a motion to adopt the committee substitute for HB 185. Number 372 CO-CHAIR IVAN heard no objection and it was so ordered. He invited Tom Wright to testify. Number 373 TOM WRIGHT, Legislative Aide to Representative Ivan, stated there was a significant amount of requests for recommended changes from the previous hearing on HB 185. He stated the changes were incorporated into the new committee substitute and the first difference was the removal of the findings section as the current committee substitute amended the senior citizens/disabled veteran tax exemption program. Mr. Wright stated the original bill deleted the program and gave municipalities the option to retain a program such as this. The committee substitute reinstated the full exemption of $150 thousand for disabled veterans as it was removed from the original bill, and provided an exemption for the widow/widower of a disabled veteran qualified for the exemption. HB 185 originally deleted the senior citizen property tax exemption program, but the committee substitute reduces this program from $150 thousand to $75 thousand due to the compromise between the Alaska Municipal League (AML) and the American Association of Retired Persons (AARP). Section 1 of the committee substitute exempts the value of property under the senior citizen/ disabled veteran property tax exemption program when making a determination of full value of the taxable real and personal property in each city and borough district which determines the local effort that is contributed toward education. Mr. Wright said the last section in the committee substitute allowed a municipality to exempt the assessed value of real property that exceeds the limits of $75 thousand for senior and $150 thousand for disabled veterans. In discussions with Steve Van Sant, the state assessor, Mr. Wright said a recommendation was made, but was not incorporated into the committee substitute. On page 1, line 14 of the committee substitute, after AS 29.45.050(i), the wording added "up to $150 thousand" would ensure municipalities aren't penalized if they decide to go above the $75 thousand and not be penalized as far as the local contribution for education. This would keep the current funding mechanism in place. He mentioned Steve Van Sant and Kevin Ritchie, as well as other testifiers were waiting to comment on HB 185. Number 419 CO-CHAIR AUSTERMAN referred to page 1 and the proposed change in wording recommended during a discussion between Steve Van Sant and Mr. Wright. Number 424 MR. WRIGHT restated the chosen wording suggested by the state assessor, Steve Van Sant. He said he didn't have it drafted in amendment form, but he wished to bring it to the committee's attention. Number 428 REPRESENTATIVE KOTT asked what the reasoning was behind the change. Number 429 MR. WRIGHT said its intent was to keep the current funding in place. Currently, both the disabled veteran and senior citizen property tax exemption is exempted up to $150 thousand. The addition of the wording would not change the local contribution effort from municipalities toward education. This means less state funding should a reduction to $75 thousand be made. Number 436 REPRESENTATIVE ELTON asked why Mr. Wright was adopting a position requiring an affirmative vote from the municipality voters. It would take an ordinance, then an affirmative vote from the municipality to raise the exemption back to $150 thousand. He questioned why it wasn't done in the reverse in the compromised committee substitute which would take an ordinance, then an affirmative vote to reduce the exemption. Number 447 MR. WRIGHT deferred the question to Kevin Ritchie. Number 449 CO-CHAIR IVAN invited Kevin Ritchie to testify after asking the committee if they had other questions for Mr. Wright. Number 453 KEVIN RITCHIE, Executive Director, Alaska Municipal League (AML), emphasized the intent of the original bill which allowed municipalities a full option on whether to continue the exemption. The committee substitute is a compromise for seniors only, which still retains a mandatory $75 thousand exemption and also provides a process for municipalities to exempt above that amount. This allowance currently exists in the statutes. He stated the AML didn't have a preference whether by ordinance or ordinance approved by the municipal voters to increase the exemption over the mandatory amount. He said the intent of HB 185 was to shift the issue back to municipalities and allow them to renew their program by removing the current mandatory exemption on the part of the state. Number 472 REPRESENTATIVE ELTON said one could give the municipality the option in two ways: Changing by ordinance and going down or setting up $75 thousand and allowing it to go up. He wanted to know the reasoning behind the suggestion. Number 479 MR. RITCHIE stated mandatory exemptions start out at zero unless a community states it wants to do something rather than require a municipality vote on an issue. He said the original bill stated municipalities start from zero and optionally adopt a program. He emphasized the provisions that AML had placed in the bill ensured municipalities aren't penalized if they wished to create the exemption. Optional exemptions still require figuring in the value of exempted property for the purpose of figuring out school foundation and revenue sharing formulas which could decrease state support to municipalities. Number 493 REPRESENTATIVE ELTON followed up with his concern that it is one thing if the exemption is changed by ordinance, but if the change is required by ordinance and a vote of the people, the AML would be pitting senior citizens against other property tax payers. He wondered if there would be a problem with removing the language by vote. Number 503 MR. RITCHIE said probably not. He said the issue of how law occurred on a local level was a democratic process with input from everyone during the process. It was an option that wouldn't counter the intent of HB 185. He wasn't aware of the AML position regarding this, but it wasn't necessarily a problem. Number 514 CO-CHAIR IVAN invited questions and comments from committee members. He invited Steve Van Sant to testify. Number 517 STEVE VAN SANT, State Assessor, Community and Regional Affairs, testified via teleconference from Anchorage, and pointed out the suggested language for page 1, line 14, which would keep the status quo. Currently, all value of the seniors and disabled veterans up to $150 thousand are excluded from the full value determination. This determination is used for educational funding and revenue sharing. The language does create an inequity between the seniors and disabled veterans by creating one exemption at $75 thousand and the other at $150 thousand. He referred to Representative Elton's comments concerning approval by the voters and he said the language was originally put in because the voters would have had to pick up the cost. In today's economy the state only pays about 6.8 percent of the total taxes exempted. Anything exempted over $75 thousand the voter/taxpayer would have to pick up. He believed this was an attempt to give the voter the opportunity to ask whether they wanted to cover the extra cost. This was how the language was originally written. Number 540 CO-CHAIR IVAN asked for comments or questions from the committee members. He invited Tom Pitman to testify. Number 543 TOM PITMAN, Municipal Assessor, Municipality of Anchorage, testified via teleconference from Anchorage, stating he had reviewed the committee substitute, and the position of Anchorage was to bring attention to comments already stated, in that it appeared to be inequitable. He said the municipality of Anchorage was neutral on HB 185, as it was currently written. Number 549 CO-CHAIR IVAN invited Pat Carlson to testify. Number 552 PAT CARLSON, Assessor, Kodiak Island Borough; and President, Alaska Association Assessing, testified via teleconference from Kodiak in support of HB 185. He appreciated the authority given on a local level to go ahead and exempt those in need. He stated he was concerned about the inequity between the seniors and disabled veterans, but Kodiak currently didn't have exemptions for disabled citizens. He believed everyone should be treated on a level plane. Number 564 CO-CHAIR IVAN asked for questions or comments from the committee. He invited Jane Demmert to testify. Number 567 CONNIE SIPE, Director, Division of Senior Services, stated Jane Demmert was a new member to the Alaska Commission on Aging, which is part of the Division of Senior services. She said her testimony was similar to that of the Community and Regional Affairs testimony from the week before. She stated she hadn't taken an official position, but was concerned and appreciated the compromise. The uniform mandatory exemption of the first $75 thousand of valuations would assist the most vulnerable seniors who are low income but lucky enough to still own their home. The Commission on Aging, the Division of Senior Services, believed there should be a local option in the section of the committee substitute that allows a city to exempt up to $150 thousand. She would be interested in language similar to the original HB 185 allowing that additional option be based on hardships so cities could recognize them. She said if there was going to be a local option to go up to the $150 thousand valuation exemption. She suggested having a provision where the senior could get the full valuation exemption or the city could put in an additional hardship option. Ms. Sipe said this language was in the option section in the original HB 185. The exemption could be based on hardship criteria each city would establish. As Representative Elton pointed out, if cities have to pass an ordinance the voters had to then affirmatively vote to pass it, there might be a different political climate and reception to the idea of a valuation exemption at $150 thousand for all seniors. This perhaps would fail in some cities, but voters might be willing to pass a hardship exemption. Another provision examined by seniors would be if a hardship provision is inserted, they would like cities to do it with some amount of confidence rather than introduced by a senior at city council. She suggested language that if a hardship exemption is instituted by cities, the action on the hardship exemption request could be treated as an exception to the open meeting laws. Number 630 CO-CHAIR IVAN asked for questions or comments from committee members. He invited Gene Daw to testify. Number 637 GENE DAW, VFW, DAV, AARP, stated he opposed the original HB 185, but currently supported the committee substitute to HB 185. He approved the changes because it would be treating disabled veterans as a status quo. He was unhappy with the $75 thousand limit imposed on senior citizens because many veterans fall into that category but don't qualify for coverage under the disabled veterans exemptions. He would go along with the committee substitute. He wanted the committee to think and realize absolutely nothing could overshadow or replace what veterans have done for the United States. He said to consider what senior citizens over the age of 65 have done for the state of Alaska. Number 663 CO-CHAIR IVAN welcomed others to testify on HB 185. Number 669 JOHN HOPE, Alaska Native Brotherhood (ANB), was standing in for the president of the Grand Camp Executive Committee, who couldn't make it. He opposed HB 185 in its modified condition. He said the problem with penalizing other people is they already have made a major contribution to the state. He started paying taxes over 50 years ago, including school taxes even though his children couldn't go to school. Those being hurt are those that love Alaska and want to stay. He said that as a senior citizen, expenses piled up and one had to pay according to importance of the bills. Number 702 REPRESENTATIVE ELTON stated the seniors were one age group that paid state income taxes when there was a tax to be paid. TAPE 95-8, SIDE A Number 000 CO-CHAIR IVAN asked if there were others wishing to testify on HB 185. He asked for questions or comments from committee members or the desire of the committee concerning HB 185. Number 005 REPRESENTATIVE KOTT referred to comments made about inequity which he believed was a concern. He wasn't sure whether this bill violated the equal protection clause, not only in Alaska's Constitution but also in the U.S. Constitution. He believed the bill didn't, as it wasn't taking away their fundamental rights or segregating people. He noted that this bill didn't challenge anything constitutionally. Number 030 REPRESENTATIVE ELTON said he had considerable concerns over HB 185 pointing out two things. First, he would rather have the compromise language require a municipality take an affirmative action to reduce the exemption to $75 thousand rather than an affirmative action to boost it up to $150 thousand. Second, he's concerned about leaving in the provision that requires an ordinance by the people. He said mandated elections pitting one class of property taxpayers against another was not good. He wasn't sure if removing voting requirements was doing something bad. He's bothered by the fact HB 185 makes a backwards affirmative and by the fact a vote of the people is required to increase it. He believed this provision could lead to an ugly electoral situation. Number 073 CO-CHAIR IVAN believed these to be good points. He stated the bill's intent was to give as much local control and option to municipalities in the state. He said they were closer to their governing bodies and were more aware of their local concerns. He wanted under the unfunded mandate to give local municipalities all the options available. He believed the government should give local municipalities a chance to govern their future. He said there was an open process at every level for individuals and groups to address these issues. Number 111 REPRESENTATIVE ELTON said neither suggestions removes the ability of a municipality to make those decisions. He listed two amendments, the first being on page 3, line 1 of the committee substitute, to delete after the word "ordinance" the words "approved by the voters". He said the effect of this amendment would be a municipality can make a decision on adding back in above the $75 thousand level to the $150 thousand. This decision could be made by ordinance rather than be required to make it by ordinance and a vote. He made a motion to move the amendment. Number 153 CO-CHAIR IVAN heard no objection, and it was so ordered. Number 154 REPRESENTATIVE ELTON discussed his second proposed amendment. This would be on page 2, lines 16, 17, 18 and 19 up to the words "limited to". At the end of line 19 after the word "property," he added the words "unless a municipality by ordinance lowers the exemption to an amount not less than $75 thousand for individuals who qualify under 1 or 3 of the Subsection." He read the new language as being "The real property owned and occupied is a primary residence and permanent place of abode by a 1) resident 65 years of age or older, 2) disabled veteran, 3) resident at least 60 years old who is the widow or widower of a person who qualified for an exemption under 1 of the Subsection." Deleted would be the words "or 2." Continuing, "or 4) resident at least 60 years old who is the widow or widower of a person who qualified for an exemption under 2 of this Subsection, is exempt from taxation on the first $150 thousand of assessed value of the real property unless a municipality by ordinance lowers the exemption to an amount not less than $75 thousand for individuals who qualify under 1 or 3 of this Subsection." Representative Elton stated the effect of this amendment would be municipalities would still have a choice and still could lower to $75 thousand the amount of property tax exempted for senior citizens. Instead of this being automatic, the municipality would have to do this by ordinance. It would remain at $150 thousand unless a municipality decided to lower it to $75 thousand or any amount in between. Number 215 CO-CHAIR IVAN invited Mr. Ritchie to come forward again to comment on the proposed amendments. Number 217 MR. RITCHIE stated the first amendment would be acceptable because a municipality could choose to have an election, thereby not taking away from the municipality. He said the whole issue of a mandate shouldn't exist today and the idea behind the bill was to start from ground zero and guarantee a $75 thousand exemption which is still a mandate and isn't within the purview of the municipalities to do anything about it. Every community would start from the same place and discuss whether they wanted to provide an exemption and whether it should be based on hardship or be a general exemption or be any certain amount. He said the state didn't have this to give away as it would be paid for by the municipalities. The agreement reached by the AARP and the AML was a way of stepping forward in which $75 thousand was the set rate and each community start over to determine the final outcome. The amendment turns around the intent of this compromise, so the AML would not be in support of the second amendment. Number 248 REPRESENTATIVE ELTON responded the option would still be there. He said it was easy to start at ground zero with $75 thousand being the lowest, but he looked at it as ground zero being $150 thousand and something was being taken away. He said the municipality would have the choice of reducing it. His amendment states the benefit would now be $150 thousand and if a municipality wished to drop it, it would take an ordinance taken through the municipal assembly. He believed this would save some municipalities from a bit of debate because some may under the current language, wish to restore the exemption back to $150 thousand and undergo an ordinance to do so. Number 273 MR RITCHIE said there was not another negative option he was aware of that is provided in the property tax code. Number 276 CO-CHAIR IVAN said he wouldn't consider the amendment but would leave it up to the desire of the committee. Number 284 REPRESENTATIVE ELTON made a motion to have the committee accept his proposed second amendment. Number 286 REPRESENTATIVE KOTT objected. Number 289 CO-CHAIR IVAN tried to sense what the committee desired. Co-Chair Ivan asked for a show of hands. The amendment failed due to the majority of no's. He asked about the desire of the committee concerning the amended committee substitute for HB 185. Number 296 REPRESENTATIVE KOTT asked about the first amendment discussion he'd missed. Number 302 MR. WRIGHT stated there was another amendment earlier suggested by the state assessor, Mr. Van Sant. Number 313 CO-CHAIR IVAN asked if there were any objections to the conceptual motion. Number 316 REPRESENTATIVE KOTT stated the motion was to coalesce with the assessor to insert on page 1, line 14, after plan 45.050 "(i) up to $150 thousand". The amendment was adopted with unanimous consent. Number 324 CO-CHAIR IVAN said he would hold HB 185 and reschedule it. He expressed his appreciation for the testimony given by all testifiers. He listed the agenda for the Tuesday, March 21 meeting. ADJOURNMENT CO-CHAIR IVAN adjourned the House Community and Regional Affairs Committee at 3:00 p.m.