Legislature(1999 - 2000)
02/03/2000 08:13 AM House CRA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
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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