Legislature(1995 - 1996)
04/27/1995 08:35 AM House FIN
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
April 27, 1995
8:30 A.M.
TAPE HFC 95-101, Side 2, #000 - end.
TAPE HFC 95-102, Side 1, #000 - end.
TAPE HFC 95-103, Side 1, #000 - 135.
CALL TO ORDER
Co-Chair Mark Hanley called the House Finance Committee
meeting to order at 8:35 a.m.
PRESENT
Co-Chair Hanley Representative Martin
Co-Chair Foster Representative Mulder
Representative Brown Representative Navarre
Representative Grussendorf Representative Parnell
Representative Kelly Representative Therriault
Representative Kohring
ALSO PRESENT
Marilyn May, Assistant Attorney General, Department of Law;
David Skidmore, Senator Frank; Tom Williams, Senator Frank;
John Shively, Commissioner, Department of Natural Resources;
Natural Resources;
Loren Jones, Director, Division of Alcoholism and Drug
Abuse, Department of Health and Social Services; Arthur H.
Snowden, II, Administrative Director, Alaska Court System;
Deborah Vogt, Deputy Commissioner, Department of Revenue;
Bernie Smith, Tesoro, Annalee McConnell, Director, Office of
Management and Budget, Office of the Governor; John
Tillinghouse, Counsel, Tesoro.
SUMMARY
HB 320 An Act approving the sale of Prudhoe Bay Unit
royalty oil by the State of Alaska to Tesoro
Alaska Petroleum Company; and providing for an
effective date.
HB 320 was reported out of Committee with a "do
pass" recommendation and with two zero fiscal
notes; one by the Department of Revenue, dated
4/22/95; and one by the Department of Natural
Resources, dated 4/22/95.
SB 135 am An Act relating to permanent fund dividend program
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notice requirements, to the ineligibility for
dividends of individuals convicted of felonies or
incarcerated for misdemeanors, and to the
determination of the number and identity of
certain ineligible individuals; and providing for
an effective date.
HCS CSSB 135 (FIN) was reported out of Committee
with "no recommendation" and with three fiscal
impact notes; one by the Department of Revenue,
dated 3/30/95; one by the Department of Public
Safety, dated 3/30/95; and one by the Department
of Education, dated 4/11/95; and with two zero
fiscal notes; one by the Department of
Corrections, dated 3/30/95; and one by the
Department of Law, dated 4/11/95.
HB 191 An Act relating to the management and disposal of
state land and resources; relating to certain
remote parcel and homestead entry land purchase
contracts and patents; and providing for an
effective date.
HB 191 was held until the 1:30 p.m. meeting on
4/27/95.
HB 130 An Act relating to agency review of public comment
on the adoption, amendment, and repeal of
regulations; relating to the examination of
proposed regulations, amendments of regulations,
and orders repealing regulations by the
Administrative Regulation Review Committee and the
Department of Law; relating to the submission to,
and acceptance by, the lieutenant governor of
proposed regulations, amendments of regulations,
and orders repealing regulations; and requiring
agencies to make certain determinations before
adopting regulations, amendments of regulations,
or orders repealing regulations.
HB 130 was held until the 1:30 p.m. meeting on
4/27/95.
HB 57 An Act relating to driver's licensing; and
providing for an effective date.
HB was held until the 1:30 p.m. meeting on
4/27/95.
HOUSE BILL NO. 320
An Act approving the sale of Prudhoe Bay Unit royalty
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oil by the State of Alaska to Tesoro Alaska Petroleum
Company; and providing for an effective date.
JOHN SHIVELY, COMMISSIONER, DEPARTMENT OF NATURAL RESOURCES
testified in support of HB 320. He gave a brief overview of
the legislation. He observed that HB 320 approves the sale
of Prudhoe Bay Unit royalty oil by the state of Alaska to
the Tesoro Alaska Petroleum Company. He noted that the
Alaska Royalty Oil and Gas Development Advisory Board
reviewed the contract with unanimous support. The contract
allows:
* Tesoro to buy 40,000 thousand barrels a day or 30
percent of the Prudhoe Bay Unit royalty oil;
* The State to retain 108 thousand barrels of
Prudhoe Bay Unit royalty oil; and
* Grants Tesoro a three year contract based on the
west coast value paid to Exxon.
Commissioner Shively maintained that the contract provides
the State with a premium. He noted that the Commissioner of
the Department of Natural Resources is required by law to
obtain the minimum price that would result from the sale of
the oil by the British Petroleum Company (BP). He noted
that Tesoro has provided the State with a letter of credit.
Commissioner Shively emphasized that Tesoro provides local
employment. He stressed that in-state processing has
reduced the price of petroleum products in the state.
In response to a question by Representative Mulder,
Commissioner Shively reiterated that the contract runs for
three years. He clarified that the contract would be
renegotiated at the end of three years.
BERNIE SMITH, TESORO ALASKA PETROLEUM COMPANY spoke in
support of HB 320. He emphasized that Tesoro's current
contract will end December 30, 1995. He noted that 80
percent of Tesoro's crude oil comes from the state of
Alaska. He referred to statements made in "An Analysis of
the Department of Natural Resources Three-Year Contract for
the Sale of Prudhoe Bay Royalty Oil to Tesoro Alaska
Petroleum Company" dated March 29, 1995 (copy on file). He
observed that the contract would require that at least 80
percent of the oil purchased be processed at Tesoro's
Nikiski refinery. He emphasized that there are no other
stable long term sources of crude oil for the Nikiski
refinery. He stressed that if the contract is not ratified
before the legislature adjourns that Tesoro would lose 80
percent of its crude oil and its refinery would be
jeopardized.
Mr. Smith asserted that Tesoro is paying a premium for the
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contract. He emphasized that Tesoro can live with the
negotiated price. Mr. Smith noted that the contract states
that if the North Slope Export Ban is lifted the price will
be renegotiated.
Representative Therriault summarized that 100 percent of the
royalty constitutes 80 percent of Tesoro's crude oil at the
Nikiski refinery. He asked why the contract allows Tesoro
to use only 80 percent. Mr. Smith explained that the
provision allows Tesoro to adjust refinery rates to meet
demand.
JOHN TILLINGHOUSE, COUNSEL, TESORO ALASKA PETROLEUM COMPANY
explained the in value price. He referred to page 15 of
Tesoro's analysis. He explained that the Exxon price has
been $.19 cents a barrel higher than the in-value price.
In response to a question by Representative Grussendorf, Mr.
Commissioner Shively stated that any disadvantage in the
contract effects Tesoro. He stressed that there is no risk
to the State. He added that if the State audits and finds
that Exxon has under reported, Tesoro could be required to
pay additional money. Tesoro could also be disadvantaged by
the reopening of the Export Ban.
Representative Brown asked how the current in-value price
compares to the settlement price in the Amerada Hess case.
Mr. Tillinghouse stated that all the prices used by Tesoro's
analysis flow from the Amerada Hess settlement.
Commissioner Shively emphasized that the BP price was not
used because the transportation cost was not included. He
explained that the State has 6 years to audit the Exxon
price. He added that the State's price is higher and the
letter of credit submitted by Tesoro is longer.
Mr. Smith noted that Tesoro's letter of credit has
previously been for 60 days. The State requested a 90 day
letter of credit. The contract represents a compromise of
75 days. Tesoro remains in negotiation with their charter
shipper to reduce the letter of credit to 60 days. He
acknowledged that the State needs assurance that if Tesoro
defaults there is a ship to carry the oil.
In response to a question by Representative Navarre, Mr.
Smith noted that Tesoro would be required to pay within a
three working days after billing. He emphasized that Tesoro
has never failed to make a payment to the State.
Representative Navarre maintained that the lengthening of
the letter of credit puts Tesoro at risk by reducing their
capital availability.
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Mr. Tillinghouse noted that Mapco receives state royalty oil
without posting a letter of credit. He emphasized that the
additional banking costs will be $156.0 thousand dollars a
year and will tie up $8 to $9 million dollars.
Representative Navarre stressed that the State is well
protected by the contract.
Representative Brown asked if Tesoro has ever failed to take
delivery of the oil. Mr. Smith could not recall any time
Tesoro failed to take delivery. Mr. Tillinghouse pointed
out that Tesoro is obligated for the oil regardless of their
ability to take delivery. Tesoro would have to give the
State six months notice to not take delivery. Mr. Smith
anticipated that Tesoro will be able to use all the crude
available. Mr. Tillinghouse added that if Tesoro gives six
months notice on their inability to take delivery they would
be assessed a penalty. Mr. Smith expressed confidence that
Tesoro can maintain the terms of the contract.
In response to a question by Representative Brown,
Commissioner Shively stated that a competitive bid was not
considered. He noted that the State is considering a
competitive sale in the future. He emphasized that Tesoro
provides the State with economic benefits as an in state
producer.
Mr. Bernie clarified that Tesoro is seeking a long term
contract.
Representative Navarre commended Tesoro in their success in
Alaska. He MOVED to report HB 320 out of Committee with
individual recommendations and with the accompanying fiscal
notes.
HCS CSSB 135 (FIN) was reported out of Committee with "no
recommendation" and with three fiscal impact notes; one by
the Department of Revenue, dated 3/30/95; one by the
Department of Public Safety, dated 3/30/95; and one by the
Department of Education, dated 4/11/95; and with two zero
fiscal notes; one by the Department of Corrections, dated
3/30/95; and one by the Department of Law, dated 4/11/95.
SENATE BILL 135 am
An Act relating to permanent fund dividend program
notice requirements, to the ineligibility for dividends
of individuals convicted of felonies or incarcerated
for misdemeanors, and to the determination of the
number and identity of certain ineligible individuals;
and providing for an effective date.
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DAVID SKIDMORE, STAFF, SENATOR FRANK testified in support of
SB 135. He noted that similar legislation was passed by the
Senate unanimously in the previous session, but died in the
House. He explained that SB 135 amends the Permanent Fund
forfeiture statutes in four ways. It expands the pool of
criminals who are ineligible for permanent fund dividends to
include persons who are convicted but not incarcerated of a
felony and persons incarcerated for their third or
subsequent misdemeanor conviction. It also amends the
process by which the forfeited dividends are available for
appropriation to selected state agencies. There would no
longer be a one year lag in the appropriation to agencies.
This would allow a second appropriation from the dividend to
be available in FY 96. He noted that the Senate's FY 96
Department of Corrections' operating budget is predicated on
the availability of these one-time funds. The bill also
creates a new notice requirement that would show the amount
that would otherwise have been paid to ineligible criminals;
the grounds for the ineligibility; the legislative purpose
in making criminals ineligible; and the amount appropriated
to each of the agencies. The bill would also add the
Department of Law, the Department of Public Safety and the
Department of Revenue to the list of government entities
that are eligible to receive appropriations from the
forfeited dividends. He observed that the Committee has
been provided with an amendment which would remove the
Department of Revenue, Child Support Enforcement Division
(CSED) from the list. He explained that the Department of
Revenue was originally added in response to concerns that
child support cases would be unduly affected. He stressed
that analysis shows that the actual impact to child support
cases would be minimal. He expressed concern that the
inclusion of the Department of Revenue could invalidate the
amendments in SB 135 since there is not a clear linkage
between child support payments of criminals and the criminal
justice system.
Representative Brown asked for clarification of the priority
of call on the permanent fund dividends.
TOM WILLIAMS, STAFF, SENATOR FRANK stated that AS 43.23.065
(b) lists priorities. He reviewed priorities as listed in
AS 43.23.065 (b). He stated that the legislation would not
change the order of draw. He explained that the dividends
would not be available for attachment since they would be
forfeited.
(Tape Change, HFC 95-102, Side 1)
Mr. Skidmore explained that dividends would be appropriated
to reimburse costs imposed on the criminal justice system.
Approximately 2,000 felons would become ineligible.
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Representative Brown suggested that the amount of dividends
that would be available for attachment for child support
would be reduced.
Mr. Skidmore provided members with a summary of the
estimated number of newly-ineligible criminals whose child
support obligations would be affected by SB 135 (Attachment
1). He stated that out of 2,000 criminals approximately 20
percent would have active Child Support Enforcement Division
cases. He stated that 47 percent of these cases would be on
AFDC. He summarized that only 46 cases would be CSED cases
involving PFD garnishment.
Mr. Skidmore observed that the criminals in question would
have less than a one year sentence. He explained that AFDC
cases were exempted since all but $50.0 dollars of their
PFD's are already forfeited to the state.
Mr. Williams added that some persons collecting child
support will be affected by the denial of dividends. He
stressed that the number will be relatively small. He
emphasized that $2.7 million dollars would be available for
state operations in FY 96.
MARILYN MAY, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW
testified via the teleconference network. She agreed that
all but $50.0 dollars of AFDC obliges' PFD's would go to the
State. She stated that the impact on AFDC custodial parents
would be minimal. She acknowledged that the money would be
transferred from one pocket to another.
Representative Brown summarized that funding for Aid to
Families with Dependent Children (AFDC) operation costs
would not be available under the provisions of SB 135.
Ms. May stated that previous constitutional concerns
regarding equal protection and ex-facto have been addressed
by SB 135.
LOREN JONES, DIRECTOR, DIVISION OF ALCOHOL AND DRUG ABUSE
expressed concern that most third time misdemeanor offenders
covered under SB 135 would be part of the Division's
treatment system. He observed that these PFD's are
currently used by treatment agencies to compute income from
fees owed. He stressed that the use of these fees by the
Division of Alcohol and Drug Abuse is not recognized by SB
135. He added that HB 159 would add a new group of felons
that would loose their PFD's as the result of a third time
misdemeanor. He noted that these treatment programs cannot
attach dividends in a subsequent year.
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DEBRA VOGT, DEPUTY DIRECTOR, DEPARTMENT OF REVENUE stated
that the legislation enlarges the class of offenders that
would not be eligible for PFDs. She referred to the timing
mechanisms that permit a one time only appropriation of $2.7
million dollars out of the Permanent Fund Dividend
Distribution Fund in FY 96. She provided members with
charts demonstrating the appropriation path (Attachment 2A
and 2B). She stated that the Governor has concerns that
dividends in question are already being used by other
agencies for other programs.
Ms. Vogt reviewed attachment 2A. She demonstrated that
dividends paid for the January 1 - March 30, 1995 period
would normally be available in 1996. She showed that these
dividends would be appropriated in 1995 under the provisions
of SB 135. She added that dividends withheld from criminals
in the prior year are also paid in 1995. She summarized
that by moving up the notification by a year both dividends
will be appropriated in FY 96. She stated that the result
of two appropriations from the Permanent Fund Dividend will
be that an additional $5.0 dollars would be taken from each
individual's dividend.
Ms. Vogt stated that the drafting language of section 7
would prevent the disclosure of the additional cost of the
provisions of SB 135.
Representative Therriault MOVED to adopt Amendment 1
(Attachment 3). Amendment 1 would remove Department of
Revenue for child support from the list of departments that
can receive funds from the denied criminals. Ms. Vogt
argued that dividends garnished by the Child Support
Enforcement Division go to children. She stressed that the
amendment and an increase of the class of offenders denied
are separate issues from the Administration's opposition to
the bill.
Co-Chair Hanley summarized that the Administration is
opposed to the policy call of having two appropriations in
one fiscal period. Ms. Vogt stated that the Administration
is neutral on amendment 1.
There being NO OBJECTION, Amendment 1 was adopted.
Ms. Vogt demonstrated how the change in the appropriation of
forfeited dividends will result in a reduction of the amount
available for dividends appropriated in 1995. She
reiterated that 1995 dividends will be reduced by $5.0
dollars each. She explained that dividends appropriated to
agencies from forfeits by felons in FY 95 are from felons
incarcerated in FY 94. She reiterated that two years worth
of non-payments to felons are being taken out of one year's
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budget. Representative Navarre argued that the first
payment for 1994 should have been shown in FY 95. Ms. Vogt
stressed that the reason for the gap is that the amount of
the dividend is unknown during the appropriation process.
She observed that those that are not going to get dividends
do not have an incentive to apply. The Department of
Corrections provides the Department of Revenue with a tape
of incarcerated offenders that would have been eligible.
Representative Brown recalled that the reason the
Legislature did not require disclosure of the amount taken
from felons' dividends is that other dividends would not be
affected. She questioned the effect of a 90 day effective
date. Ms. Vogt did not think there would be a large impact.
ANNALEE MCCONNELL DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET,
OFFICE OF THE GOVERNOR testified that the Governor does not
support the concept of SB 135 as a method to solve the FY 96
budget problem. She stressed that the State has on going
budget problems that must be addressed. She emphasized that
SB 135 will not result in a long term solution. She added
that other entities dependent on PFD's receipts would be put
in jeopardy.
(Tape Change, HFC 95-103, Side 1)
Representative Martin spoke in support of program fees. Ms.
McConnell stated that the Governor supports program fees,
but emphasized that they have concern about combining two
year's fees into one.
ARTHUR H. SNOWDEN, II, ADMINISTRATIVE DIRECTOR, ALASKA COURT
SYSTEM pointed out that the PFD's of indigent offenders are
already being assigned to the State for the cost of their
defense.
Ms. May added that the collection for DWI offenders pay for
their incarceration.
Representative Brown asked if the amount of court ordered
restitutions were known. Mr. Snowden stated that the amount
was not known.
Representative Martin MOVED to report SB 135 am out of
Committee with individual recommendations and with the
accompanying fiscal notes. Representative Brown OBJECTED.
She emphasized the impact on those that are currently
receiving the PFD's such as the Child Support Enforcement
Division, parents, victims and Aid to Families with
Dependent Children. She observed that individual PFD's
would be further reduced by $5.0 dollars. She stressed that
much of the money is already going to the criminal justice
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system.
Representative Grussendorf spoke against short term
solutions to a long term budget problem.
A roll call vote was taken on the MOTION to move SB 135 am
from Committee.
IN FAVOR: Kelly, Kohring, Martin, Mulder, Therriault,
Foster, Hanley
OPPOSED: Brown, Grussendorf
Representatives Parnell and Navarre were absent from the
meeting.
The MOTION PASSED (7-2).
HCS CSSB 135 (FIN) was reported out of Committee with "no
recommendation" and with three fiscal impact notes; one by
the Department of Revenue, dated 3/30/95; one by the
Department of Public Safety, dated 3/30/95; and one by the
Department of Education, dated 4/11/95; and with two zero
fiscal notes; one by the Department of Corrections, dated
3/30/95; and one by the Department of Law, dated 4/11/95.
ADJOURNMENT
The meeting adjourned at 10:20 a.m.
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