Legislature(1999 - 2000)
04/13/2000 02:30 PM House FIN
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
April 13, 2000
2:30 P.M.
TAPE HFC 00 - 117, Side 1
TAPE HFC 00 - 117, Side 2
CALL TO ORDER
Co-Chair Therriault called the House Finance Committee
meeting to order at 2:30 p.m.
PRESENT
Co-Chair Mulder
Co-Chair Therriault Representative Foster
Vice Chair Bunde Representative Grussendorf
Representative Austerman Representative Moses
Representative J. Davies Representative Phillips
Representative G. Davis Representative Williams
ALSO PRESENT
Senator Al Adams; Barbara Huff Tuckness, Director,
Governmental and Legislative Affairs, Teamster Local 959;
Eric Yould, Alaska Rural Electric Cooperative Association;
Dave Carlson, Project Coordinator, Four Dam Pool,
Petersburg; Walter Sapp, Four Dam Pool (did not testify);
Robert Wilkinson, Copper Valley Four Damm Pool (did not
testify); Tom Friesen, Four Dam Pool (did not testify);
Randy Simmons, Executive Director, Alaska Industrial
Development and Export Authority, Department of Community
and Economic Development; Keith Laufer, Chief Financial and
Legal Affairs Manager, Alaska Industrial Development and
Export Authority, Department of Community and Economic
Development; Neal Slotnick, Deputy Commissioner, Department
of Revenue; John Jenks, Chief Investment Officer, Department
of Revenue; Kate Balinger, Kodiak.
TESTIFIED VIA TELECONFERENCE
Dr. George Reineer, MD, Anchorage; Brian Bjorkquist,
Assistant Attorney General, Department of Law;
SUMMARY
HB 211 "An Act relating to liability for providing
managed care services, to regulation of managed
care insurance plans, and to patient rights and
prohibited practices under health insurance; and
providing for an effective date."
CSHB 211 (FIN) was REPORTED out of Committee with
"no recommendation" and a zero fiscal note by the
Department of Community and Economic Development
published 3/8/00.
HB 446 "An Act establishing and relating to the power
cost equalization endowment fund; relating to the
power cost equalization and rural electric
capitalization fund; authorizing and relating to
the sale of the four dam pool hydroelectric
project; establishing and relating to joint action
agencies created to purchase power projects; and
providing for an effective date."
HB 446 was heard and HELD in Committee for further
consideration.
HB 447 "An Act making appropriations relating to power
cost equalization and the sale of the four dam
pool hydroelectric project and to capitalize
funds; and providing for an effective date."
HB 447 was heard and HELD in Committee for further
consideration.
HOUSE BILL NO. 211
"An Act relating to liability for providing managed
care services, to regulation of managed care insurance
plans, and to patient rights and prohibited practices
under health insurance; and providing for an effective
date."
REPRESENTATIVE NORM ROKEBERG, SPONSOR provided members with
a letter from Ed Burgan, Senior Vice President, Brady and
Company (copy on file). Mr. Burgan represents a number of
private sector employers, unions and trusts around the
state. He observed that he was able to resolve the concerns
of Mr. Burgan and that Mr. Burgan now supports the
legislation with the addition of an amendment. The amendment
would exempt self-insured employers. He observed support for
the legislation by Alaska State Medical Association, Blue
Cross, Aetna and representatives from the Health Insurance
Association of America. He maintained that that the
legislation is supported by organized labor and other
businesses in the state.
Representative Williams MOVED to ADOPT Amendment 1:
Sec. 21.07.090. Construction. This chapter may not be
construed to supersede or change the provisions of 29
U.S.C. 1001 - 1191 (Employee Retirement Income Security
Act of 1974) as those provisions apply to self-insured
employers.
There being NO OBJECTION, it was so ordered.
Vice Chair Bunde MOVED to ADOPT conceptual Amendment 2: add
"medical necessity" back into the legislation. He expressed
concern regarding the removal of "medical necessity".
Medical necessity was removed as part of a compromise with
the understanding that it would be included in another bill.
He stressed that its absence would leave the legislation
incomplete.
Co-Chair Therriault thought that the medical community
supported the bill and did not want to risk killing the
legislation.
BARBARA HUFF TUCKNESS, DIRECTOR, GOVERNMENTAL AND
LEGISLATIVE AFFAIRS, TEAMSTER LOCAL 959 observed that the
Teamster supports the legislation with the addition of the
amendment.
DR. GEORGE REINEER, MD, ANCHORAGE testified via
teleconference in support of Amendment 2. He noted that the
definition of "the best care" for patients changes rapidly.
Vice Chair Bunde questioned if the inclusion of the right
for an external appeal would remove the need for a
definition of "medical necessity". Dr. Reineer responded
that the right for an outside appeal should not exclude the
acceptance of something as a medical necessity.
Representative Rokeberg argued that the statutory provisions
for the external review amount to a de facto definition of
"medical necessity".
Representative Rokeberg added that the external review
agency might also take into consideration additional
evidence.
Vice Chair Bunde referred to a letter by the Alaska State
Medical Association (copy on file.) According to the letter
the Association recognizes that the legislation contains
some significant protections for Alaska's patients. However,
the letter continues, "the job is not yet completed." Two
major issues remain, managed care entity accountability
(liability issue) and the issue pertaining to the definition
of "medical necessity" with its impact on the external
appeal mechanism and with liability. The Alaska State
Medical Association acknowledged the shortness of the
remaining session and concluded that passage of an
incomplete bill was better than no bill at all.
Dr. Reiner agreed that something is better than nothing.
Representative Rokeberg observed that the addition of
"medical necessity" would remove support of the legislation
by groups that support its current version.
In response to a question by Vice Chair Bunde,
Representative Rokeberg observed that there is a three stage
level of review in the legislation to assure that a patient
has a forum for due process before going to the court.
Representative Foster MOVED to report CSHB 211 (FIN) out of
Committee with the accompanying fiscal note. There being NO
OBJECTION, it was so ordered.
CSHB 211 (FIN) was REPORTED out of Committee with a zero
fiscal note by the Department of Community and Economic
Development, published date 3/8/00.
HOUSE BILL NO. 446
"An Act establishing and relating to the power cost
equalization endowment fund; relating to the power cost
equalization and rural electric capitalization fund;
authorizing and relating to the sale of the four dam
pool hydroelectric project; establishing and relating
to joint action agencies created to purchase power
projects; and providing for an effective date."
HOUSE BILL NO. 447
"An Act making appropriations relating to power cost
equalization and the sale of the four dam pool
hydroelectric project and to capitalize funds; and
providing for an effective date."
RANDY SIMMONS, EXECUTIVE DIRECTOR, ALASKA INDUSTRIAL
DEVELOPMENT AND EXPORT AUTHORITY, DEPARTMENT OF COMMUNITY
AND ECONOMIC DEVELOPMENT provided members with a proposed
Amendment (copy on file). He explained that ADIEA has been
working with Four Dam Pool communities for the past five
years on the sale of the projects. He gave a brief history
of the sale negotiation. The Alaska Industrial Development
and Export Authority (AIDEA) approached sale negotiations
with three goals: to get a fair value for the projects and
to relieve the state of any liability; ensure that the sale
and transfer benefited local communities; and try to put a
deal together that would use proceeds from the transfer to
fund the Power Cost Equalization program. He maintained that
the Memorandum of Understanding (MOU), signed by the
utilities and Alaska Energy Authority accomplished these
goals to a large extent.
Mr. Simmons discussed the purchase price. The purchase price
is $73 million dollars for the sale of the projects. This
price is within a range of value that AIDEA determined was
fair. He observed that the range of value was determined by
taking the present value of the revenue stream that would be
received from the projects over the life of the power sales
agreement - discounted to present value; and the state's
payments or liabilities were discounted back to a present
value. He summarized that the liabilities and present value
were subtracted from the present value of the revenue
stream. The value range was $66 - $85 million dollars based
on a variety of assumptions. The sale will take about two
years to close. The tentative closing dated is January 31,
2001. The state receives approximately $9.5 - $10.5 million
dollars a year from the sale of the power. This is currently
appropriated: 40% Southeast Intertie grants and 60% to PCE.
Communities have agreed that the whole amount would go to
the state for PCE. Communities will also give up self-help
rights during that time. To give communities comfort, the
state has agreed that if there is something that the
communities could not take care of, that they could step
back from the agreement. Communities give up a two-year
payment stream. The payment stream is approximately $20
million dollars.
Mr. Simmons observed that the state holds an insurance fund,
which is used for the deductible. The estimated amount of
the insurance fund at closing is $13 million dollars. These
funds would go into the endowment.
Mr. Simmons observed that there has been an intertie loan to
the Southeast Intertie of $20 million dollars. It is a low
interest loan of 3 percent. This loan would be available to
communities if an intertie were built. The communities have
agreed to turn the loan over to the state as part of the
package. The state agrees to give the communities a credit
to the sales price; if the intertie were built the credit
would apply. If the intertie is not built then the credit
returns to the state. He noted that if communities give up
the loan and have to borrow from somewhere else at a market
rate that the subsidy would be approximately $5 and $6
million dollars. The purchase price is credited for $5
million dollars. If the intertie is built this credit can be
used. If it is not built it returns to the state.
KEITH LAUFER, CHIEF FINANCIAL AND LEGAL AFFAIRS MANAGER,
ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY,
DEPARTMENT OF COMMUNITY AND ECONOMIC DEVELOPMENT explained
that they would have 5 years from the date of the MOU to
implement a finance plan that shows committed funds for the
intertie. Construction would have to be started within 10
years of the MOU.
Vice Chair Bunde clarified that, if the communities do not
go after the loan, the state gets the money back. Mr.
Simmons explained that the $5 million dollars would be
credited and not paid out.
In response to a question by Representative J. Davies, Mr.
Simmons explained that in FY01 the debt service would be
$10.5 million dollars: this would go into the endowment
fund. The Four Dam Pool debt service would be $9 million
dollars in FY02. At closing there is $68 million dollars
from the sales price ($73 million dollars minus $5 million
for the credit): plus $13 million dollars from the insurance
fund.
Co-Chair Therriault observed that there is a potential that
the money could be held for up to 10 years.
Mr. Simmons explained that the money is sitting in an
account in the Alaska Energy Authority, generating interest.
The state wanted to have the entire $20 million dollars come
back immediately.
Mr. Laufer stressed that the $5 million dollar credit is a
conservative amount. He estimated that the actual subsidy
amount could be higher.
Mr. Simmons further explained that AIDEA would finance the
transaction. Only $68 million dollars would be financed. The
financing would be increased if the credit were used. There
is no recovery of costs for the $5 million dollars.
Representative J. Davies referred to the interest on the $20
million dollars. He observed that the state has been
collecting the interest on the funds. Mr. Simmons added that
this amount would go into the endowment and the interest
would be collected as part of the endowment.
Vice Chair Bunde observed that PCE expenditures are flat
funded for the next 10 years under the proposal. He observed
that the costs increase. Mr. Simmons noted that the
legislature could change the funding amount. He felt that
the endowment would grow and is conservative. Other money,
such as federal funds, could be deposited into the
endowment. The endowment is based on current statute.
Vice Chair Bunde stressed that an annuity assumes that the
problem has been addressed. He stated that he would prefer
language to allow pro-ration if more money is needed. Mr.
Simmons stated that the intent is that the plan would
provide full funding.
(TAPE CHANGE, HFC 00 - 117, SIDE 2)
Mr. Simmons discussed the endowment. The Four Dam Pool sale
proceeds of $120 million dollars would flow into the
endowment minus the FY01 funding for PCE ($10 million
dollars). The original intent was to take 7 percent of the
fund for a specific date. He noted that this created a
problem in that equities can vary on any given day. The CS
has a phase in and transition approach utilizing a three-
year average to derive the 7 percent.
Representative J. Davies questioned if 7 percent is
aggressive and asked if it would be sustainable.
Representative Austerman pointed out that the fund is not
inflation proofed. Mr. Simmons agreed.
Representative G. Davis observed that an 8.3 percent
endowment would have been reduced to 5 percent with
inflation proofing and felt that the numbers were
appropriate.
Co-Chair Therriault expressed concern that there would be
future questions regarding the funds ability to keep up with
inflation proofing.
Representative Austerman questioned if the Department of
Revenue could put some inflation proofing in the fund.
Co-Chair Therriault pointed out that if more than 7 percent
is achieved that the excess would be deposited into the
fund.
Representative Austerman questioned if the bill specifies a
7 percent pay out. Mr. Simmons clarified that the bill does
specify a 7 percent pay out.
In response to a question by Representative Williams, Mr.
Simmons explained that whatever is earned under the proposal
would returned as an AIDEA dividend. He observed that it is
a policy call of how the legislature appropriates AIDEA
dividends.
NEAL SLOTNICK, DEPUTY COMMISSIONER, DEPARTMENT OF REVENUE
explained that the legislation specifies that the
commissioner of the Department of Revenue is to invest the
endowment fund in a manner that is likely to achieve at
least a 7 percent return. There is not inflation proofing,
but the department will try to achieve more than a 7 percent
return.
JOHN JENKS, CHIEF INVESTMENT OFFICER, DEPARTMENT OF REVENUE
explained that under a normal endowment system that they
would anticipate earning 8.25 percent over a five-year
period. One percent could be added to the endowment a year
based on current markets.
Mr. Simmons clarified that it would be a long time before
the 7 percent draw would be more than $15 million dollars.
Mr. Slotnick added that the draw is 7 percent and the return
is expected at 7 percent. Vice Chair Bunde concluded that
with a 7 percent pay out of market value that the fund would
diminish in value in real dollars.
Representative Austerman questioned if the fund should be
inflation proofed. Mr. Jenks agreed that a fully funded
endowment would need to be inflation proofed. He
acknowledged that a 7 percent pay out is high for a fund
that was going to be inflation proofed. He stated that they
would normally have a 4.5 - 5 percent pay out on funds that
are inflation proofed.
Mr. Simmons continued discussion of the endowment funding.
He noted that $10 million dollars would be used for FY01 PCE
funding. There should be an $8 million dollar carry forward
into the PCE fund from NPRA funds. The endowment would be
$110 million dollars with an annual dividend of $7 - $8
million dollars. He added that AIDEA dividends of $9 million
dollars would also go into the fund and $15.7 million
dollars would be appropriated to the PCE program.
Co-Chair Therriault observed that federal funds go directly
to the PCE fund. Mr. Simmons explained that the default for
federal funds is to go to the endowment. There would have to
be specific instructions for funds to go to PCE for any
specific year.
Representative J. Davies pointed out that FY01 would still
be short $4.3 million dollars.
In response to a question by Representative Austerman, Co-
Chair Therriault clarified that the amendment proposed by
AIDEA would be given to the legislative drafter for
incorporation into a proposed committee substitute.
Co-Chair Therriault pointed out that there is the issue of
the $20 million dollars (from the Southeast Intertie loan):
should the funds go to the endowment or to the Railbelt
Energy Fund (the original source) and replaced by a CBR
draw.
Mr. Laufer clarified that any appropriation would be taken
in HB 447. He explained that an amendment to HB 447 would
require a corresponding amendment to the MOU, which would
have to be acknowledged in a subsequent bill. The documents
signed by the utilities anticipated that intertie funds
would be contributed to the PCE endowment, if this were not
to happen the MOU would need to be amended. HB 447
authorizes the sale based on the terms of the MOU. The MOU
is referenced by date.
Representative Phillips pointed out that the communities
would not be concerned as to where the money comes from.
Co-Chair Therriault stressed that the money was owed back to
the Railbelt Energy Fund.
SENATOR AL ADAMS pointed out that an additional $4.4 million
dollars is needed for FY01. He acknowledged the benefit of
the legislation, but stressed that it is not a full
endowment. He pointed out that part of the funding would
come from an AIDEA dividend. He maintained that $200 million
dollars is needed for a full endowment. He observed that the
Administration is working on acquiring federal funds. There
will still be a transition period, which would require $7.7
million dollars from the AIDEA dividend. He suggested that
money from rural locations, such as the Red Dog Mine, could
be used for the AIDEA dividend. He emphasized that a full
endowment would be possible.
Senator Adams pointed out that AS 19.93.181(b) require that
PCE be funded at $17 million dollars till the year 2000. The
statute allows for growth.
Representative J. Davies summarized that $15.7 million
dollars is a base and that there may be times when more is
needed for items such as increased fuel costs. He noted that
increased efficiencies have allowed flat funding. He
expressed concern with the findings: affordable rates are a
necessary ingredient of a modern society and a prosperous
developing economy. He pointed out that PCE is a limited
subsidy for residential rates. It doesn't subsidize
commercial rates. He stressed that PCE needs to be expanded
past residential rates. He maintained that there is not
enough subsidy to develop the economy.
Co-Chair Therriault stressed that the findings are
unnecessary. He agreed that it is a subsidy for residential
use, not economic activity. Representative J. Davies
stressed that PCE helps economic development.
ERIC YOULD, ALASKA RURAL ELECTRIC COOPERATIVE ASSOCIATION
testified in support of the proposal. The Association
supports PCE, divestiture of Four Dam Pool and the use of
the proceeds of the sale for PCE. A Dittman research poll,
which asked urban areas if they support PCE, found that 61
percent favored continued state support for PCE. He
maintained that PCE is a linchpin for economic development
in rural areas.
DAVE CARLSON, PROJECT COORDINATOR, FOUR DAM POOL, PETERSBURG
testified in support of the legislation. He noted that the
MOU ended a five-year effort to purchase the Four Dam Pool.
He maintained that it is a win/win situation. The state is
relieved of risks and local communities will gain control
over their destiny.
In response to a question by Representative Austerman, Mr.
Carlson did not object to using CBR funds to replace the
loan to the Rail Belt Fund.
KATE BALINGER, KODIAK, testified via teleconference in
support of the legislation. She urged movement of the
legislation during the current session.
HB 446 and HB 447 were heard and HELD in Committee for
further consideration.
ADJOURNMENT
The meeting was adjourned at 4:05 p.m.
| Document Name | Date/Time | Subjects |
|---|