Legislature(2001 - 2002)
04/11/2002 02:02 PM House FIN
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* first hearing in first committee of referral
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HOUSE FINANCE COMMITTEE
April 11, 2002
2:02 P.M.
TAPE HFC 02 - 82, Side A
TAPE HFC 02 - 82, Side B
CALL TO ORDER
Co-Chair Williams called the House Finance Committee meeting
to order at 2:02 P.M.
MEMBERS PRESENT
Representative Bill Williams, Co-Chair
Representative Eldon Mulder, Co-Chair
Representative Con Bunde, Vice-Chair
Representative Eric Croft
Representative John Davies
Representative John Harris
Representative Bill Hudson
Representative Ken Lancaster
Representative Carl Moses
Representative Jim Whitaker
MEMBERS ABSENT
Representative Richard Foster
ALSO PRESENT
Representative Joe Hayes; Representative Drew Scalzi;
Representative Peggy Wilson; Vern Jones, Chief Procurement
Officer, Department of Administration; Kara Altman, Travel
Industry, Juneau; Cyndi Isaak, Travel Industry, Juneau; Eric
Yould, Alaska Rural Electric Cooperative Association
(ARECA), Anchorage; Mary McDowell, Commissioner, Commercial
Fisheries Entry Commission; Ed Crane, Alaska Commercial
Fishing & Agriculture Bank, Anchorage
PRESENT VIA TELECONFERENCE
Yulanda Johansen, Northern Lights Travel, Fairbanks; Danelle
Kirschner, Progressive World Travel, Fairbanks; Ramona
Oxendine, Vagabond Travel, Fairbanks; Sara Fisher-Goad,
Alaska Energy Authority (AEA), Anchorage; Barb Marifern,
Petersburg; Sue Moran, Petersburg; Marilyn Menish Meucci,
Petersburg; Leo Steven Brown, Homer; Cora Crome, Anchorage;
Bruce Marifern, Petersburg
SUMMARY
HB 175 An Act making an appropriation to the Alaska
Industrial Development and Export Authority for
power projects; and providing for an effective
date.
HB 175 was HEARD and HELD in Committee for further
consideration.
HB 287 An Act relating to the exemption of commercial
fishing entry permits from claims of creditors, to
loans to satisfy past due federal tax obligations
of commercial fishing entry permit holders, and to
loan origination charges for loans made by the
commercial fishing loan program to refinance a
debt obligation; and providing for an effective
date.
HB 287 was HEARD and HELD in Committee for further
consideration.
HB 300 An Act relating to the procurement of certain
travel services.
HB 300 was reported out of Committee with a "do
pass" recommendation and with a new indeterminate
fiscal note by Department of Administration.
HB 504 An Act relating to the wages of people working in
the fisheries business.
HB 504 was SCHEDULED but not HEARD.
HOUSE BILL NO. 175
An Act making an appropriation to the Alaska Industrial
Development and Export Authority for power projects;
and providing for an effective date.
Representative Lancaster MOVED to ADOPT Amendment #1, #22-
LS0705\X.4, Kurtz/Utermohle, 3/26/02. There being NO
OBJECTION, Amendment #1 was adopted.
Representative Hudson asked if the amendment had included
the entire bill.
Representative Lancaster replied that it did and explained
what it would accomplish. The amendment will establish a
new funding mechanism and will remove the $76 million
dollars that is currently in the Railbelt Energy Fund and
moves that fund to an asset of Alaska Industrial Development
and Export Authority (AIDEA). AIDEA then would use it as an
asset base to issue revenue bonds for projects in the amount
of $43 million dollars. AIDEA would invest $76 million
dollars, securitized with the corporation and the income
stream from that would pay the bonds.
Representative Lancaster highlighted the amendment:
· Section 1 - $1 million dollars for a study and
construction of an electrical interconnection
between Juneau and Hoonah.
· Sections 2 & 3 - allow revenue bonds to be sold
and for those funds to be appropriated to the
project.
· #1, Page 2 - The sum of $11 million dollars
allocated to upgrade and extend the Anchorage-
Fairbanks power transmission intertie to the
Teeland.
· #2, Page 2 - Grant recipients from the power
transmission inter-tie fund to the recipients
named, for the purposes described and in the
amounts set out:
$2,000,000 Homer Electric Association
$11,000,000 Anchorage Muni. light & power
$5,000,000 Copper Valley Elec. Assn.
$5,000,000 Cordova Electric Assn.
$7,000,000 AK. Power & Telephone Co.
$2,000,000 Kodiak Electric Assn.
· (f) - The intent language explains that once the
revenue bonds are paid off, the $76 million
dollars would again would be available to have
bonds issued against them and use that income
stream from the fund to address a prioritized
list.
Co-Chair Williams noted, it was not his intent to move HB
175 from Committee.
Representative Croft inquired why there was a difference
between #1 and #2.
Representative Lancaster explained that was the way the
drafter had prepared it, adding that there is no "real"
difference between the two. The money will move to the
project as outlined in Section C.
Representative Croft asked how long would it take before the
State paid off the bonds and if the collective bonds would
be sufficient to fund all for whatever term was left.
Representative Lancaster assumed they would be 15-year
bonds. He pointed out that $76 million dollars would be
securitized and would remain an asset of AIDEA.
Representative Croft understood that when the bonds are
paid, the money would be unencumbered and available for use
as collateral for different projects. He asked if there was
a list of State project needs.
Representative Lancaster replied the list had originated
from the industry.
Representative Hudson asked the amount remaining in the
Railbelt Energy Fund.
Representative Lancaster advised that $76 million dollars
was remaining which would need to be transferred. He
pointed out that the fund had been the Governor's idea, and
that it would perpetuate Representative Barnes (fund)
concept forever.
SARA FISHER-GOAD, (TESTIFIED VIA TELECONFERENCE), ALASKA
ENERGY AUTHORITY (AEA), ANCHORAGE, spoke to concerns of
Representative Davies regarding how the bill was
established.
ERIC YOULD, ANCHORAGE RURAL ELECTRIC COOPERATIVE ASSOCIAITON
(ARECA), ANCHORAGE, offered to answer questions of the
Committee.
Co-Chair Williams noted that HB 175 would be HELD in
Committee for further consideration.
#HB300
HOUSE BILL NO. 300
An Act relating to the procurement of certain travel
services.
SENATOR JOE HAYES, SPONSOR, spoke in support of the
legislation. He commented that HB 300 would allow for the
exemption of contacts for certain types of travel services
including airplane travel, hotel accommodations and travel
agency services from the procurement procedures of AS 36.30.
He pointed out that travel agencies are facing a dismal
situation. All major airlines excluding Alaska Airlines
have completely cut commissions. That action is presenting
a dire situation for Alaska travel agents.
Currently, Alaska only allows the use of agencies that do
not charge fees. That action has excluded many agencies in
the State from competing for State travel. It is difficult
to provide travel without charging a fee, especially since
those businesses already operate on a 1-2% margin.
The passage of the bill would eliminate the requirement for
competitive procurement in order to pay fees, but it would
not prevent establishing future travel agency contracts when
in the State's best interest. It would have no effect on
the current travel agency contracts since they are
preexisting and legally binding.
Representative Hayes noted that passing HB 300 from
Committee would give all travel agencies in the State an
opportunity to provide State travel. He added that it is
time that the State pay for services rendered. Since the
airlines have cut commissions, any travel the agency
arranges for the State will essentially cost the agency
money.
Senator Hayes pointed out that the fiscal note was listed as
an indeterminate note. He hoped that the note would be
absorbed by the State's overall travel budget.
Vice-Chair Bunde questioned if the State currently uses
travel agents that do not charge fees.
Representative Hayes stated they do.
Vice-Chair Bunde asked why the State would want to eliminate
that arrangement for one in which the State would be
charged.
Representative Hayes explained that it is an issue of
fairness. He added that it would be a cost savings to allow
those travel agencies to charge the fee, as they are trying
to find the best deal for the traveler. When an employee
looks on the Internet, they might not be able to come up
with the best price.
Representative Lancaster asked why rented cars were being
excluded.
Representative Hayes responded that interest already carries
a contract with the State.
Representative Hudson asked if the legislation would
preclude the State from having new exclusive contracts with
a travel agency. He inquired what the benefit to the State
would be.
Representative Hayes explained that the legislation would
allow the State to negotiate with individual travel agencies
to determine a uniform fee. It would not preclude the State
from having a single source dollar amount.
Representative Hudson asked if it would be similar to what
the airlines are now doing.
Representative Hayes said it was.
VERN JONES, CHIEF PROCURMENT OFFICIER, DEPARTMENT OF
ADMINISTRATION, advised that in the past, most travel
agencies did not charge fees to the State because they got
compensated 100% from travel service providers. Recently,
all major airlines have reduced commission fees to zero,
with the exception of Alaska Airlines. It is expected that
they will follow suit soon. Because of this, no travel
agencies can be expected to provide their services free of
charge to the State any longer. The airlines are shifting
the costs to the consumer, driving the consumer to their web
sites where it is cheaper for the airlines to do business.
Mr. Jones stated that travel related procurements are not
exempt from the procurement code. Since travel agencies
have not charged the State for their services in the past,
the State has not had to go out and get competitive
procurements resulting in contracts for that service. The
policy was to take advantage of the free travel agent
services when available. When no travel agency was willing
to provide free services in a community, the State then went
out and established procurement contracts in that community.
The policy resulted in single providers for the State in
Juneau, Wrangell, Petersburg, Haines, Cordova, Seward and
Dillingham. The bill would not prevent the State from
continuing that practice. The intent of the bill is that
the State no longer continues that practice.
Mr. Jones commented that if the bill is passed, the
Department plans to meet with representatives of the travel
agent industry to establish a benchmark fee schedule. Fee
rates would then be eligible for State business. State
employees would be given authority to utilize any travel
agencies who have agreed to provide services that do not
exceed those benchmark rates.
Mr. Jones added that the existing State travel contracts now
in place would not be affected by the legislation. He
mentioned that the fee is not without cost. The fiscal note
indicates the difference between competitively awarded
contracts and some sort of a negotiated universal fee,
estimated to be around $8 dollars a ticket or roughly $229
thousand dollars a year. He emphasized that was a
conservative number.
Vice-Chair Bunde asked the volume of the State agencies
using travel services versus the number ten years ago.
Mr. Jones replied that he did not have the historical
figures but on an average, last year, the State bought
around 49,000 tickets. About 11,000 of those tickets were
purchased directly from a web site or airline. The
remaining 38,000 tickets were purchased through a travel
agent. That number helped to determine the fiscal note.
Representative Hudson asked if passage of the legislation
would provide for greater competition and fairer fares for
the State.
Mr. Jones replied that a competitive award is the way to
obtain the cheapest price. Continuing the current practice,
more travel agents will go out of business.
Representative Hudson noted that the agents are not
receiving fees back from the airlines and the industry.
Mr. Jones advised that Alaska Airlines is one of the two
major airlines that still do provide commissions. The State
expects that will end soon. In the State of Washington,
over thirty travel agents have gone out of business in the
last two weeks. The proposed bill will not necessarily keep
the travel agents in business, but it will help.
Representative Lancaster asked why rental cars had been
exempted.
Mr. Jones stated that rental cars fall into the same
categories as hotels, airlines and travel agencies. The
Department requested the change because it is only fair that
all segments of the industry be treated alike. He
explained that it would include rental cars in the list of
industries excluded from the procurement code.
YULANDA JOHANSEN, (TESTIFIED VIA TELECONFERENCE), NORTHERN
LIGHTS TRAVEL, FAIRBANKS, spoke in support of the
legislation. She advised that her travel agency has had to
discontinue service to the State of Alaska. Ms. Johansen
advised that it would be well worth the State to pay the
travel agent's cost and not have to pay the State employee
their salary on time spent making travel arrangements. She
urged passage of the bill.
Representative Hudson clarified the incentive was for travel
agents now that the airlines have discontinued their
payments fee.
Ms. Johansen replied that they would be using service fees,
and that they had been using those fees for several years,
however, the State had been excluded from that charge.
DANELLE KIRSCHNER, (TESTIFIED VIA TELECONFERENCE),
PROGRESSIVE WORLD TRAVEL, FAIRBANKS, echoed the sentiments
voiced by Ms. Johansen. She urged that the State come
forward and pay the service fee.
RAMONA OXENDINE, (TESTIFIED VIA TELECONFERENCE), VAGAGOND
TRAVEL, FAIRBANKS, advised that her travel agency has been
charging service fees for many years. Ms. Oxendine urged
that the Committee consider the repercussions if the service
fees are not paid. She pointed out that it is not uncommon
to be on hold for a long time when making reservations.
KARA ALTMAN, TRAVEL INDUSTRY, JUNEAU, commented that she had
spent fourteen years in the travel industry in Juneau,
working for Southeast Alaska Executive Travel. That agency
had to close their doors a year ago due to the commission
cuts and the State's refusal to pay the fee.
Ms. Altman added that the cut to zero would force more
agents to close. If the travel agents are forced out of
business, it will affect all Alaskans. All Alaskans will be
forced to accept whatever the airlines decide to tell them.
She stated that it costs around $30 to $35 dollars to issue
a ticket to cover overhead costs and salaries. Travel
agents cannot afford to subsidize the State of Alaska.
Ms. Altman added that in Juneau, the State does pay a $5
dollar fee to US Travel as part of their contract. The
State of Alaska has had a contract in place with Avis Car
Rental for three years.
In response to comments by Vice-Chair Bunde, Ms. Altman
noted that she is no longer doing business with the State.
At present time, there are only four travel agencies in
Juneau, while a couple years ago, there were ten. She added
that she does not do any State business because of the low
charge.
CYNDI ISAAK, TRAVEL INDUSTRY, JUNEAU, spoke in support of
the legislation. She noted that she worked out of her home
and that she was before the Committee as a "voice" of her
customers. Those customers would like to have a choice
again. She added that she supported the agreed fee.
Ms. Isaak pointed out that the Internet does not always
guarantee that the person can get the best fare. Travel
agents have the customer's best interest at stake when
making travel arrangements. Travel agents have been forced
by the airlines and have no choice but to charge a fee.
With zero commissions, fees were raised.
Vice-Chair Bunde asked if the State currently pays the
service fees.
Mr. Jones replied that for a typical ticket from Juneau to
Anchorage, there is a $5 dollar service fee; currently,
Alaska Airlines kicks in $15 dollars for a commission. As
soon as the commission is cut to zero, the State will be
back at the bargaining table for the contract. He noted
that it is a fixed fee and that the other fares are $8
dollars for a flat fee.
Vice-Chair Bunde asked if it was fair to assume with Alaska
Airlines reducing their fee that the fee would drop to $20-
$28 dollars.
Mr. Jones explained that the maximum that the State would
pay would increase that fee to $20 dollars, which is the
highest negotiated contract.
Vice-Chair Bunde inquired how many tickets were written last
year.
Mr. Jones reiterated that 30,000 tickets had been written
last year.
Vice-Chair Bunde calculated that would total about $750
thousand dollars.
Mr. Jones responded that was not the cost associated with
the bill before the Committee. The State anticipates the
cost to be approximately $229 thousand dollars, which is the
difference between competing for a fare and attempting to
set a negotiated fare. All travel agents would have to live
with that price. The $500 thousand difference between the
two numbers would be the cost shifting by the airlines. The
State would be paying that cost regardless, no matter what
the change is. The question before the Committee is whether
to continue to use the procurement code or establish some
threshold fee that everyone can live with.
Vice-Chair Bunde asked how the $500,000 would be a cost
shifting.
Mr. Jones replied that it would not be a cost effective use
of the State employees time to be shopping airlines and the
Internet for tickets. From the 11,000 tickets currently
being purchased from the airlines, there would be no change
in price; however, it is the 38,000 tickets being bought
from the travel agents that there would be a cost shifting
and fee increase. The State will be paying additional fees
if what is currently being done, is continued. He added
that the State would have to make travel agent commissions.
If it were opened up, there would be a premium fee.
Mr. Jones clarified that the bill does allows the State to
do something other than competitively award contracts by
location. He claimed this would be the cheapest way for the
State to go.
Vice-Chair Bunde thought that a competitive bid would have
one agency handle the entire State and cautioned that the
bill would not limit it to one agency location.
Mr. Jones agreed that was possible.
Representative Croft asked why this is not currently allowed
in the procurement code.
Mr. Jones explained that the procurement code requires
competitive bidding over $5,000 dollars, but it also
encourages the State to consider the "whole". If there is a
service that is going to be needed over time, that service
should be aggregated into a larger procurement.
TAPE HFC 02 - 82, Side B
Mr. Jones added that as the travel agent industry has
changed, no one is willing to waive fees in their community.
Competitive contracts are being established in each
community.
Representative Croft asked why the State could not set the
fee at $20 dollars by regulation.
Mr. Jones replied that the State does not have the authority
to establish rates.
Vice-Chair Bunde asked if there would be Legislative
oversight over the contracts.
Mr. Jones responded that it should be Legislative intent
that the State not establish just one contract. The bill
intents the State to do business with as many travel agents
as reasonable.
Vice-Chair Bunde interjected that will not be the most cost
effective way to buy airline tickets.
Representative Hudson asked if there were any on-going
evaluations, which could help reduce the State's air travel.
He recommended purchasing mass certificates.
Mr. Jones interjected that there have been attempts,
however, when there is an airline monopoly and that industry
"calls the shots". Mr. Jones noted that the State of Alaska
is a "very good" customer and that they should be able to
get at least the best-unrestricted fare with no advanced
fee. Alaska Airlines has not been interested in
negotiating.
Representative Hayes wrapped up the discussion on HB 300.
He stressed that the purpose of the bill was to address
fairness. The State of Alaska is using a service and at
this time is not paying a fee for that service. There are
many small businesses and industries that will be shutting
down their doors because of the current atmosphere.
Representative Hayes advised that Alaska should be filing a
fee for State travel services.
Representative Hayes noted the advantages that the travel
business brings into the community. He believed that the
State should not receive compensation. By using travel
agencies, there should be an overall cost savings.
Representative Whitaker asked if the bill would allow for an
acceptable fee threshold for the State and/or any agency
that could afford to do business. The Department has
indicated that it will cost $238 thousand dollars more than
currently is being paid.
Representative Hayes acknowledged that was correct.
Representative Davies pointed out the "other" savings, such
as the employee's amateur attempt to find the lowest costs.
Co-Chair Mulder noted the indeterminate fiscal note. He
assumed that the actual number would be less than projected
in the note.
Co-Chair Mulder MOVED to report HB 300 out of Committee with
individual recommendations and with the accompanying fiscal
note. Vice-Chair Bunde OBJECTED.
Vice-Chair Bunde agreed that the State should pay for the
receipts, however, the travel industry is currently in flux
and he anticipated that there would be more changes coming.
He did not think that the legislation would be helping the
"mom & pop" companies. He added, it is important that the
Legislature determine what is most important, to shore up an
industry that is in a state of flux or to get the most
economic travel advantage. Vice-Chair Bunde commented that
the legislation would favor the larger agencies over the
smaller ones. He thought that it was the job of the
legislature to reduce the costs of travel.
A roll call vote was taken on the motion.
IN FAVOR: Harris, Hudson, Lancaster, Whitaker,
Williams, Mulder, Davies, Moses, Croft
OPPOSED: Bunde
Representative Foster was not present for the vote.
The MOTION PASSED (9-1).
HB 300 was reported out of Committee with a "do pass"
recommendation and with an indeterminate fiscal note #1 by
Department of Administration.
#HB287
HOUSE BILL NO. 287
An Act relating to the exemption of commercial fishing
entry permits from claims of creditors, to loans to
satisfy past due federal tax obligations of commercial
fishing entry permit holders, and to loan origination
charges for loans made by the commercial fishing loan
program to refinance a debt obligation; and providing
for an effective date.
Co-Chair Williams noted that the Committee would take public
testimony on HB 287 and then the bill would be HELD in
Committee for further consideration.
MARY MCDOWELL, COMMISSIONER, COMMERCIAL FISHERIES ENTRY
COMMISSION, spoke to the provisions of bill intended to
clarify the legal status of limited entry permits under
Alaska law.
She noted that the State of Alaska has always held the
position that limited entry permits are not property and
cannot be seized by creditors.
"An entry permit constitutes a use privilege that may
be modified or revoked by the legislature without
compensation."
Ms. McDowell added that State law provides the only entities
that may treat limited entry permits as collateral are the
two state-created fishery loan programs. The legal status
of permits is an important element of the fisheries
management system as it ensures that the State maintains
control of fishing privileges. She noted that the State has
consistently fought against attempted seizure of permits by
the IRS and other creditors. Some of the Alaska statutes
are not clear on that point and leaving the legal status of
permits open in any way to varying interpretation, could be
detrimental to the interests of the State.
If anyone could argue that permits can be construed to be
property, Alaska's fishery management system could become
de-stabilized.
Ms. McDowell added that with some Alaska fisheries
struggling economically right now, it is important to make
sure statutes are as clear and consistent as possible about
the legal status of permits.
She listed specific provisions of the bill, which could
clarify the permit status.
· Section 1 revises a section in Title 9 and current
law includes entry permits in the list of the
types of property to which an individual is
entitled to exemption.
The legislative intent was to show the special exempt status
of permits. There might be risks that someone could argue
that the fact the permits show up implies that they are
"property." Thus, the bill removes permits from that
section of Title 9, and in place of that language, inserts
precise language in the Limited Entry Act.
· Section 6 inserts language in the Limited Entry
statutes to make it absolutely clear that the only
time a person may request the commission to
transfer an entry permit due to an execution on
the permit is if that execution is for the purpose
of enforcing a lien recorded with the commission
under the statutes of the Child Support
Enforcement Division.
· Section 7 spells out that fishing privileges are
exempt from the claims of all creditors, making
exceptions only for fishing loans under the State
Division of Investments and Commercial Fishing and
Agriculture Bank (CFAB) and for the Child Support
Division's authority to place a lien on a permit.
Ms. McDowell maintained that these provisions were being put
forward at a critical time:
· Hard times in the salmon industry are likely to
push more fishing families into financial trouble;
and
· Additionally, a recent federal maritime case has
heightened the need to firm up the legal status of
limited entry permits.
Federal legislation may be introduced soon in response to
the ruling in that case, stating clearly in law that the
federal government shall honor the legal status bestowed
upon fishing privileges by the governmental entity issuing
the privilege. Ms. McDowell stated that clarity and
consistency in State law is more important and significant
than ever. Passage of the bill would put Alaska in a much
better position to fully benefit from such federal
legislation.
Ms. McDowell noted that the Commission fully supports the
Fisheries Committee substitute and urges passage of that
bill.
Co-Chair Mulder requested that Ed Crane, Alaska Commercial
Fishing and Agriculture Bank, describe the substance behind
the committee substitute.
Following a brief at-ease, Co-Chair Williams advised that HB
287 would be held in Committee.
HB 287 was HELD in Committee for further consideration.
ADJOURNMENT
The meeting was adjourned at 3:12 P.M.
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