Legislature(2003 - 2004)
03/27/2003 01:37 PM House FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
March 27, 2003
1:37 PM
TAPE HFC 03 - 39, Side A
TAPE HFC 03 - 39, Side B
TAPE HFC 03 - 40, Side A
CALL TO ORDER
Co-Chair Williams called the House Finance Committee meeting
to order at 1:37 PM.
MEMBERS PRESENT
Representative John Harris, Co-Chair
Representative Bill Williams, Co-Chair
Representative Kevin Meyer, Vice-Chair
Representative Mike Chenault
Representative Mike Hawker
Representative Bill Stoltze
Representative Carl Moses
Representative Jim Whitaker
Representative Eric Croft
Representative Richard Foster
Representative Reggie Joule
MEMBERS ABSENT
None
ALSO PRESENT
Representative Norman Rokeberg; Mark Davis, Director,
Division of Banking and Securities, Department of Community
and Economic Development; Joanne Gibbens, Division of Family
and Youth Services, Department of Health and Social
Services; Ernesta Ballard, Commissioner, Department of
Environmental Conservation; Tom Chapple, Director, Division
of Air and Water Quality, Department of Environmental
Conservation; Marilyn Crocket, Alaska Oil and Gas
Association; Zach Warwick, Staff, Sen. Gene Therriault.
PRESENT VIA TELECONFERENCE
Pad Awen, Executive Director, Resource Development Council;
Steve Mulder, Assistant Attorney General, Department of Law.
SUMMARY
HB 11 "An Act relating to deposits to the Alaska
permanent fund from mineral lease rentals,
royalties, royalty sale proceeds, net profit
shares under AS 38.05.180(f) and (g), federal
mineral revenue sharing payments received by the
state from mineral leases, and bonuses received by
the state from mineral leases, and limiting
deposits from those sources to the 25 percent
required under art. IX, sec. 15, Constitution of
the State of Alaska; and providing for an
effective date."
HB 11 was REPORTED out of Committee with a "do
pass" recommendation and three previously
published fiscal notes from the Department of
Revenue (#1, zero; #2 & #3, fiscal impact).
HB 159 "An Act relating to the frequency of examinations
of certain persons licensed to engage in the
business of making loans of money, credit, goods,
or things in action; repealing the requirement for
a state examination and evaluation of the Alaska
Commercial Fishing and Agriculture Bank; and
providing for an effective date."
HB 159 was REPORTED out of Committee with a "do
pass" recommendation and a new fiscal impact note
from Department of Community and Economic
Development.
HB 160 "An Act relating to the emission control permit
program; relating to fees for that program and to
the accounting of receipts deposited in the
emission control permit receipts account; and
providing for an effective date."
Committee Substitute HB 160 (FIN) was REPORTED out
of Committee with a "do pass" recommendation and a
new zero fiscal note from Department of
Environmental Conservation.
HB 166 "An Act relating to adoptions that include a
subsidy payment by the state; eliminating annual
review of the subsidy paid by the state after
adoption of a hard-to-place child has occurred;
and providing for an effective date."
HB 166 was HEARD and HELD.
CSSB 20(FIN)
"An Act relating to the Board of Marine Pilots and
to marine pilotage; extending the termination date
of the Board of Marine Pilots; and providing for
an effective date."
CSSB 20 (FIN) was REPORTED out of Committee with a
"do pass" recommendation and one impact fiscal
note #1 DCED.
HOUSE BILL NO. 160
"An Act relating to the emission control permit
program; relating to fees for that program and to the
accounting of receipts deposited in the emission
control permit receipts account; and providing for an
effective date."
ERNESTA BALLARD, COMMISSIONER, DEPARTMENT OF ENVIRONMENTAL
CONSERVATION testified in support of the legislation. She
read from prepared testimony as follows:
Mr. Chairmen and members of the committee, thank you
for the opportunity to testify today on behalf of the
Governor's air permit reform legislation, HB 160.
Governor Murkowski is committed to enhancing Alaska's
economy through resource development. He is equally
committed to protecting Alaska's environment. It is
not an either/or proposition. A strong economy will
generate the revenue base to continue funding our
important regulatory programs. Without a strong
economy we cannot hope to have a strong government.
Over the last 30 years, we have learned much about the
environmental and health hazards associated with air
pollution. We have also learned much about emission
control technologies, air modeling and protective
ambient air standards. Through national and state
legislation we have recognized our shared value of
environmental protection along with the many other core
values that form the framework for government
regulatory programs. Environmental protection is not
incompatible with resource development. Rather, it is
as fundamental a component of resource development as
are labor and worker safety laws.
Governor Murkowski and members of his Cabinet recognize
that Alaska's laws taken together form the framework
for a successful resource development strategy.
Environmental laws are one of the many equally
important pieces of the public policy mosaic. They are
no more, and no less important. This bill will improve
the process and function of underlying state policy to
protect the environment. It does NOT change the
protective standards already in place and administered
by the Department through existing regulation.
Through DEC's proposed FY 04 budget we intend to
sharpen our focus on our core responsibilities. House
Bill 160 is essential to achieving the results promised
in our budget proposal. HB 160 achieves permit reform.
As you can see - reform requires attention to detail.
The bill is long with many reference changes. Reform
means re-engineering the way we do business. These
proposed changes in law will substantially change the
mechanisms of permitting. Moreover, the bill makes way
for many more changes that we can accomplish through
revised regulations. The ultimate result will be a
timely, predictable and rational program that will meet
business and development needs without sacrificing air
quality.
Our legislative proposal is based on two important
developments of the last several years. One was a
benchmarking study conducted by the department. We
reviewed the funding and workforce allocation in the
air programs of states that we consider comparable in
workload and complexity to Alaska. Alaska has an
unusual air program. Although we have a small
population, we have a high number of air permits: as
many operating permits as the State of Colorado, and as
many major new permits as the state of New Jersey. We
discovered in our benchmarking study that we simply
have not funded, staffed or organized our program
adequately to do the job applicants expect. House Bill
160 and the program increase proposed in the Governor's
budget will allow us to remodel our permit program in
line with successful programs in other states.
The second development that guided our proposal was the
Air Permit Work Group - a stakeholder group convened
last year. The Work Group carefully reviewed our
program against the federal Clean Air Act and the EPA
rules that have been amended several times establishing
new programs and control concepts. Our state
permitting program has not kept pace with the national
regime or the needs of Alaskan communities and
industry. The Work Group report is in your packets and
the work group recommendations are incorporated into HB
160.
Specifically, this bill:
· Creates a predictable, timely and rational permitting
program.
· Changes how we regulate minor sources using more
standardized permit conditions based on best management
practices. Our present "permit by rule" program works
for the oil drilling rigs. We want to expand the
concept and apply it to more situations. For our
population size, we have many more mobile and portable
plants and machinery than most states. We need the
tools to work with this unusual but essential fleet.
· Exempts sources from permitting to the extent allowed
under federal law.
· Streamlines permitting for the major sources in Alaska
by matching our procedures to those in federal rules.
· Achieves efficiency through adopting federal rules by
reference - this will make it much easier for us to
permit rural power plants - we will be able to use the
so-called "clean unit test" to avoid a detailed site by
site technology analysis.
I want to take some time to explain our zero fiscal note.
The bill itself does not warrant a significant increase
in staffing. However, reform and streamlining alone will
not obtain the desired result. On-time permitting in a
fast changing resource development climate can only be
achieved through a combination of reforming the process
and increased staff. Without additional staff, the
important changes achieved through the legislation cannot
be delivered.
We are asking for an increment in the Governor's FY 2004
Operating Budget to increase staffing for permitting and
field functions and to hire contractors to handle fluxes
in permitting demands - both critical components to
achieving overall success.
The direction in which I am leading the department is
based on my commitment to develop sound, understandable
standards, spend time in the field and enforce the law
when it is necessary to achieve compliance.
I have proposed additional staffing in this program to
fulfill my commitment. A well run air permit program is
essential to the economic and social well being of our
state. I also want you to know that while we are
increasing this very important program, we have looked
closely at our mission and have reduced our services so
that we are only providing those that are essential to
our mission of protecting public health and the
environment. With this increment as well as several
other small increases in core permitting programs the
department still has an overall net reduction of 13
positions and $153,000.
Co-Chair Harris MOVED to adopt the Committee Substitute for
HB 160 (FIN), Work Draft (23-GH1059\D). There being NO
OBJECTION, it was so ordered.
Co-Chair Harris referred to the fiscal note (#1, DEC,
3/3/03) and asked if the numbers were correct.
Commissioner Ballard clarified that the new fiscal note
(3/26/03) was actually a zero fiscal note. She explained
that in preparing the initial fiscal note, the department
followed instructions to reflect that the amount was
included in the FY 04 budget and would therefore be "zeroed
out". She noted that a subsequent meeting with Co-Chair
Williams' staff clarified that the appropriate course of
action was actually to prepare a zero fiscal note.
Co-Chair Harris asked if positions would be added and
pointed out that seven new positions reflected in the
previous fiscal note did not now appear on the new fiscal
note.
Commissioner Ballard responded that new positions were
intended to implement the new program. She maintained that
the legislation could not be properly implemented without
additional staff and that staff needed the new legislation
to improve the permitting program.
Co-Chair Harris referred to the previous fiscal note and
asked about funds to be received from the Clean Air
Protection Fund.
Commissioner Ballard clarified that the Federal Clean Air
Protection Act established a permit program, paid for
through permit fees. She stated that collected fees would
offset the entire cost of the budget request increment. She
did not feel it was appropriate for the Department to raise
fees in order to upgrade the program.
Co-Chair Harris contended that the previous note was more
appropriate. He noted, however, that although the spending
was increased, the program did not seem to impact the
overall governmental budget.
In response to a question by Co-Chair Harris, Commissioner
Ballard responded that the seven new positions would work
with existing positions in an entirely new program.
Co-Chair Harris asked for a definition of a major versus a
minor source. Commissioner Ballard responded that a major
source might be a power plant, whereas a minor source might
be an asphalt plant.
Representative Joule asked about the differences between the
Committee Substitute and the original bill. Commissioner
Ballard deferred to Mr. Chapple. She noted the Department's
review and support of the Committee Substitute.
TOM CHAPPLE, DIRECTOR, DIVISION OF AIR AND WATER QUALITY,
DEPARTMENT OF ENVIRONMENTAL CONSERVATION provided
information regarding key changes in the Committee
Substitute.
Mr. Chapple referred to Section 12, on page 5 of the
Committee Substitute, sub-section (f), pertaining to
facilities exempt from permitting. He noted the language
change of "exempt or defer", since some federal rules speak
of deferring a source if a permit were required at a later
point. He also referred to Section 13, line 12 of the same
page, pertaining to construction permits. He noted that
current statute indicates numbers regarding quantity per
year of emission, but left some criteria to regulation. He
explained that the changes specified the federal cutoff
values, linking it to the federal regulation.
Mr. Chapple also referred to page 7, Section 15 of the bill,
line 21, where a new sub-section (2) is added, dealing with
monitoring, record keeping and reporting requirements. He
noted that the new provisions linked with federal rules
about monitoring permits.
Mr. Chapple then referred to Section 25, on page 12, under
"General minor permits". He briefly defined these permits,
and stated that the section allowed general permits for
minor sources. He noted previous confusion over the permit
holder. He maintained that the language clarified the
permit user.
Mr. Chapple also referred to Section 26 under Temporary
operations. He referred to line 27, changing the number from
thirty to ten days. He noted that federal rules had not
been drafted at the time of the original bill, and that the
federal rules now specifies ten days, a time period which
also corresponds to industry needs.
Mr. Chapple referred to Section 54, page 23, which defines
the term "modification". He noted that the citation was
more specific in federal regulations, and that the new
language corresponds to federal regulation.
Mr. Chapple referred to Section 59, on page 25, which adds
definitions of "major modification" and "major stationary
source". He also referred to Section 62, page 25, which
adds a new sentence placing a requirement on the department
to adopt regulations recently adopted by the Environmental
Protection Agency (EPA). He emphasized that the regulations
were important to the state of Alaska.
Co-Chair Harris asked if the Department had received
statewide feedback from various groups regarding the
legislation.
Mr. Chapple responded that they had heard predominantly from
the Stakeholder Group, representing the oil and gas and
mining industries, as well as members of the Prince
Williams' Sound and Cook Inlet advisory councils. He noted
that those parties engaged in substantive discussion about
the bill throughout the late summer and early fall.
Co-Chair Harris asked about the differences between the
modified Alaskan statute and federal law in terms of
emission standards.
Mr. Chapple stated that the bill did not change "out of
stack" limits, which still exist along with ground level
limits, also known as ambient public health standards. He
stated that the bill merely streamlined the process for
timely permitting and attained efficiencies by better
imitating federal standards. He explained that one
efficiency moved "minor sources" from the major source
permitting program and created a new, streamlined program.
Mr. Chapple also stated that the Committee Substitute
reflected conversations between the Sponsor and the
Department, and that provisions had been thoroughly examined
by DEC staff and the Department of Law.
MARILYN CROCKET, DEPUTY DIRECTOR, ALASKA OIL AND GAS
ASSOCIATION (AOGA) testified in support of the bill. She
explained that her organization was a trade association of
seventeen oil and gas companies in the state of Alaska. She
observed that the oil and gas industry had long been
involved in the air permitting process and an active
participant in the aforementioned discussions to revise the
state's regulatory program. She noted that the revised
process allowed timelier permitting and more clearly defined
fees. She also observed that the new program more clearly
resembles the federal program.
Ms. Crocket noted two changes in the Committee Substitute to
which AOGA took exception. She noted a citation error in
referring to federal rules: page 25, lines 2 and 5,
referring to 40 CFR.165 and .166, should read 51.165 and
51.166.
Representative Foster MOVED to accept the technical changes
[CFR 51.165 and CFR 51.166] to the Committee Substitute.
There being NO OBJECTION, it was so ordered.
Ms. Crocket also referred to page 7, lines 21-25, pertaining
to monitoring and reporting requirements. She noted the new
language "but which may be supplemented by additional
requirements that". She suggested that the language was not
consistent with the recommendations of the Work Group. She
noted the great challenge of monitoring and reporting
requirements. She observed that Alaska's terrain and
climate might sometimes result in additional or other
monitoring requirements. She summarized that the oil and
gas industry did not anticipate that the recommendation
would add additional monitoring requirements, but rather
enhance flexibility to take into account Alaska's situation.
Mr. Chapple noted that the words that were developed in the
Work Group were "take into account Alaska's unique
conditions". He suggested that a change had occurred in the
drafting process. He suggested that the words "supplemented
by additional requirements that" be omitted.
Representative Croft suggested "additional or different
requirements" as a possible solution.
After further discussion by Committee members, Ms. Crocket
suggested that the sentence might read "but which may be
modified to take into account this state's unique
conditions".
STEVE MULDER, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW,
testified via teleconference. He stated that either
solution would be acceptable, but recommended the option of
"additional or different".
Co-Chair Harris recommended the solution of "but which may
be modified to take into account", as suggested by Ms.
Crocket.
Representative Whitaker asked whether the intent was to
establish a limitation as to compliance with record keeping,
reporting and monitoring requirements. He speculated that
the goals were for specificity and clarity.
Mr. Chapple clarified that the intent was to be consistent
with federal regulations, while allowing flexibility to
respond to Alaska's unique conditions.
In response to a question by Representative Whitaker, Mr.
Chapple confirmed that this would provide more certainty to
applicants as to requirements.
Representative Croft emphasized that the bill did not change
the overall standards. He referred to Page 9, which lists
the substantive standards, and differentiated this from
reporting requirements, which required more flexibility in
Alaska.
Co-Chair Harris pointed out that "modify" did not preclude
additional requirements.
There being NO OBJECTION, the Committee Substitute was
amended to read "but which may be modified to take into
account this state's unique conditions" (page 7, lines 24
and 25).
TADD OWEN, EXECUTIVE DIRECTOR, RESOURCE DEVELOPMENT COUNCIL
(RDC) testified via teleconference in support the amended
version of the Committee Substitute. He read from a
prepared statement as follows:
Thank you, Mr. Chairman. For the record my name is Tadd
Owens, I am the executive director of the Resource
Development Council. RDC is a private, non-profit,
business association representing individuals and
companies from Alaska's oil and gas, mining, timber,
tourism and fisheries industries. Our membership also
includes electric utilities, local communities and
Native regional and village corporations. RDC's mission
is to help grow Alaska's economy through the
responsible development of the state's natural
resources.
RDC supports the amended version of House Bill 160 and
we ask the House Finance Committee to move the
legislation forward. I would like to thank DEC for not
only establishing a Work Group to evaluate the
department's air permitting program, but also for
taking action on that group's recommendations. While
RDC did not formally participate in the Air Program
Work Group, several of our members did and we endorse
their recommendations.
Working in cooperation with the regulated community,
DEC has successfully addressed many of the air
program's major weaknesses and inefficiencies. HB1 60
provides DEC with additional flexibility in
administering the air program and it simplifies the
permitting process for those in the regulated
community.
Specifically, this bill accomplishes the following:
• It allows DEC's program to remain consistent with the
federal program on a long-term basis
• It differentiates between major and minor source
permits and standardizes the requirements for minor
permits
• It restructures the program's fee schedule making the
costs more transparent and predictable for applicants
In or view, this legislation will result in more
efficient review of permits allowing agency staff more
time and resources for the field work necessary to
protect Alaska's air quality. HB1 60 also creates a
much more user-friendly process for those in the
regulated community. The legislation has RDC's strong
support.
HENRIK WESSEL, ENVIRONMENTAL OFFICER, GOLDEN VALLEY ELECTRIC
ASSOCIATION testified in support of the Committee Substitute
and thanked the Working Group for their recommendations. He
noted that his group was a non-profit cooperative serving 90
thousand residents. He commended the legislation for
streamlining the permitting process, while still protecting
the environment.
Representative Foster MOVED to report CSHB 160 (FIN) out of
Committee with the accompanying fiscal note. There being NO
OBJECTION, it was so ordered.
Committee Substitute HB 160 (FIN) was REPORTED out of
Committee with a "do pass" recommendation and a new zero
fiscal note from Department of Environmental Conservation.
TAPE HFC 03 - 39, Side B
HOUSE BILL NO. 11
"An Act relating to deposits to the Alaska permanent
fund from mineral lease rentals, royalties, royalty
sale proceeds, net profit shares under AS 38.05.180(f)
and (g), federal mineral revenue sharing payments
received by the state from mineral leases, and bonuses
received by the state from mineral leases, and limiting
deposits from those sources to the 25 percent required
under art. IX, sec. 15, Constitution of the State of
Alaska; and providing for an effective date."
REPRESENTATIVE NORMAN ROKEBERG, SPONSOR, testified in
support of the bill. He explained that the legislation
returns the percentage of all mineral lease royalties and
bonuses deposited into the Permanent Fund to the
constitutionally mandated 25 per cent.
Representative Rokeberg maintained that the bill would
provide Alaska with a source of general fund revenue while
staying true to the purposes of the Permanent Fund and the
intent of the Constitution. He referred to Article 9,
Section 15 of the Alaska State Constitution, which states
"At least twenty-five per cent of all mineral lease rentals,
royalties, royalty sale proceeds, federal mineral revenue
sharing payments and bonuses received by the State shall be
placed in a permanent fund".
Representative Rokeberg observed that in 1980 the
legislature recognized that the state had "excess revenues".
He pointed out that the general fund expenditure during that
legislative session was $4.07 billion. He speculated that
the current budget was roughly one third of that amount.
Representative Rokeberg pointed out the fiscal gap facing
the current Legislature. He proposed that the bill would
generate approximately $42 million per year over the next
seven years.
Representative Rokeberg speculated that contributions of
smaller fields such as Alpine and North Star offset the
decline in the production at major fields such as Prudhoe
Bay. However he maintained that the replacement of
resources was not entirely equitable. He pointed out that
Prudhoe Bay was contributing 75 percent into the General
Fund and 25 percent into the Permanent Fund.
Representative Rokeberg refuted criticism that the bill was
"a raid on the permanent fund". He maintained that the bill
merely redirects monies being deposited while taking nothing
out of the Permanent Fund. He also maintained that the bill
would have little effect on the dividend program, projecting
zero impact in the first two years, potentially growing to a
$20 per dividend impact within ten years.
Representative Rokeberg summarized that the bill would
diminish the draw on the Constitutional Budget Reserve (CBR)
and minimized the need for more general taxation programs.
Co-Chair Williams asked for clarification on the criticism
of the bill. Representative Rokeberg reiterated that the
bill would withdraw no monies from the Permanent Fund. He
conceded that to put less into the Fund might result in
lesser output. He maintained that market conditions had
much greater impact on the Fund's performance. He drew the
analogy that increasing savings while in a deficit might not
be prudent management. He suggested that this bill might be
a step toward correcting the state's fiscal situation.
Representative Rokeberg suggested that many potential plans
for correcting the state's finances, such as possible
taxation, had the effect of withdrawing income from the
economy, thereby curtailing economic growth. He maintained
that since the bill merely redirects funding from
investment, it would not have a negative effect on the
state's economy.
Representative Croft asked for a distinction to be drawn
between not depositing money and depleting the fund. He
maintained that failing to place money into the account had
the same effect as taking money out.
Representative Rokeberg cited his experience in business and
contended that not depositing funds was different than
withdrawing funds. He maintained that if funds were not
available, they should not be deposited.
Representative Hawker referred to the debate regarding the
difference between long-term fiscal solutions and
incremental steps toward a solution. He asked whether the
sponsor viewed the legislation as a solution or an
increment, and if an increment, whether consideration was
given to a long-term solution which did not include this
bill.
Representative Rokeberg noted that the legislature in the
past had considered this concept as part of a long-range
plan. He characterized it as a "common sense" first step in
narrowing a fiscal gap. He observed that it only had an
impact of $43 million on the general fund, which he conceded
might be an optimistic projection. He suggested that this
step presented the least detriment, since it did not
implement a "tax" but rather only affected prospective
future income.
Representative Whitaker observed that the change from the
constitutional requirement from 25 to 50 percent occurred in
1980, when the general fund budget was $4.07 billion. He
maintained that the legislature implemented the change at
that time since the funding was not needed. He asked
whether the money was needed at this time, with the budget
at roughly one third of that in 1980.
Representative Rokeberg maintained that the money is needed,
especially considering the fluctuating price of oil. He
speculated that if the bill had been in place for the
current fiscal year, some $57 million would have been
available to spend in FY03. He maintained that the bill
freed funding for use, without the negative impacts of taxes
and user fees.
Representative Croft asked how this could extend the life of
the CBR. Representative Rokeberg replied that the bill
minimized the amount of the draw on the CBR by making more
general funds available.
Representative Croft commented that in effect the funds
would be moved from the Permanent Fund to the CBR.
Representative Rokeberg conceded that this theory was
somewhat valid, but pointed out that the money was therefore
available in the General Fund. He speculated that the
legislature might choose to spend the general funds rather
than reserving them in the CBR.
Representative Croft asked if it was the intention to spend
the funds or to extend the life of the CBR. Representative
Rokeberg responded by pointing out that the current budget
contained some recommendations with which he did not agree.
He observed that the Governor maintains a budgetary
principal whereby, if the legislature disagrees with a
recommendation, they may suggest an alternative that is
still in keeping with the Administration's budget goals. He
suggested that the bill fit this type of process, and
recommended that the legislature would be wise to embrace
such a concept for budget making.
Representative Joule asked if Representative Rokeberg would
support the revenue being directed to a dedicated fund,
which would require a change in the Constitution.
Representative Rokeberg acknowledged that some dedicated
funds currently function, but noted his own belief in the
constitutional principle of avoiding dedicated funds. He
clarified that, while the legislature had the ability to
choose whether or not to spend the funds, he himself did not
advocate spending but rather increased flexibility.
ED MARTIN, SR., SOLDOTNA, testified via teleconference, in
opposition to the proposed legislation. He read from
prepared testimony (copy on file), maintaining that the bill
erodes the dividend program, encourages overspending, and
undermines voter's confidence in the legislature.
FRED STURMAN, SOLDOTNA, testified via teleconference in
opposition to the bill. He noted that he had not perceived
any "cutting of the budget" support from the Legislature.
He countered that taking the Permanent Fund was not a viable
option. He observed, "everyone seems to want more". He
encouraged budget cuts rather than spending.
JAMES PRICE, NIKISKI, testified via teleconference in
opposition of HB 11. He commented that the only work
currently being done by the Legislature was the proposal of
"user fees". He stressed that HB 11 was not a viable
solution and speculated that the root of the problem is
bringing spending to a workable level.
Representative Croft MOVED to ADOPT Amendment #1:
Page 1, line 6, after Alaska insert:
"and relating to the disposition of permanent fund
income"
Page 2, after line 19, a new subsection is added to AS
37.13.145: "(e) AS 37.13.140 and AS 37.13.145 (b) may
not be amended unless the amendment is approved a
majority of the voters voting on the question."
Co-Chair Williams OBJECTED.
Representative Croft summarized that the Amendment recalled
efforts in 1999 to present the concept [fiscal plan] to the
Alaskan people. He suggested that, considering the
initiative and referendum power in the state of Alaska, no
fiscal plan would succeed without the agreement of the
people.
Co-Chair Williams disagreed. He expressed his belief that
it was wrong in 1998 and 1999 to send this message to the
people. He recalled that when the initial bill was
presented to the Senate and the Governor, the House had
agreed that there would not be a vote by the people. He
further recalled that at that time, the Governor and the
Senate recommended that the bill receive a public vote. He
maintained that HB 11 did not represent a "raid" on the
Permanent Fund.
Representative Rokeberg echoed comments made by Co-Chair
Williams. He proposed that the amendment claims
unconstitutional delegations of authority. He pointed out
that the amendment would require a constitutional amendment
for implementation.
Representative Stoltze observed that the amendment
practically represented a non-binding advisory vote and
suggested that it be presented in that way to voters for
full disclosure of its true function.
Co-chair Harris objected to the amendment. He commented
that the Legislature could conceivably ask the public every
year about budgetary spending. He strongly expressed his
belief that this did not present good public policy.
Representative Croft maintained that the dividend was
established to generate public support for the Permanent
Fund by giving people "a stake in" the fund. He noted that
this resulted in a public sense of ownership. He proposed
that this sense of ownership must be recognized. He agreed
that the legislature could change statue, which made it not
"legally binding", however he maintained that the amendment
helped establish an important principal.
Co-Chair Harris asserted that the people of Alaska voted on
the constitutionally mandated 25 percent [permanent fund
deposit]. He pointed out that when the legislature changed
the amount to 50 percent in adopting the statute, they did
not ask for another public vote. He maintained that the
circumstances at that time were different than today. He
proposed that the current Legislature must now determine if
the additional, statutorily mandated 25 percent might be
shifted into the general fund.
A roll call vote was taken on the motion.
IN FAVOR: Moses, Stoltze, Croft, Joule
OPPOSED: Myer, Whitaker, Foster, Hawker, Williams, Harris
Representative Chenault was not present for the vote.
The MOTION FAILED (4-6).
Representative Foster MOVED to report HB 11 out of Committee
with individual recommendations and with the accompanying
fiscal note.
Representative Croft OBJECTED.
Representative Croft observed that the effect of the bill,
assuming that it did not increase current spending levels,
was to transfer $43 million per year that would have gone
into the Permanent Fund into the CBR. He asserted that
this proposition did not make sense.
Representative Croft noted that the Permanent Fund
historically earned 9.5 percent, with projected long-term
earnings of 8 percent. He contrasted that the CBR earned 6
percent annually, since up to half of that fund could be
withdrawn at any time. He summarized that the net effect of
the bill would either be to spend the funds on government or
to transfer it to another account with lower earnings. He
maintained that this was not good public policy.
Co-Chair Williams contended that one must consider the best
use of funds for the state of Alaska. He stated his belief
that the bill would allow additional tools to advocate the
best fiscal interest of the people. He pointed out the
history leading to the current budget reductions, and noted
the lack of change in management of the state's financial
resources. He maintained that the rejection of the House
plan in 1998 by the Senate and a subsequent vote of the
people contributed to the current financial difficulties.
Co-Chair Harris noted that the bill might be one in a series
of steps aimed at balancing the budget based on true
revenues. He pointed out the distinction between the CBR
and general fund monies: use of the CBR requires a three-
quarter vote of both sides of the legislature. He
speculated that use of the CBR might result in a more
partisan budget process. He stressed that the money would
go to the general fund and not the CBR.
TAPE HFC 03 - 40, Side A
Co-Chair Harris went on to observe that expenditure of
general fund monies required only a simple majority of both
bodies. He noted his opinion that Alaska was the only state
that required a three quarter vote to spend certain types of
funding. He maintained that the bill facilitated the
addition of $40 to $50 million of General fund revenue
without requiring a three quarter vote. He suggested that
the bill would enable a balanced budget without such a vote.
Co-Chair Harris also stated his desire to create mechanisms
that did not require a state income tax. He maintained that
a tax would not improve economic growth. He proposed that
the bill encouraged economic growth without a tax. He
contended that the bill did not severely impact Alaskans,
resulting in only an eventual $20 reduction to dividend
payments.
Co-Chair Harris stressed that the bill intended to balance
the budget, and not to increase spending as had been
implied.
Representative Stoltze thanked Representative Rokeberg for
his work in introducing the bill. He expressed his caution
about the bill but his willingness to discuss the issues.
Representative Whitaker suggested that the primary debating
points related to the actions of the 1980 Legislature, which
was operating with a more than $4 billion budget. He
maintained that current spending was significantly lower and
that funds were needed to meet the now $2 billion budget.
Representative Joule noted his continued support of the
legislation. He suggested, however, that at some point
discussion must occur regarding generating broad based state
revenue and the fate of the Permanent Fund. He expressed
disappointment that these discussions were not occurring.
He speculated that the bill could be part of a package of
legislation aimed at addressing these issues. He exhorted
the Majority to show leadership in beginning these
discussions.
Representative Rokeberg thanked public testifiers and
concurred with Co-Chair Harris in not wishing to institute
taxation. He suggested that the bill presented a viable
alternative.
A roll call vote was taken on the motion.
IN FAVOR: Whitaker, Foster, Hawker, Joule, Meyer, Harris,
Williams
OPPOSED: Moses, Stoltze, Croft
Representative Chenault was not present for the vote.
The motion PASSED (7-3).
HB 11 was REPORTED out of Committee with a "do pass"
recommendation and three fiscal impact notes from the
Department of Revenue(#1, zero; #2 & #3, fiscal impact).
CS FOR SENATE BILL NO. 20(FIN)
"An Act relating to the Board of Marine Pilots and to
marine pilotage; extending the termination date of the
Board of Marine Pilots; and providing for an effective
date."
Co-Chair Williams noted that public testimony had been
previously concluded.
Co-Chair Harris MOVED to report CSSB 20 (FIN) out of
Committee with individual recommendations and the
accompanying fiscal note.
There being NO OBJECTION, it was so ordered.
CSSB 20 (FIN) was REPORTED out of Committee with a "do pass"
recommendation and one fiscal note #1 DCED.
HOUSE BILL NO. 159
"An Act relating to the frequency of examinations of
certain persons licensed to engage in the business of
making loans of money, credit, goods, or things in
action; repealing the requirement for a state
examination and evaluation of the Alaska Commercial
Fishing and Agriculture Bank; and providing for an
effective date."
MARK DAVIS, DIRECTOR, DIVISION OF BANKING AND SECURITIES,
DEPARTMENT OF REVENUE, testified in support of the bill. He
spoke to the two statutory changes contained in the bill.
The first change alters the Banking Code, Title Six. The
second change pertains to the State Code, Title 44.
Mr. Davis explained that the change to the Bank Code
lengthens the exam time for small loan companies from twelve
to eighteen months. He noted that this was the only
provision of the Banking Code that required an annual
examination. He emphasized that, even with the change, the
Division would perform more frequent examinations if needed.
Mr. Davis explained the change to Title 44 eliminating the
provision for a qualitative examination for the Alaska
Commercial Fishing and Agricultural Bank (CFAB). He noted
that since CFAB is a cooperative, it is required by statute
to prepare an annual audit that is provided to the
legislature. He also stated that when Title 44 was enacted,
CFAB operated using state funds, which it was required to
repay. He pointed out that CFAB currently operates with no
state funds. He also noted that the deleted provision would
still make CFAB subject to a full legislative audit, as well
as the annual audit by outside auditors.
Mr. Davis further noted that the fees charged by the banking
section of the Division do not cover the costs of the
examination. Mr. Davis pointed out that the fees leave a
deficit of $350 thousand. He noted that by statute the
banking fees could not discriminate between state and
federal institutions, and must be charged equally. He
maintained that a shortfall would exist as long as the
legislature required fee equanimity.
Mr. Davis clarified the difference between the audited
report and the banking exam. He noted that the outside audit
report would inform the legislature on the loan portfolio by
major category, specifying loan performance and payment
history.
Mr. Davis summarized that the Division was requesting an
exemption from examination under Title 44. He expressed
his belief that with the statutory audits required, adequate
fiscal provisions were already in place.
Mr. Davis also noted that the Division had no enforcement
powers with regard to the examination, since it was included
under Title 44. He explained that if a problem arose in the
examination, the Division could not address it.
Representative Croft asked how much of the fiscal note was
attributed to each section of the bill. Mr. Davis responded
that the CFAB examination required ten days, and that
savings were realized by freeing up the bank for other
business during that time.
Representative Croft questioned whether the change to
eighteen months represented the greatest cost savings. Mr.
Davis noted that the savings came essentially from
eliminating one position. He speculated that the new
schedule enabled an efficiency of service.
In response to a question by Representative Croft, Mr. Davis
stated that examination fees were charged to CFAB of $2.6
thousand. He also noted that the additional ten days in the
current cycle created a loss of $6 thousand, as well as the
loss of potential paid service to a state bank or credit
union. He stressed that as a cooperative, CFAB did not
receive money from the public, and focused on other
cooperatives.
Representative Hawker asked for a distinction in
organization between CFAB and commercial banks or credit
unions, and whether that difference was part of the
justification for the requested exemption.
Mr. Davis noted that CFAB was created by the legislature,
set up as a cooperative in AS 44.81.014, and required to
follow a set structure. He referred to 44.81.200, which
requires the bank to provide an audited financial statement
to the legislature each year, including discussion of bank
circumstances, operating, and "any other information that
the Board believes to be of interest to the Governor, the
legislature and to the public". He summarized that the bank
was required to self regulate.
Mr. Davis noted that in 1985, problems occurred with the
bank and examiners were asked to complete a report. He
suggested that the statute set forth for this purpose in
1987 should have contained a sunset provision. He proposed
that the structure of the bank, along with special reporting
requirements, made the bill appropriate.
Representative Croft MOVED to Adopt Amendment #1:
Page 1, Line 13, DELETE:
"*Sec.2. AS 44.81.270(d) is repealed."
"This amendment keeps the requirement for the [Alaska
Commercial Fishing and Agricultural Bank] CFAB to
submit to annual bank examinations. The argument for
not holding CFAB to this standard is the perception
that the requirement is overly redundant, that CFAB is
subject to independent audit or legislative audit,
should one be requested.
CFAB puts forth that the requirement is not overly
redundant; that the independent audit only looks at
their financial situation, and the bank examiners make
sure CFAB is adhering to statute. CFAB argues the bank
examinations help them with their accountability to
their board (two members of which are appointed by the
Governor) and their members and CFAB pays for the
examination.
Although the Legislature could request Legislative
Budget on a regular basis. This last one occurred in
1995."
Representative Croft observed that Section 1 of the bill was
an appropriate cost savings. He maintained that Section 2
pertained to the CFAB examination, and referred to a letter
from CFAB, which expressed a desire for this service. He
suggested that the entity should continue to receive a
service that they valued. He pointed out that by retaining
Section 1, the majority of the savings was still available.
Co-Chair Williams asked if CFAB could pay for its own
outside examiner. Mr. Davis reiterated that CFAB was
required by statute to have an outside auditor. He
suggested that CFAB could expand the scope of the audit to
include their loan portfolios. He suggested that such an
audit could help evaluate the potential of these portfolios.
He noted that bank examiners did not traditionally perform
such an evaluation. He stated that he did not support the
Amendment.
Representative Stoltze asked if a sunset might be an
alternative to deleting the requirement. He suggested
giving two years for the requirement to lapse if a problem
arose that necessitated an examination.
Mr. Davis emphasized the legislative audit as a mechanism
for effectively addressing any potential problems.
In response to questions by Co-Chair Harris, Mr. Davis
clarified that the CFAB examination period would not be
extended to eighteen months, but that the cycle pertained
only to small loan companies. He stated that for CFAB the
bill addressed their annual examination requirement, which
is separate from the annual legislative audit.
Representative Hawker recalled a circumstance in the early
1980's during the time when CFAB was subject to an outside
audit only, and asked if the outside audit identified
circumstances that resulted in the addition of a bank
examination by the legislature.
Mr. Davis stated that the Division was invited in 1985 to
report on the viability of the bank. He observed that the
outside auditors identified problems. He explained that the
Division turned to bank examiners to help address the
potential crisis for the State and for the other investors.
Representative Hawker recalled that the examiners were
viewed as an effective tool of the state, even though the
examiners did not traditionally involve themselves in a
cooperative with a limited loan portfolio such as CFAB. He
observed that the examination was voluntary and limited. He
echoed previous concern that the legislation was not
sunsetted, and expressed confusion as to why the bank
desired additional regulation.
Representative Croft contended that CFAB was requesting the
oversight. He suggested that it was unwise to wait until a
serious problem arose to engage an outside examiner. He
pointed out that CFAB desired the service and was willing to
pay for a portion of it.
Co-Chair Williams concurred with the Sponsor that Section 2
was a viable cost savings.
A roll call vote was taken on the motion to ADOPT Amendment
#1.
IN FAVOR: Joule, Croft, Harris
OPPOSED: Meyer, Stoltze, Whitaker, Foster, Hawker, Williams
The MOTION FAILED (3-6).
Representative Foster MOVED to report HB159 out of Committee
with individual recommendations and the accompanying fiscal
note.
HB 159 was REPORTED out of Committee with a "do pass"
recommendation and a new fiscal impact note from the
Department of Community and Economic Development.
HOUSE BILL NO. 166
"An Act relating to adoptions that include a subsidy
payment by the state; eliminating annual review of the
subsidy paid by the state after adoption of a hard-to-
place child has occurred; and providing for an
effective date."
JOANNE GIBBENS, DIVISION OF FAMILY AND YOUTH SERVICES,
DEPARTMENT OF HEALTH AND SOCIAL SERVICES (DHSS), testified
in support of the bill. She explained that the bill would
repeal a current statute requiring DHSS to conduct an annual
review of subsidy amounts being paid to subsidize adoption
and guardianship. She noted that the payments were both
federally and statutorily required and designed to assist
parents who adopt or become legal guardians of children with
special needs.
Ms. Gibbens noted that the original intent of the statute
was to provide cost containment. She noted that the annual
review did not generally result in cost containment, but
rather in increases in the amount of subsidies awarded, as
well as department staff time. She proposed that the
elimination of the annual review process created savings by
providing cost containment to existing subsidy amounts, and
by eliminating staff time to process annual reviews and
unnecessary follow ups for subsidy inquiry requests. She
noted that the projected annual savings was $185 thousand of
general funds. She emphasized that the elimination of the
annual review process did not eliminate the right of
adoptive parents or guardians to request a review of their
subsidy.
Representative Stoltze asked if the savings occurred in the
cost of reviews or of the actual payments. He asked for a
differentiation of these savings at the next hearing.
Co-Chair Harris asked if these adoptive parents would be
notified that it would now be their responsibility to
request a review of their payments.
Ms. Gibbens responded that families currently communicated
regularly with the division about their financial needs.
HB 166 was HEARD AND HELD.
ADJOURNMENT
The meeting was adjourned at 4:00 PM
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