Legislature(2003 - 2004)
05/16/2003 01:49 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
May 16, 2003
1:49 P.M.
TAPE HFC 03 - 97, Side A
TAPE HFC 03 - 97, Side B
TAPE HFC 03 - 98, Side A
TAPE HFC 03 - 98, Side B
CALL TO ORDER
Co-Chair Williams called the House Finance Committee meeting
to order at 1:49 P.M.
MEMBERS PRESENT
Representative John Harris, Co-Chair
Representative Bill Williams, Co-Chair
Representative Kevin Meyer, Vice-Chair
Representative Ethan Berkowitz
Representative Mike Chenault
Representative Richard Foster
Representative Mike Hawker
Representative Beth Kerttula
Representative Carl Moses
Representative Bill Stoltze
Representative Jim Whitaker
MEMBERS ABSENT
Representative Croft
Representative Joule
ALSO PRESENT
Representative Vic Kohring; Representative Norm Rokeberg;
Senator Lyda Green; Senator Gary Stevens; Michael Barton,
Commissioner, Department of Transportation & Public
Facilities; Larry Persily, Deputy Commissioner, Department
of Revenue; Tim Benintendi, Staff, Representative Moses;
Robynn Wilson, Tax Division, Department of Revenue; Ernesta
Ballard, Commissioner, Department of Environmental
Conservation; Tom Boutin, Deputy Commissioner, Department of
Revenue; John MacKinnon, Deputy Commissioner, Department of
Transportation & Public Facilities; Roger Painter, Alaska
Shellfish Growers, Juneau; Kristin Rilin, Director, Division
of Environmental Health, Department of Environmental
Conservation; Robert D. Storer, Executive Director, Alaska
Permanent Fund Corporation, Department of Revenue; Robert
Bartholomew, Chief Operating Officer, Alaska Permanent Fund
Corporation, Department of Revenue; Doug Letch, Staff,
Senator Gary Stevens; Pat Davidson, Director, Division of
Legislative Audit; Jacqueline Tupou, Staff, Senator Lyda
Green; Scott Nordstrand, Deputy Attorney General, Civil
Division, Department of Law
PRESENT VIA TELECONFERENCE
Mark Meyers, Director, Division of Oil and Gas, Department
of Natural Resources, Anchorage; Don Kitchen, Assistant
Attorney General, Department of Law, Anchorage
SUMMARY
HJR 26 Proposing amendments to the Constitution of the
State of Alaska relating to and limiting
appropriations from and inflation-proofing the
Alaska permanent fund by establishing a percent of
market value spending limit.
HJR 26 was HEARD and HELD in Committee. The bill
was placed into Subcommittee with Representative
Meyer as Chair and with members Representative
Joule, Representative Croft, Representative
Chenault and Representative Whitaker.
HB 28 An Act relating to adjustments to royalty reserved
to the state to encourage otherwise uneconomic
production of oil and gas; and providing for an
effective date.
CS HB 28 (FIN) was reported out of Committee with
a "no recommendation" and with a new fiscal note
by the Department of Natural Resources.
HB 196 An Act relating to carbon sequestration; and
providing for an effective date.
The Committee did not receive HB 196. Discussion
was POSTPONDED.
HB 293 An Act levying and collecting a state sales and
use tax; and providing for an effective date.
CS HB 293 (FIN) was reported out of Committee with
a "do not pass" recommendation and with new fiscal
notes by the Department of Revenue and Department
of Law.
HB 301 An Act establishing the Knik Arm Bridge and Toll
Authority and relating to that authority; and
providing for an effective date.
HB 301 was HEARD and HELD in Committee for further
consideration.
HB 312 An Act giving notice of and approving the entry
into and the issuance of certificates of
participation for a lease-purchase agreement for a
seafood and food safety laboratory facility;
relating to the use of certain investment income
for certain construction costs; and providing for
an effective date.
HB 312 was HEARD and HELD in Committee for further
consideration.
SB 41 An Act relating to medical care and crimes
relating to medical care, including medical care
and crimes relating to the medical assistance
program.
CS SS SB 41 (FIN) was reported out of Committee
with a "do pass" recommendation and with the new
fiscal note by the Department of Health and Social
Services.
SB 45 An Act relating to the Legislative Budget and
Audit Committee.
HCS CS SB 45 (FIN) was reported out of Committee
with a "do pass" recommendation and with zero
fiscal note #1 by the Department of Administration
and a new zero note by the Department of Law.
SB 192 An Act relating to teachers and training programs
in the Department of Labor and Workforce
Development, to the placement in the exempt
service of certified teachers employed by the
Department of Labor and Workforce Development, to
their eligibility to participate in the Teachers'
Retirement System of Alaska, and to the functions
of the Alaska Workforce Investment Board regarding
the Kotzebue Technical Center and the Alaska
Vocational Technical Center; and providing for an
effective date.
CSSB 192 (L&C) was reported out of Committee with
a "do pass" recommendation and with a new fiscal
note by the Department of Labor and Workforce
Development.
SB 216 An Act relating to international airports revenue
bonds; and providing for an effective date.
SB 216 was reported out of Committee with a "do
pass" recommendation and with fiscal note #1 by
the Department of Revenue.
HOUSE BILL NO. 293
An Act levying and collecting a state sales and use
tax; and providing for an effective date.
Representative Moses MOVED to RESCIND action taken on
adopting Amendment #5. There being NO OBJECTION, previous
action was rescinded.
Representative Moses MOVED to ADOPT the revised Amendment
#5. (Copy on File).
TIM BENINTENDI, STAFF, REPRESENTATIVE MOSES, explained that
the amendment had been revised to include unincorporated
communities within boroughs. The language in the earlier
amendment addressed only those outside the lines. The new
#5 would add language to Page 14, Line 22, following
"municipality", inserting "an unincorporated community,".
He added that there are about fifty of this type community
throughout the State.
Additionally, on Page 30, Line 19, the revised Amendment #5
would insert that same definition. He noted that the
reference to A.S. 39.52.960 does not contain a definition of
unincorporated communities, making the amendment important.
There being NO OBJECTION, the new revised Amendment #5 was
adopted.
Co-Chair Harris MOVED to ADOPT Amendment #7. (Copy on
File). Co-Chair Williams OBJECTED for the purpose of
discussion.
Co-Chair Harris explained that Amendment #7 would delete all
the text on Page 15, Lines 4-5. The amendment would provide
an exemption for Union due payments.
Representative Whitaker understood that the need was
included in the "unreasonable" category.
LARRY PERSILY, DEPUTY COMMISSIONER, DEPARTMENT OF REVENUE,
pointed out that there had been discussion during drafting
in regards to Union dues. The intent was not to tax the
dues because "they are not a service, but a right".
Representative Whitaker reiterated that he understood it was
classified as "intangible". Co-Chair Harris explained that
the action was necessary to guarantee "absolute
clarification".
Representative Stoltze asked if there were any counter-band
fees for business management that might also be exempted.
Representative Hawker explained that the amendment would
make the language explicit and that during the drafting
process it was only "implicit" to the language of the bill.
In order to itemize everything excluded from the bill would
take a very long time. He concluded that the State would
need to rely on the intent behind the "words".
Co-Chair Williams WITHDREW his OBJECTION. There being NO
further OBJECTIONS, Amendment #7 was adopted.
Representative Moses introduced a new amendment to Page 3,
Line 28, deleting "except as specifically prohibited or
limited" and inserting "a" before "municipality". Co-Chair
Williams OBJECTED.
Mr. Persily stated that it was not the intent of the
legislation to limit or prohibit a municipality from levying
a specific excise tax. He acknowledged that municipalities
would be "more comfortable" if that language was removed.
Representative Whitaker noted that he did not object to the
amendment. There being NO OBJECTION, the amendment was
adopted.
Vice-Chair Meyer noted that Representative Chenault had
intended to offer an amendment, however, he was not present.
Co-Chair Williams acknowledged that he knew of that and
recommended that the consideration be made in caucus.
Co-Chair Harris MOVED to report CS HB 293 (FIN) out of
Committee with individual recommendations and with the
accompanying fiscal note.
Representative Kerttula OBJECTED. She noted that Juneau has
had a sales tax for a long time and that the proposed
legislation would be detrimental to not only this community
but also the entire State.
Vice-Chair Meyer acknowledged that the legislation was not
"perfect" legislation but was essential. He noted his
appreciation for all the hard work done on the bill, voicing
his support.
Representative Stoltze echoed the comments made by Vice
Chair Meyer. He recommended that the bill go to the House
floor for full debate.
Co-Chair Harris noted that this was the first time that
Alaska has seriously considered a tax. He noted that the
State is headed into some "rough waters" and although the
legislation is not the perfect form, it is necessary. He
applauded the effort of the Ways and Means Committee for the
many hours of work they put in on the legislation. It is
the responsibility of elected officials to determine a way
to help the State move out of our current economic
situation.
Co-Chair Williams noted his appreciation to Mr. Persily and
Ms. Wilson for their work helping to clarify this
complicated legislation and added his appreciation to the
Committee's members working on the bill.
A roll call vote was taken on the motion to move the bill
from Committee.
IN FAVOR: Meyer, Stoltze, Whitaker, Hawker, Harris,
Williams
OPPOSED: Kerttula, Moses, Berkowitz, Foster
Representative Chenault, Representative Joule &
Representative Croft were not present for the vote.
The MOTION PASSED (6-4).
CS HB 293 (FIN) was reported out of Committee with a "do not
pass" recommendation and with new fiscal notes by the
Department of Revenue and the Department of Law.
HOUSE BILL NO. 312
An Act giving notice of and approving the entry into
and the issuance of certificates of participation for a
lease-purchase agreement for a seafood and food safety
laboratory facility; relating to the use of certain
investment income for certain construction costs; and
providing for an effective date.
Co-Chair Harris MOVED to ADOPT work draft version #23-
GH1134\I, Bannister, 5/15/03, as the version of the
legislation before the Committee. There being NO OBJECTION,
it was adopted.
Co-Chair Williams explained that the bill would conform with
the version coming from the Senate side.
ERNESTA BALLARD, COMMISSIONER, DEPARTMENT OF ENVIRONMENTAL
CONSERVATION, commented that the Department was responsible
for protecting the environment and human health. She
testified to the importance of the lab. The seafood and
food safety lab analyzes raw, finished and value-added food
products for bacteria, chemicals, and toxic contaminants,
maintaining the capabilities and Food and Drug
Administration (FDA) certifications that private labs
cannot. The Department operates on schedules that are not
available from private labs and assumes greater liability
needed to perform analysis for paralytic shellfish
poisoning. The Department cooperates with emerging
industry, such as the growing dive fisheries to guarantee
time-critical water and raw product analysis are available
and market commitments are met.
Commissioner Ballard continued, the Department is qualified
to train and certify private labs so that they can operate
in established and high-demand testing markets.
The Department of Environmental Conservation leased a
facility in Palmer for 34 years. The new facility will not
be available until after 2006. The current facility is
overcrowded, not fully compliant with safety codes and
laboratory design standards. That facility was originally
placed in Palmer when the principal lab business was
agriculture and dairy. The emerging value added seafood
industries in coastal Alaska have added significant and
time-sensitive testing demands for the Department's service.
The proposed new lab will be in Anchorage where valuable
hours could be saved between sample collection and testing
for raw and live seafood products.
Commissioner Ballard continued, the laboratory functions are
essential to protect the health of all Alaskans. The
Governor, past legislatures, and the commissioners of the
Department of Revenue, Department of Transportation & Public
Facilities, and Department of Environmental Conservation
have reviewed the design specifications, equipment
requirements and expense. Alternative locations were
considered and financing mechanisms for a modern facility
sized and equipped for long-term service to the State.
Careful consideration was given to the possibility of
locating in remodeled Alaska Seafood International (ASI)
facility space in Anchorage. Requirements would occupy
approximately 5% of that space.
The process of acquiring a new seafood and food safety lab
began seven years ago with a feasibility study. The
Department received an appropriation of $150,000, to obtain
an independent evaluation of both build and lease options.
The analysis showed that the most economical choice would be
a State owned laboratory financed with lease/purchase bonds
known as Certificates of Participation. The Legislature
agreed and in 2001 appropriated $1,300,000 dollars to design
the facility, a conservative and cost conscious proposal.
She emphasized that the building design, specifications,
space allocations, and the financing plan were all
conservative. The building contains only laboratory and lab
support space. Meeting and classroom facilities will be
available in the adjacent public health lab. The building
materials were selected for low and simple maintenance. The
design and materials are similar to those used in
constructing the public health lab, built several years ago
on schedule and within budget. Laboratory fee charges for
services are being reviewed. They compare well to fees used
in other states.
Representative Stoltze interjected that the project and
building facility was too large and asked about other
alternatives.
JOHN MACKINNON, DEPUTY COMMISSIONER, DEPARTMENT OF
TRANSPORTATION & PUBLIC FACILITIES, responded that
consideration had been discussed regarding the facility in
the ASI building. He noted that the building was too large
and that another building could actually fit inside it. The
space requirements for the lab would consume around 5% of
the total area in ASI and that there would be "serious
compromises" made by doing it, limiting the ability of that
building to be used for anything else. When considering the
overall cost, there would be little savings made. The API
building was designed as a stand-alone structure. The
redesign costs would be well over $900,000 and it would
require complete separate mechanical system & electrical.
Mr. MacKinnon acknowledged that initially, it appeared to be
a good idea; however, with all the information gathered,
there would not be a tremendous amount of savings to be made
if it were located in that space. He added that this design
process has been on going for many years and attempting to
accommodate these needs.
Representative Stoltze inquired how many employees would the
facility employ. Commissioner Ballard responded that there
are 11 employees.
Co-Chair Harris understood what the Department considers
this to be a vital need to move the lab to Anchorage and
having closer access to the airport. He asked if there had
been any attempt to address the City of Palmer's concern
with the possible move. Commissioner Ballard pointed out
that there are approximately 23 employees in the Valley area
and that only 11 would be moved. The reason for adding
additional staff would be particularly for the drinking
water certification. Those needs are growing as the State's
population expands. All employees would remain in the
Palmer area except the ones working in the laboratory.
Co-Chair Harris questioned why such a large facility was
needed. Commissioner Ballard explained that the utilization
of the space would be about 50/50. The portion used for the
labatory testing activities versus equipment space, requires
a certain amount of isolation. Using half the space for
isolation is important to protect the integrity of that
work.
Co-Chair Harris asked for more information on the
certificate of participation bonding and/or funding for the
project.
TOM BOUTIN, DEPUTY COMMISSIONER, DEPARTMENT OF REVENUE,
explained that lease financing was a mechanism of financing
building that the State issues. The State uses that
mechanism, as do all other states and municipalities. The
debt service is subject to annual appropriation and for that
reason, the credit is normally rated much below the general
obligation (GO) rate of the issuer.
Co-Chair Harris asked who would own the building. Mr.
Boutin responded that a feature of a lease-financing or
capital lease is that at the end of the lease term, the
lessee owns the building. In a capital lease as opposed to
an operating lease, the lessee becomes the owner. During
the lease term, there is a trustee who has an obligation on
behalf of the bondholder to enter and take over the facility
on behalf of the best interest of the bondholders.
Representative Hawker asked why the State was in this type
business, noting that it appeared to be "out sourcing of
services", which should be left in the private sector.
Commissioner Ballard advised that whenever they can, the
State gets out of the "testing" business. The State no
longer does testing of drinking water. The only testing
that the States currently does are those that are not
available through private lavatories. If a private lab
sought the certification, then the State would not compete
with them. She pointed out that it is unlikely that private
labs would perform this type testing as there is generally
not enough volume and it needs to be done on a 24/7.
Representative Hawker inquired why the private industry has
not expressed interest in undertaking this activity.
Commissioner Ballard advised that the fees that would need
to be charged, the schedule of maintaining the equipment and
the rigorous certification requirements would simply
preclude the investment of working capital for private
enterprise for performing these tests. The lab
certification requirements certify the facility and
technicians. The technicians must be certified to operate
the new facility and that they have to be available. There
is not a large enough market in Alaska and that market
expects turn-around on its schedule. The State provides the
service at the same cost that the industry would find in
other states.
Representative Hawker argued that the State could not do it
cheaper. Commissioner Ballard disagreed. She reminded
members that the general fund subsidizes the service in the
way that it subsidizes other public services, considered to
be in the interest of the State's citizens.
Co-Chair Harris asked again what the general "feeling" was
currently in the Palmer area regarding moving the facility.
Representative Stoltze observed that it was viewed as a
"slap in the face" to the agriculture industry. He pointed
out that he does not represent that entire "physical area",
however, does represent the entire valley. He repeated that
there is not a good feeling around the proposed change.
Co-Chair Williams remembered that three years ago, a similar
bill passed from Committee to undertake basic design work
and that this concern had been discussed during the last two
legislative sessions.
Representative Kerttula noted her appreciation that the
Department has considered what is happening in Juneau with
closure of the lab. She hoped that would make it easier for
the employees and the University.
ROGER PAINTER, ALASKA SHELLFISH GROWERS ASSOCIATION, JUNEAU,
testified in support of the bill. He commented that the lab
needs a new facility. There has been interest in S.E.
Alaska but there is not enough commerce related to the lab
to locate it in the Southeast area. He acknowledged that an
Anchorage location would make the most sense.
Mr. Painter responded to queries regarding private sector
testing, pointing out that it is easier to go to Seattle
than to get samples to Palmer. There are no private labs
that can test marine samples and no private labs anywhere in
the United States that can check for paralytic shellfish
poisoning or other harmful problems. Assuming that the
private sector will step up to contract for these services
is not an option. He added that in support of comments made
by Commissioner Ballard regarding fees, the costs are below
what would be paid to a private lab.
Representative Hawker noted that he was supportive of the
State's mari-culture activities. He asked if there were any
alternative facilities for that type of testing. Mr.
Painter replied that there is not for either the growing
water certification or for paralytic shellfish poisoning.
He noted that Washington State is the largest producer of
oysters and clams and that he had contacted all labs in
Seattle, finding no testers.
Representative Hawker asked if this type testing was unique
to Alaska. Mr. Painter replied that these are federal
requirements and that the State must comply with those laws
in order to participate in interstate commerce. Providing
public health protection is an important service.
Representative Hawker asked if there were federal
regulations in place in the Pacific Northwest, then why were
the services not available. Mr. Painter explained that the
State of Washington does provide testing services and has a
somewhat different testing program in that they certify
large areas, which is more cost effective than working on
the issues in Alaska where everything is remote and the
farms are separated. The Department of Environmental
Conservation is working in those areas where there is a
concentration of farms in order to certify larger areas.
KRISTIN RILIN, DIRECTOR, DIVISION OF ENVIRONMENTAL HEALTH,
DEPARTMENT OF ENVIRONMENTAL CONSERVATION, added that the
Federal Drug Administration (FDA) certifies laboratories to
perform the testing. Paralytic shellfish poison is a
dangerous toxin and is heavily regulated. Because of that,
private lavatories are not interested in the liability.
Representative Foster asked how the costs were being
determined. Ms. Rilin replied that the costs were not based
on the costs of running the tests. She added that the fees
would need to change to meet the operating costs associated
with the laboratory.
HB 312 was HELD in Committee for further consideration.
TAPE HFC 03 - 97, Side B
HOUSE BILL NO. 28
An Act relating to adjustments to royalty reserved to
the state to encourage otherwise uneconomic production
of oil and gas; and providing for an effective date.
REPRESENTATIVE VIC KOHRING explained that HB 28 would take a
royalty adjustment system that is an understandable and
usable adjustment method for fields that might otherwise
prove to be uneconomic. It would provide a usable system
for reduction of royalties belonging to Alaska so that the
State could encourage production of oil and gas fields that
might be marginal or not economically feasible if it were
not for such reductions.
The bill is not new, but it sets forth an understandable
modification formula; protecting the public's interest in
such proceedings and maintaining the public's ability to
comment on the preliminary findings and determination made
by the Commissioner. The Department of Natural Resources
Commissioner would provide the tools necessary to negotiate
with the drilling companies for both oil and gas production
to determine if they are financially viable. If the fields
are not economically viable, the legislation would take
action to decide what the royalty reduction would be based
on the economics of that field.
Representative Kohring pointed out that the State's normal
share is established at 12.5%, but could run as high as 20%
depending upon the field. A royalty reduction allowed under
HB 28 would depend on changes in oil prices, field recovery,
production rate and operating costs. The rate could be as
low as 3%.
Representative Kohring stressed that the Commissioner would
need to establish that the field was economically situated
before it would be granted. The determination would be
based upon a detailed analysis, professional evaluation.
The evaluation could be done either internally or by an
outside company that has expertise in that type of
evaluation. The State would be reimbursed the cost of the
evaluation. The amount would be capped at $150 thousand
dollars.
Representative Kerttula MOVED to ADOPT Amendment #1, #23-
LS0177\V.2, Chenoweth, 5/15/03. (Copy on File). Co-Chair
Williams OBJECTED.
Representative Kerttula noted that in the last Committee
hearing, there had been a deletion of the section that
allows legislators to receive signed confidential
information. The information is critical in order that
legislators can look at certain records. It is something
that has been done for over 25-years. The proposed
amendment would "un-delete" that proposed section, allowing
access to confidential information. She understood that the
sponsor supported the change.
REPRESENTATIVE NORM ROKEBERG agreed, noting that the
original presumption on that deletion was that it would be
standard procedure under executive privilege. He
acknowledged that the language needs to be re-entered into
the legislation.
There being NO OBJECTION, Amendment #1 was adopted.
Representative Kerttula MOVED to ADOPT Amendment #2, #23-
LS0177\V.3, Chenoweth, 5/15/03. (Copy on File). Co-Chair
Williams OBJECTED.
Representative Kerttula pointed out that the sponsor had no
objection with the grammatical changes proposed by the
language of the amendment. There being NO further
OBJECTION, Amendment #2 was adopted.
Representative Kerttula MOVED to ADOPT Amendment #3, #23-
LS0177\V.1, Chenoweth, 5/15/03. (Copy on File). Co-Chair
Williams OBJECTED.
Representative Rokeberg requested that a simple change be
made to the amendment.
Representative Kerttula read the language recommended by
Representative Rokeberg to be added to the amendment, Line
12, after "approval" inserting "shall not be unreasonably
withheld by", and deleting "of".
Representative Rokeberg reiterated that as amended, there
would be no objection to inserting that language. There
being NO further OBJECTION, Amendment #3 as amended was
adopted.
Co-Chair Harris referenced the fiscal note analysis,
pointing out that the Division of Oil and Gas had not been
complimentary. He asked if the Administration was in
support of the proposed legislation.
MARK MEYERS, (TESTIFIED VIA TELECONFERENCE), DIRECTOR,
DIVISION OF OIL AND GAS, DEPARTMENT OF NATURAL RESOURCES,
ANCHORAGE, noted that the Administration does support the
bill. The Division believes that the bill would clarify
problems that have been identified with the bill with
previous royalty reduction statutes. The fiscal note
adequately reflects the changes recommended in the bill with
the royalty reductions. The fiscal note was carefully
thought out. The Division is comfortable with the proposed
version of the legislation.
Co-Chair Harris pointed out that the analysis identifies
problems with hydrocarbon cost allocation for royalty
relief. The proposed legislation would open the door for
every oil and gas reservoir in the State to be eligible for
a royalty reduction. He acknowledged that it would not be
possible to accurately predict what the fiscal impact of the
legislation will be and could be a negative impact.
Mr. Meyers admitted that in an earlier version of the bill,
those problems were present. Since that time, the fiscal
note applies to the current version; all concerns have been
properly addressed. The earlier version did not address the
previous history of the statute.
Representative Whitaker asked what would be the advantages
and risks to the State through the proposed legislation.
Mr. Meyer explained that there would be no additional risks
to the State. [Testimony inaudible].
He added that the bill would allow for a lot of flexibility.
The Commissioner will be able to adjust as the conditions in
the market place change. It is important that there
continues to be legislative oversight.
Vice-Chair Meyer asked if the legislation was intended for
only the Cook Inlet area or would it apply statewide. Mr.
Meyer confirmed that it will apply statewide and in any
place the State receives royalty on State lands. Vice-Chair
Meyer stated for the record that he "might have a conflict
of interest" regarding the legislation.
Representative Foster MOVED to report CSSSHB 28 (FIN) out of
Committee with individual recommendations and with the
accompanying new fiscal note. There being NO OBJECTION, it
was so ordered.
CSSSHB 28 (FIN) was reported out of Committee with a "no
recommendation" and with a new fiscal note by the Department
of Natural Resources.
SENATE BILL NO. 216
An Act relating to international airports revenue
bonds; and providing for an effective date.
MICHAEL BARTON, COMMISSIONER, DEPARTMENT OF TRANSPORTATION &
PUBLIC FACILITIES, explained that the bill would increase
the cumulative authorization for international airport
revenue bonds to support capital improvement projects at the
Ted Stevens Anchorage International Airport & the Fairbanks
International Airport. The bill would authorize the
issuance of $76 million dollars in revenue bonds. Those two
airports are jointly managed as part of the Alaska
International Airport system. The costs and revenues are
pooled. The system is operated through the airport
operating agreement, a contract between the airport and the
airlines. It establishes the business relationships at the
airport, obligates the airlines to pay for the cost of
running & maintaining the airport, including capital
projects and bonded indebtedness through the rates and fees
charged at the airports. It also obligates the airports to
secure agreements on costs with the airlines.
The airlines agreed in 1997 to the terminal redevelopment
project. The bonds requested through the legislation are
revenue bonds. There were two previous issues in 1999 &
2002. The current issue would constitute no obligation of
the State. The bonds would be insured and there would be no
general fund money involved. There are three reasons for
the need for additional funds:
· Transportation Security Administration (TSA)
security requirements;
· Added square footage requested; and
· Design problems, which caused delays.
Commissioner Barton noted the Department had been
negotiating with the airlines since January 2003 regarding
how to cover the cost overrun. An agreement in some areas
was reached acknowledging that Concourse C needs to be
completed. Completion is scheduled for about in about one
year. Another concern is the deferral of the $60 million
dollars in capital projects; project will continue using
federal money.
Commissioner Barton referenced the two handouts. (Copies on
File). Page 18 of the "Business Planning Information"
outlines the bonding requirement. Approximately $48 million
dollars is estimated for the completion of Concourse C; $10
million dollars needed for the match money for federal funds
on the capital project in Anchorage; $3.5 million dollars
needed for capital projects in Fairbanks; $15 million
dollars for the bond issuance costs. Commissioner Barton
stated that the Asian Pacific markets have produced the most
revenue.
Representative Hawker asked if the Airport Fund was out of
cash. Commissioner Barton responded that only the project
needs funds.
Representative Hawker stated that there was a balance of
$81.8 million dollars as of June 30, 2002 in that fund. He
asked if some of that fund balance could be used to address
this concern. Commissioner Barton noted that it was agreed
to use some of those funds for the portion from the terminal
to Concourse C. In order to lessen the impact on airlines
in future years, the Department has agreed to contribute $1
million per year from that fund, as well as $2 million
dollars per year from patent facility charges. He pointed
out the impact on rates and fees listed on Page 20. The
projection has been made for the completion of the entire
terminal and not just Concourse C.
Representative Hawker asked if the number included the
increase required to meet the debt service. Commissioner
Barton responded that it had been included in those numbers.
Representative Hawker asked the rationale, commenting that
"to an extreme"; it could be funded entirely out of that
fund balance. Commissioner Barton did not believe that it
could be cash funded entirely as the State is required to
retain 1.25 times the debt service, necessary from the
previous bond issuance. There are additional on-going
costs. The airport is not designed to make money but
instead to break even and the fees reflect a break-even
situation. Representative Hawker maintained that the cash
reserve numbers were unclear.
Representative Stoltze asked what concerns had been voiced
by Senator Olson. Commissioner Barton stated that the House
Transportation Committee had reviewed the plan and added
that Senator Olson's concerns were related to general
aviation parking and not related to completion of the
concourse base.
Co-Chair Harris asked if the new concourse would exclusively
be used by Alaska Airlines. Commissioner Barton responded
that they would be the major occupants.
Co-Chair Harris asked if there would be increased fees for
some of the airlines to help cover the costs. Commissioner
Barton replied that the airlines through rates and fees
would pay the entire bond. Co-Chair Harris inquired if the
Department was asking for an increase. Commissioner Barton
stated they were and that all occupants agree that Concourse
C should be completed.
Representative Berkowitz inquired if there were any side-
boards on the initial bonding authority. Commissioner
Barton responded that the proposed bill was the same as an
earlier proposed bill, authorizing the bonds.
Representative Berkowitz commented on some of the issues,
which have given rise to increasing the number. These have
been questioned by other legislators who would like to see
some insurance that the problem will not repeat itself.
Commissioner Barton stated that the urgency exists because
the project will run out of cash in September 2003. After
that emergency is resolved, then the entire situation will
be analyzed.
Representative Berkowitz asked if there would be only one
staircase operator at the airport. Commissioner Barton
offered to check into that.
Vice-Chair Meyer MOVED to report SB 216 out of Committee
with individual recommendations and with the accompanying
fiscal note. There being NO OBJECTION, it was so ordered.
SB 216 was reported out of Committee with a "do pass"
recommendation and with fiscal note #1 by the Department of
Revenue.
HOUSE BILL NO. 301
An Act establishing the Knik Arm Bridge and Toll Authority
and relating to that authority; and providing for an
effective date.
MICHAEL BARTON, COMMISSIONER, DEPARTMENT OF TRANSPORTATION &
PUBLIC FACILITIES, explained that the bill would establish
an independent authority to build and operate a toll bridge
over Knik Arm. The authority would be able to receive
federal money and issue revenue bonds to finance the toll
bridge and its appurtenant facilities. The authority would
design, construct, and operate the bridge and the facility.
The authority would be a public corporation that would have
a separate independent legal existence from the State. The
revenue of the authority would not become part of the
general fund and the property of the authority would be
exempt from taxation.
Commissioner Barton continued, the bill establishes a three-
person board to govern the authority. The commissioners of
the Department of Revenue and the Department of
Transportation & Public Facilities would serve on the board,
along with a member of the public, appointed by the Governor
for a five-year term.
Representative Kerttula referenced Page 3, Lines 4-6 and
voiced concern with what could happen if the authority
failed. If that occurred, would the Legislature retain only
the power to pull back funding.
TOM BOUTIN, DEPUTY COMMISSIONER, DEPARTMENT OF REVENUE,
explained that typically in stand-alone revenue bonds, if
there are bonds, authorized by the Legislature, there would
be a trustee who would have the ability to take over the
entire facility and manage it under the worse case scenario.
The bill would not have the State's moral or general
obligation.
Representative Kerttula asked if that was standard language.
Mr. Boutin advised that any new debt would require further
authorization. It is typical language for stand-alone
revenue bond authority.
Representative Kerttula referenced Page 3, Lines 21-23,
which lists the powers. She inquired if "planned," meant,
"developing". Commissioner Barton responded that was
implicit. Representative Kerttula continued, Page 4, Line
6, asking what would happen if the State received "gifted"
grants or authority. Commissioner Barton [inaudible].
Representative Kerttula noted concern with the language on
Page 12, Lines 6-9, the exemption from local regulation.
That language gives the authority complete exemption from
land use planning, zoning and permitting power of any
political subdivision. She asked what local communities
felt about inclusion of that language. Commissioner Barton
responded that the language was standard for a project of
this size and stated that he did not know what the community
thought about the verbiage. Representative Kerttula
emphasized her concern with the zoning affect. Commissioner
Barton added that the communities would each have a member
on the board.
Representative Berkowitz asked if there was a reason to rush
into the activity of the proposed authority. Commissioner
Barton responded that this could be an "investment for the
future of Alaska". The authority could provide a focus and
impetus to move the project forward. He noted that he
anticipated process delays and that the legislation could
help facilitate getting the crossing built.
Representative Berkowitz noted concern with power of a
bridge authority. He recommended moving more slowly as a
legislative body and proposing a more modified version.
Commissioner Barton commented that the authority will only
have the power that the Legislature grants.
Representative Berkowitz emphasized his concern with the
composition of the board of directors on that authority. On
Page 3, he noted questions regarding the "powers and duties
of the authority" on real and personal property. He added
that it is mentioned that the purpose of the authority is to
advance the "economic development of the State". In
creating an authority, there needs to be more time to
develop the authority's mission. Commissioner Barton
observed that it is important that "both ends of the bridge
be involved". The impact extends beyond the influence of
the actual bridge.
HB 301 was HELD in Committee for further consideration.
HOUSE JOINT RESOLUTION NO. 26
Proposing amendments to the Constitution of the State
of Alaska relating to and limiting appropriations from
and inflation proofing the Alaska permanent fund by
establishing a percent of market value spending limit.
Co-Chair Williams assigned HJR 26 to a Subcommittee to work
on during the interim. Members of the subcommittee will be:
Representative Meyer, Chair, Representative Joule,
Representative Croft, Representative Whitaker and
Representative Chenault.
ROBERT D. STORER, EXECUTIVE DIRECTOR, ALASKA PERMANENT FUND
CORPORATION, DEPARTMENT OF REVENUE, expressed that the Board
of Trustees believes that it is important to inflation proof
the fund.
TAPE HFC 03 - 98, Side A
Mr. Storer noted that currently that it is in statute. The
Legislature has always inflation proofed to maintain the
purchasing power of the fund. This could inflation proof
the entire fund and not just the principle of the fund,
which could be achieved by a spending limit, which would
suggest that limit be no more than 5% of the 5-year moving
average of the fund. Less could be appropriated.
Mr. Storer explained that could be achieved by a spending
limit. The Board suggests that the limit be no more than 5%
of the five-year moving average of the fund and that less
could be appropriated. Currently, the entire earnings
reserve could be appropriated so the magnitude varies from
year to year. There have been "big swings based on the
market conditions". Using a moving average improves
stability each year versus the status quo.
The 5% number was determined by looking at historical data
and prospectively at the capital markets, the current
diversified portfolio will be able to achieve 5% real income
over inflation. The old statute was developed about 26
years ago at a time when people only thought about bonds.
Now that more is invested in the equity market, amore
volatile high-expected return, half of the fund is invested
in that market. There will be more volatility and less
income unless the managers take profits over time. He added
this is more predictable than the current methodology. The
computation would be from the five previous fiscal years.
That would provide the legislators information in January
each year to know the exact amount of available funds.
Mr. Storer noted that at present time, there is a positive
earnings reserve at about $2 billion dollars. The fund has
incurred much volatility to date. What is being proposed
would substantially increase the predictability of the fund.
Co-Chair Williams requested further definition of the
language of the resolution.
BOB BARTHOLOMEW, CHIEF OPERATING OFFICER, ALASKA PERMANENT
FUND CORPORATION, DEPARTMENT OF REVENUE, pointed out that
the version before the Committee was from the House
Judiciary Committee. Basically, that is a two-page
amendment making changes to the constitution. The title is
a policy statement regarding why the trustees are proposing
the change to protect the Permanent Fund from inflation.
Mr. Bartholomew noted that the first change was indicated on
Page 1, Line 10, referring to a new second paragraph to be
added to the constitution. Page 1, Line 11 is the most
significant change, which would delete "principal" and that
the Permanent Fund would be protected with a spending limit
of up to 5% per year, which could be taken. That would be a
policy call to balance. Incorporating the new language
would provide that there would always be an annual
distribution from the fund limited to 5%. The action would
balance the benefit of providing a distribution every year
against the short-term risk of spending down the fund. He
acknowledged that would be a significant policy decision.
Mr. Bartholomew continued, Page 1, Lines 13-14, would delete
the language "all income from the Permanent Fund shall be
deposited in the General Fund unless otherwise provided by
law". The intent would be that all income earned by the
Permanent Fund remain in the fund. The two pools of funds
would be combined which would not need a separate
itemization of where the income was placed.
Page 2, Line 2, begins the new paragraph, which establishes
a not to exceed spending limit of 5% of the year-end market
value. That amount is averaged over a five-year period.
Page 2, Line 4, clarifies that it would be for the first
five of the six fiscal years, immediately preceding that
fiscal year. Under current rules, the available amount is
not known because the five-year average used, includes the
th
June 30 of the present year. Looking back six years,
th
making the last June 30 the end point for the following
year, provides information indicating exactly what is
available for Legislative appropriation.
Mr. Bartholomew stated that Section #3 provides the language
proposed by Legislative Legal, transitional language, which
clarifies that any money in the earnings reserve would
remain a part of the Permanent Fund and states that it would
stay with the Permanent Fund.
Mr. Bartholomew noted that Section #4 stipulates that to
make it effective to change the constitution, it would go
before the voters of Alaska at the next general election,
November 2004.
Co-Chair Williams appointed a subcommittee to address
concerns of the legislation. Representative Meyer would
chair the Subcommittee with members Representative Croft,
Representative Chenault, Representative Whitaker, and
Representative Joule. Co-Chair Williams encouraged
statewide participation.
HJR 126 was HELD in Committee for further consideration.
SENATE BILL NO. 41
An Act relating to medical care and crimes relating to
medical care, including medical care and crimes
relating to the medical assistance program.
SENATOR LYDA GREEN explained that since 1999, the costs of
the Medicaid program have risen throughout the nation at an
average rate of 11 percent per year. Alaska's Medicaid
program has averaged annual increases of 20 percent or more
than $100 million per year, bringing the total projected
program costs for FY04 to just under $1 billion dollars
($695 million in federal funds and $289 million in state
funds).
Factors such as increased participant enrollments, increased
use of health services and the increasing costs of
pharmaceuticals and long-term care are the greatest
contributors to the rise in the Medicaid program costs.
While the State has limited ability to contain the cost
factors, targeting waste and fraud can occur.
Senator Green continued, nationally, the error rate of
overpayments in the Medicare program are about 7 percent, a
number that could be inferred to the Medicaid program. In
addition, the commonly held perception of the amount of
fraud committed against the Medicaid program nationwide is
10 percent. Whether those two numbers are inclusive of one
another or should be compounded, they represent a sizeable
amount of spending, between $70 and $170 million dollars in
Alaska's Medicaid program on activities that could be
questionable.
To preserve the integrity and fiscal viability of Alaska's
Medicaid program, that system must be held to rigorous
controls and frequent scrutiny. Relevant laws must be in
place to prosecute those who commit fraud and abuse related
to medical care. Alaska has no specific health care
criminal theft statutes. Currently, in order to prosecute
those who commit Medicaid fraud, prosecutors must use
criminal statutes related to actions coincidental to the
misconduct. Alaska theft statutes require proving that the
conduct was intentional, a very high standard to meet for a
crime where there is no crime scene or physical evidence.
Consequently, there have been relatively few prosecutions.
SB 41 would provide the legal tools for the fiduciaries of
the Medicaid program to establish program integrity and
maintain maximum fiscal control.
Senator Green added that the legislation would establish the
crime of medical assistance fraud, define elements that
constitute fraud, and classifies the crime committed as
either a felony or a misdemeanor. SB 41 would require
independent financial audits to identify errors,
overpayments, and criminal violations made to, or by,
Medicaid providers and requires administrative action within
90 days of receipt of each audit. The legislation would
complete the loop between the Department of Health and
Social Services and the Department of Law by requiring
copies of all audits to be provided to the Attorney General
and by directing the Attorney General to notify the
Department of Health and Social Services of any charges of
misconduct filed against a Medicaid provider. Such notice
requires the Department to undertake a complete review of
any outstanding claims of that provider. Finally, the bill
would provide that financing of the audits could be made
from the recovery, due to the audits, of misspent funds.
She concluded that it is vital that the State of Alaska
administer its Medicaid program in a manner that ensures
effective, long-term cost containment while providing needed
medical care to its intended recipients. Medicaid providers
must operate honestly, responsibly and in accordance with
the law. Those who do not would be held accountable.
Representative Foster asked who would pay for the audits.
Senator Green advised that they would be paid for from the
amount recovered from the lawsuits. She speculated that
that ratio of the amount recovered would be 8 to 1, citing
an example of physicians in Anchorage involved in such
suits.
DON KITCHEN, (TESTIFIED VIA TELECONFERENCE), ASSISTANT
ATTORNEY GENERAL, DEPARTMENT OF LAW, ANCHORAGE, offered to
answer questions of the Committee. In response to a query
by Representative Stoltze, Mr. Kitchen explained that the
statutes were written to encompass being able to prosecute
both recipients and providers. He noted that his particular
focus was with the providers. Senator Green added that
there had been a "recipient Medicaid" work group in Juneau,
who reviewed the bill. They supported the bill and
suggested that recipients be included. Up until that time,
the recipients had been excluded.
Representative Berkowitz questioned how the cases are
currently being prosecuted. Mr. Kitchen responded that most
often other statutes are used, which can have an element of
specific intent. Trying to prove "specific intent"
sometimes becomes impossible. Without having a witness, the
State has no way to dis-prove the essential defense of when
the provider suggests ignorance. SB 41 would require that
the provider comply with the regulations up front, making
them responsible for the resource.
Representative Berkowitz referenced Section 47.05.230, Page
5, regarding aggregated amounts. Mr. Kitchen explained that
the aggregation of amounts was taken from the sub-statutes
and permits aggregating amounts into a particular charge.
Representative Berkowitz referred to Pages 4 & 5, pointing
out that the amounts for a C felony would be $500 to $5,000
dollars and that an A charge would be less than $500. He
asked if that would continue to be the "breaking point"
between misdemeanors and felonies, questioning the raising
amounts. Mr. Kitchen did not recall the raised numbers.
Representative Hawker asked if the current version of the
bill was acceptable to the Department. Mr. Kitchen
confirmed that the Department of Law was comfortable with
the bill.
Representative Berkowitz MOVED to AMEND Pages 4 & 5, Lines
29 & 2, respectively, raising the amount to $1,000 for a
felony and deleting "$500". Vice Chair Meyer OBJECTED.
Representative Berkowitz discussed the benefits of the
change. Vice-Chair Meyer noted that the levels had been
raised in House Judiciary Committee last year.
Senator Green maintained that value was not the only
qualifying factor. She added that even if the drugs had
very little "street value", that might not be as important
as the use of the drug in the Medicaid program.
In response to a query by Representative Berkowitz, Mr.
Kitchen explained that most cases do not come to the
Department's attention until they are at least between $500
& $1000 dollars and that in other states, the felony
breaking point is $100 dollars. Representative Berkowitz
WITHDREW the MOTION.
Co-Chair Harris MOVED to report CS SS SB 41 (FIN) out of
Committee with individual recommendations and with the
accompanying fiscal note. There being NO OBJECTION, it was
so ordered.
CS SS SB 41 (FIN) was reported out of Committee with a "do
pass" recommendation and with a new fiscal note by the
Department of Health and Social Services.
SENATE BILL NO. 192
An Act relating to teachers and training programs in
the Department of Labor and Workforce Development, to
the placement in the exempt service of certified
teachers employed by the Department of Labor and
Workforce Development, to their eligibility to
participate in the Teachers' Retirement System of
Alaska, and to the functions of the Alaska Workforce
Investment Board regarding the Kotzebue Technical
Center and the Alaska Vocational Technical Center; and
providing for an effective date."
DOUG LETCH, STAFF, SENATOR GARY STEVENS, stated that the
bill would amend language so that teachers in the Department
of Labor and Workforce Development would be eligible for the
Teachers Retirement System (TRS). Additionally, it would
provide conforming language for the Workforce Investment
Board so that there would be only one Workforce Investment
Board. Section #3 would add Kotzebue Technical Center and
Alaska Vocational Technical Center (AVTEC) as programs
within the Department of Labor and remove from the
Department of Education.
Mr. Letch continued, Section #4 conforms languag4e for one
Workforce Investment Board. Section #5 amends language so
that existing teachers at Alaska Vocational Technical Center
(AVTEC) and skill centers that are exempt positions remain
exempt positions. Section #6 repeals statutory language so
that there is one Workforce Investment Board and repeals the
Business Incentive Training Program, which has not been
funded for many years.
SENATOR GARY STEVENS reiterated comments made by Mr. Letch.
The legislation resulted from an issue in consolidating the
workforce and resulted in a substantial savings indicated in
the attached fiscal note. The Board will have fewer
members.
Co-Chair Harris MOVED to report CSSB 192 (L&C) from
Committee with individual recommendations and with the
accompanying fiscal note. There being NO OBJECTION, it was
so ordered.
CSSB 192 (L&C) was reported out of Committee with a "do
pass" recommendation and with a new fiscal note by the
Department of Labor and Workforce Development.
SENATE BILL NO. 45
An Act relating to the Legislative Budget and Audit
Committee.
SENATOR LYDA GREEN noted that SB 45 was an act related to
the Legislative Budget and Audit (LBA) Committee. The
statute lacks any penalties for those who are uncooperative
or who undermine the work of the committee. SB 45 is
designed to remedy that by providing prosecutors with the
necessary tools to deter and punish those who hinder the
investigative work of that committee.
A legislative auditor conducts three kinds of audits:
· A "look-see" at an agency;
· Review of boards due to sunset; and
· Post audits.
When concerns are presented to the Legislature, audits may
be conducted. Senator Green pointed out that audits
conducted this year have provided important legislative
information. The bill assigns a penalty for non-compliance
with an audit and includes provisions for "whistle blowers",
on Page 2, Section 4, to provide protection for employees.
Senator Green added that penalties and sanctions were
included since these situations can be serious.
Co-Chair Harris MOVED to ADOPT work draft #23-LS0205\W,
Luckhaupt, 5/15/03, as the version of the legislation before
the Committee. There being NO OBJECTION, it was adopted.
Representative Stoltze realized that when an audit is
performed, there are external forces that attempt to delay
the release of information. He asked if the legislation
would cover that concern.
PAT DAVIDSON, DIRECTOR, DIVISION OF LEGISLATIVE AUDIT,
responded that the legislation could address that
"indirectly". SB 45 will eliminate the obstruction during
the course of the audit, which will allow the audit to move
forward faster. The bill will enhance the efficiency and
timeliness of the audit process.
Representative Kerttula voiced appreciation for the
sponsor's changes. She referenced Page 3, Lines 9 & 10, "or
other matters within the authority of Legislative Budget and
Audit Committee". She asked for an example of the range
that language indicates.
Ms. Davidson explained that the Division of Legislative
Budget and Audit performs audits. The Division can be asked
to prepare reports, memorandums and/or other matters as
directed by the Committee. They attempt to approach all
official responsibilities that may be delegated under the
auspicious of the LBA Committee.
Representative Kerttula voiced concern of "how minimal" that
might be.
JACQUELINE TUPOU, STAFF, SENATOR LYDA GREEN, interjected
that when writing the legislation, it was agreed that the
whistle blower statute should be as broad as possible in
order to be able to access all information.
Representative Kerttula asked about the section of
information that allows going into the State employees
files. Information could be added to the file regarding if
that employee had been dismissed or disciplined for the
violation of interference with LBA. She asked if other
crimes were intended to be included in that language.
Ms. Davidson explained that because one of the penalties was
a disciplinary action regarding the personnel laws,
disciplinary laws are confidential. If someone had violated
the statute, the knowledge of that could not be concealed
through the confidentiality of the personnel records. The
language of the bill allows that misconduct be publicly
exposed.
TAPE HFC 03 - 98, Side B
Senator Green advised that the Department of Law was
initially opposed to the legislation, but clarified for the
record that they now do support current language.
SCOTT NORDSTRAND, DEPUTY ATTORNEY GENERAL, CIVIL DIVISION,
DEPARTMENT OF LAW, voiced the Department's support of the
current committee substitute and reiterated that the bill is
"workable".
Representative Foster MOVED to report HCS CS SB 45 (FIN) out
of Committee with individual recommendations and with the
accompanying fiscal note. There being NO OBJECTION, it was
so ordered.
HCS CS SB 45 (FIN) was reported out of Committee with a
"do pass" recommendation and with zero fiscal note #1 by the
Department of Administration and a new zero note by the
Department of Law.
--------------------------------
Co-Chair Harris MOVED that there be no more House bills
heard in the House Finance Committee this legislative
session. He noted that the Committee had moved "past the
deadline" for any House bill to pass this current fiscal
year.
Representative Berkowitz asked if HB 111 had received a
House Finance referral.
Co-Chair Williams noted that he intended to "over-rule" the
previous MOTION. He stated that HB 111 would be WAIVED from
the House Finance Committee and that the amendment could be
made on the House Floor. He added that the Committee was
still waiting to receive HB 277.
ADJOURNMENT
The meeting was adjourned at 4:40 P.M.
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