Legislature(2005 - 2006)HOUSE FINANCE 519

03/01/2005 01:30 PM House FINANCE


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01:39:01 PM Start
01:39:24 PM HB35
03:19:33 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Overview: Amerada Hess/AK Capital Corp.
Bills Previously Heard/Scheduled
= HB 35 EXTEND BD ARCHITECTS/ENGINEERS/SURVEYORS
Moved CSHB 35(FIN) Out of Committee
                  HOUSE FINANCE COMMITTEE                                                                                       
                       March 1, 2005                                                                                            
                         1:39 p.m.                                                                                              
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Meyer called the House  Finance Committee meeting to                                                                   
order at 1:39:01 PM.                                                                                                          
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Mike Chenault, Co-Chair                                                                                          
Representative Kevin Meyer, Co-Chair                                                                                            
Representative Bill Stoltze, Vice-Chair                                                                                         
Representative Eric Croft                                                                                                       
Representative Richard Foster                                                                                                   
Representative Mike Hawker                                                                                                      
Representative Jim Holm                                                                                                         
Representative Reggie Joule                                                                                                     
Representative Carl Moses                                                                                                       
Representative Bruce Weyhrauch                                                                                                  
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Mike Kelly                                                                                                       
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Representative   Vic   Kohring;   Sam   Kito,   III,   Alaska                                                                   
Professional  Design   Council;  Pat  Davidson,   Legislative                                                                   
Auditor,  Legislative Audit  Division;  Rick Urion,  Director                                                                   
Occupational Licensing, Department  of Community and Economic                                                                   
Development; Cheryl Frasca, Director,  Division of Management                                                                   
& Budget, Office  of the Governor; Devon  Mitchell, Executive                                                                   
Director,  Alaska Municipal Bond  Bank Authority,  Department                                                                   
of  Revenue;   Michael  Burns,  Executive   Director,  Alaska                                                                   
Permanent Fund Corporation; Tom  Boutin, Deputy Commissioner,                                                                   
Department of Revenue                                                                                                           
                                                                                                                                
PRESENT VIA TELECONFERENCE                                                                                                    
                                                                                                                                
Murphy O'Brian, Planning director,  MatSu Borough; Jane Dale,                                                                   
Palmer; Gary  Davis, Road  Service Director, Kenai  Peninsula                                                                   
Borough; Mark Begich, Mayor, City of Anchorage                                                                                  
SUMMARY                                                                                                                       
                                                                                                                                
HB 35     "An Act extending the termination date of the                                                                         
          State Board of Registration for Architects,                                                                           
          Engineers, and Land Surveyors; and providing for                                                                      
          an effective date."                                                                                                   
                                                                                                                                
          CS HB 35 (FIN) was REPORTED out of Committee with                                                                     
          a "no recommendation" and with a previously                                                                           
          published fiscal impact note: # 1 CED.                                                                                
                                                                                                                                
OVERVIEW - AMERADA HESS/ALASKA CAPITAL CORPORATION                                                                              
                                                                                                                                
1:39:24 PM                                                                                                                    
HOUSE BILL NO. 35                                                                                                             
                                                                                                                                
     "An  Act extending  the termination  date  of the  State                                                                   
     Board  of Registration  for  Architects, Engineers,  and                                                                   
     Land Surveyors; and providing for an effective date."                                                                      
                                                                                                                                
[House Bill 35 was previously heard on February 28, 2005.]                                                                      
                                                                                                                                
Representative  Vic Kohring asked  the committee  to consider                                                                   
Amendment  1  after  hearing testimony  from  people  in  the                                                                   
industry.    He  explained  that  the  amendment  allows  the                                                                   
eleventh  member  of  the State  Board  of  Registration  for                                                                   
Architects, Engineers, and Land Surveyors to vote.                                                                              
                                                                                                                                
Representative Hawker MOVED to ADOPT Amendment 1, labeled                                                                       
24-LS0273\A.1, Bannister, 2/28/05, as follows:                                                                                  
                                                                                                                                
     Page 1, line 2, following "Surveyors;":                                                                                    
     Insert "relating  to the  membership of the  State Board                                                                   
     of  Registration  for Architects,  Engineers,  and  Land                                                                   
     Surveyors;"                                                                                                                
                                                                                                                                
     Page 1, following line 6:                                                                                                  
     Insert new bill sections to read:                                                                                          
    "* Sec. 2.  AS 08.48.011(b) is amended to read:                                                                             
          (b)  The board consists of 11 [10] members                                                                          
     appointed by  the governor having the  qualifications as                                                                   
     set out in AS 08.48.031. The board consists of                                                                             
               (1)  two civil engineers;                                                                                    
               (2)  [,] two land surveyors;                                                                                 
               (3)  [,] one mining engineer;                                                                                
                    (4)  [,] one electrical or mechanical                                                                     
                    engineer;                                                                                                 
               (5)  [,] one engineer from another branch of                                                                   
               the profession of engineering;                                                                                 
               (6)  [,] two architects;                                                                                     
               (7)  one landscape architect; [,] and                                                                          
               (8)  one public member.                                                                                        
     * Sec. 3.  The uncodified  law of the State of Alaska is                                                                   
     amended by adding a new section to read:                                                                                   
     APPOINTMENT  OF NEW  BOARD MEMBER.   (a)   On or  before                                                                   
     September 1,  2005,  the governor  shall  appoint a  new                                                                   
     member   to  the   State  Board   of  Registration   for                                                                   
     Architects,  Engineers, and  Land  Surveyors to  satisfy                                                                   
     the requirement  of AS 08.48.011(b), as amended  by sec.                                                                   
     2 of  this Act.  The  member shall be an  individual who                                                                   
     is registered  under AS 08.48 to engage  in the practice                                                                   
     of   landscape  architecture   and   who  is   otherwise                                                                   
     qualified  under  AS 08.48.031 to  be  a  member of  the                                                                   
     State Board of Registration for Architects, Engineers,                                                                     
     and Land Surveyors.                                                                                                        
     (b)  The term of the member appointed under (a) of this                                                                    
     section is four years from the date of appointment."                                                                       
                                                                                                                                
     Renumber the following bill section accordingly.                                                                           
                                                                                                                                
Representative Holm OBJECTED.                                                                                                   
                                                                                                                                
SAM   KITO,   III,   CHAIR,   LEGISLATIVE   LIAISON,   ALASKA                                                                   
PROFESSIONAL DESIGN  COUNCIL, spoke in favor  of Amendment 1.                                                                   
He indicated  that  he was speaking  on behalf  of the  State                                                                   
Board  of Registration  for Architects,  Engineers, and  Land                                                                   
Surveyors.   He stated support  for converting  the temporary                                                                   
landscape  architect   position  to   that  of  a   permanent                                                                   
position,  a  recommendation   of  a  legislative  audit.  He                                                                   
explained  that allowing  the eleventh  member to vote  would                                                                   
create an odd number and avoid ties.                                                                                            
                                                                                                                                
1:43:31 PM                                                                                                                    
                                                                                                                                
Representative Holm pointed out  the difficulty of certifying                                                                   
landscape  architects in  Alaska.  He  explained the  various                                                                   
growing  zones  in  the  state  and  lack  of  resources  for                                                                   
training.  He said  he is objecting to the idea  of licensing                                                                   
someone  who would not  be knowledgeable  because they  don't                                                                   
have an  opportunity to get  adequate training.   He recalled                                                                   
when there were no landscape architects in Alaska.                                                                              
                                                                                                                                
Mr.  Kito acknowledged  that Representative  Holm has  raised                                                                   
valid points.   He  explained the  licensing procedure  for a                                                                   
landscape architecture.  Representative  Holm maintained that                                                                   
there is no  licensing procedure and he termed  the licensing                                                                   
procedure inappropriate.  He related  that the Association of                                                                   
American Nurserymen  has no  standards regarding  Alaska, and                                                                   
Alaska is  not at a  point to have  experts in this  area. He                                                                   
questioned the  validity of  requiring a landscape  architect                                                                   
to act  as an  expert and  superimpose landscape  information                                                                   
over projects throughout the state.                                                                                             
                                                                                                                                
Mr. Kito,  speaking as a  civil engineer, related  that there                                                                   
are   manuals,   books,  and   guidelines   with   applicable                                                                   
information.  Selection  of specific materials is  left up to                                                                   
"knowledge  at  the  local  area".   He  opined  that  design                                                                   
professionals would  make a point  of knowing  conditions and                                                                   
specifics in various areas.                                                                                                     
                                                                                                                                
Co-Chair Meyer  inquired if the audit report  recommended the                                                                   
addition of a landscape architect position.                                                                                     
                                                                                                                                
PAT DAVIDSON, LEGISLATIVE AUDITOR,  AUDIT DIVISION, responded                                                                   
that  is   correct.    She   explained  that  a   variety  of                                                                   
occupations  are licensed  under  the board  and therefore  a                                                                   
variety  of  occupations  are needed  on  the  board.   As  a                                                                   
growing  and  developing occupation,  a  landscape  architect                                                                   
should be on board to deal with  related and emerging issues.                                                                   
                                                                                                                                
1:52:41 PM                                                                                                                    
                                                                                                                                
Representative  Hawker  inquired  why Alaska  recognizes  the                                                                   
occupation of landscape  architect.  Mr. Kito said  it is his                                                                   
understanding that  there are some benefits to  having such a                                                                   
person  on  board  when  an  Alaskan  firm  bids  on  federal                                                                   
projects  such as  playgrounds.   Most  landscape  architects                                                                   
spend a  lot of  time working  on school playground  projects                                                                   
and other projects  that receive the benefit  of having their                                                                   
expertise.                                                                                                                      
                                                                                                                                
Representative  Hawker asked  how  many landscape  architects                                                                   
there are in Alaska.  Mr. Kito  replied there are 33 licensed                                                                   
landscape architects.   Representative Hawker  indicated that                                                                   
that is  a relatively  small number.   He  wondered if  it is                                                                   
premature to give  that occupation a seat on the  board.  Mr.                                                                   
Kito noted that  there are 1,000 licensed civil  engineers in                                                                   
the  state and  33 licensed  mining  engineers.   All of  the                                                                   
related architecture occupations  have a member on the board.                                                                   
He  explained  that if  there  were  not a  voting  landscape                                                                   
architect  on the  board, there  would be  no one  to have  a                                                                   
voice regarding that occupation's regulations and statutes.                                                                     
                                                                                                                                
Representative  Hawker  asked   if  the  concerns  raised  by                                                                   
Representative  Holm  would  be  an issue  or  an  unintended                                                                   
consequence to the  nurserymen in the state  if the amendment                                                                   
passes.  Mr.  Kito replied that  he does not believe  so.  He                                                                   
concluded that it  would be an opportunity for  the landscape                                                                   
architect  position to  work with  the  other disciplines  to                                                                   
formulate  guidelines for the  practice and  responsibilities                                                                   
of landscape architecture.                                                                                                      
                                                                                                                                
1:57:26 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Stoltze asked if  the sunset  date was  guided by                                                                   
past  legislation.    Ms. Davidson  replied  the  Legislative                                                                   
Audit  Division looked  at current  operations  to make  that                                                                   
determination.    Vice-Chair  Stoltze  voiced  concern  about                                                                   
adding  another  regulatory  entity and  the  possibility  of                                                                   
detrimental future regulations such as a closed shop.                                                                           
                                                                                                                                
Representative Holm  reiterated past concerns  with landscape                                                                   
architects and cautioned  the board that he  would be closely                                                                   
watching  its  actions.   Representative  Holm  WITHDREW  his                                                                   
OBJECTION to adopt Amendment 1.                                                                                                 
                                                                                                                                
Representative  Foster MOVED  to report  CS HB  (FIN) out  of                                                                   
Committee with the accompanying  fiscal note.  There being NO                                                                   
OBJECTION, it was so ordered.                                                                                                   
                                                                                                                                
CS  HB 35  (FIN) was  REPORTED out  of Committee  with a  "no                                                                   
recommendation"  and  with  a   previously  published  fiscal                                                                   
impact note: # 1 CED.                                                                                                           
                                                                                                                                
2:03:06 PM                                                                                                                    
At ease.                                                                                                                        
                                                                                                                                
2:04:37 PM                                                                                                                    
                                                                                                                                
OVERVIEW: AMERADA HESS SETTLEMENT TO FUND CAPITAL PROJECTS                                                                      
                                                                                                                                
CHERYL FRASCA,  DIRECTOR, DIVISION OF MANAGEMENT  AND BUDGET,                                                                   
OFFICE OF THE GOVERNOR, introduced members of the panel.                                                                        
She explained the  handout entitled "Use of  the Amerada Hess                                                                   
Settlement  to Fund Capital  Projects" (copy  on file.)   The                                                                   
first  three  pages are  background  history  describing  the                                                                   
Amerada Hess settlement,  pages 5 and 6 are a  summary of the                                                                   
proposed  capital corporation,  pages 7  and 8 are  schematic                                                                   
diagrams, pages  9 - 12 depict  how the account  works, pages                                                                   
13 - 15 is  a legal opinion from Wilson Condon  regarding the                                                                   
intent when  the issue was  before the  court, pages 16  - 18                                                                   
are frequently  asked question, and  pages 19 - 27  relate to                                                                   
proposed capital  projects to be  funded by the  revenue bond                                                                   
proceeds.                                                                                                                       
                                                                                                                                
2:08:19 PM                                                                                                                    
                                                                                                                                
MICHAEL  BURNS,  EXECUTIVE DIRECTOR,  ALASKA  PERMANENT  FUND                                                                   
CORPORATION,  explained  the  history  of  the  Amerada  Hess                                                                   
Royalty Oil  Dispute and  Settlement.  In  1977 the  State of                                                                   
Alaska sued North Slope oil companies  over royalty disputes.                                                                   
Twenty-five percent of all oil  royalties are directed to the                                                                   
permanent  fund,  so  the  issue became  whether  or  not  an                                                                   
Alaskan jury and  judge could be impartial because  they were                                                                   
potential  recipients  of the  royalty payments  through  the                                                                   
Permanent  Fund Dividend.   The  case ended  up in the  Ninth                                                                   
Circuit Court of Appeals, which encouraged settlement.                                                                          
                                                                                                                                
In  1989 and  1991 the  Legislature  passed legislation  that                                                                   
stated  that  any  settlement   would  be  deposited  in  the                                                                   
permanent fund,  but the  earnings could not  be used  in the                                                                   
dividend formula.   That satisfied  the court and it  did not                                                                   
go to trial.   Between 1992 and 2002, about  $194 million was                                                                   
deposited into  the fund.  Earnings  on that money,  over the                                                                   
years,  have amounted  to  almost  $153 million.    Inflation                                                                   
proofing of  the original principal  is about  $77.5 million.                                                                   
About $424,399,000 is in the fund  today.  Mr. Burns referred                                                                   
to  the delicate  term  "financial sequestration"  in  Wilson                                                                   
Condon's memo and noted that he  preferred the concept "self-                                                                   
licking ice  cream cone",  to describe a  fund within  a fund                                                                   
that is economically and financially  being used for nothing.                                                                   
                                                                                                                                
Mr.  Burns   described  the   fund's  accounting   procedure.                                                                   
Appreciation or depreciation  on assets is added  to the very                                                                   
basic  income   such  as  stock  dividends,   bond  interest,                                                                   
property   rent,  revenues  from   securities  lending,   and                                                                   
commission recapture.   Then, operating expenses  of the fund                                                                   
and legislative  appropriations are  subtracted.   This leads                                                                   
to a number called an accounting  net income or total return.                                                                   
From  that  number,  unrealized  depreciation  on  assets  is                                                                   
deducted,  which  totals  realized  net income.    From  that                                                                   
number any  income attributable to  the Amerada Hess  fund is                                                                   
subtracted.  This  equals the statutory net  income, which is                                                                   
used in the calculation of the dividend.                                                                                        
                                                                                                                                
2:12:15 PM                                                                                                                    
                                                                                                                                
DEVON  MITCHELL, EXECUTIVE  DIRECTOR,  ALASKA MUNICIPAL  BOND                                                                   
BANK  AUTHORITY, DEPARTMENT  OF  REVENUE,  explained how  the                                                                   
bonds were issued.  Two fundamental  ideas were settled upon:                                                                   
a new  account  created in  the earnings  reserve called  the                                                                   
Alaska  Capital  Income  Account,  which will  be  funded  by                                                                   
earnings from the  segregated portion of the fund,  and a new                                                                   
public corporation,  which will  have the authority  to issue                                                                   
up to $350 million in corporate  bonds supported by operating                                                                   
leases  that might  be paid  from the  Alaska Capital  Income                                                                   
Account.  The  key reason for needing a  separate corporation                                                                   
is  to have  a structure  to segregate  funds  and allow  for                                                                   
leveraging without  any impact on the state's  general credit                                                                   
rating.                                                                                                                         
                                                                                                                                
The  new corporation  would exist  within  the Department  of                                                                   
Revenue and  be funded by  revenue staff.   There would  be a                                                                   
slight  increment in  operating costs  for the  corporation's                                                                   
annual audit  functions and  other administrative  functions.                                                                   
The  bond  structure is  critical  to  the viability  of  the                                                                   
corporation  because a  very  flexible structure  is  needed.                                                                   
There  is  a  40-year  nominal  interest  structure,  like  a                                                                   
balloon  payment   at  the  term   of  40  years,   with  the                                                                   
flexibility  to  retire principle  in  the interim  years  as                                                                   
additional revenue  becomes available.  There is  also a tax-                                                                   
exempt  bond  structure  and a  variety  of  other  potential                                                                   
enhancements  to ensure protection  against volatility.   The                                                                   
final credit feature  is a fully funded debt  service reserve                                                                   
fund secured  by a  moral obligation pledge  at the  State of                                                                   
Alaska.                                                                                                                         
                                                                                                                                
Mr. Mitchell  referred to  page 7  of the  packet.   The flow                                                                   
chart demonstrates  how  Amerada Hess  funds would flow  into                                                                   
the earnings reserve sub-account  and be available for annual                                                                   
appropriations for projects, changing  nothing related to the                                                                   
permanent fund, the earnings reserve, or the dividend.                                                                          
                                                                                                                                
2:17:08 PM                                                                                                                    
                                                                                                                                
Mr. Mitchell indicated  that page 8 is the  schematic for the                                                                   
contemplated corporation  that would be charged  with issuing                                                                   
$350  million  in bonds.  It  depicts  annual  appropriations                                                                   
flowing  into the corporation  through  the revenue fund  and                                                                   
then splitting  off into the  debt service reserve,  the bond                                                                   
redemption  fund,   and  the  operations  fund.     The  bond                                                                   
redemption  fund or advanced-funded  bond redemption  account                                                                   
is an added  security feature where debt service  is funded a                                                                   
year in advance.   Prior to any principle  redemption through                                                                   
flexible  amortization  on the  bonds, an  additional  year's                                                                   
worth of security would be set  aside to further insulate the                                                                   
state from market  volatility.  The operations  account would                                                                   
provide  for audit function  duties of  the corporation,  and                                                                   
fund the construction  fund if there were  revenues available                                                                   
for transfer.                                                                                                                   
                                                                                                                                
The corporate  bond issue with  flexible amortization  is the                                                                   
primary source  of funding for  the construction fund.   That                                                                   
money would flow from investors  to the construction fund and                                                                   
be available  for various projects.   The money  appropriated                                                                   
into the revenue  fund would be based on  Evergreen Operating                                                                   
Leases.                                                                                                                         
                                                                                                                                
The  tables  on pages  9-12  illustrate  potential  scenarios                                                                   
based  on certain  assumptions.   Page 9  depicts the  Alaska                                                                   
Capital  Income Account  and shows the  principle balance  of                                                                   
the Amerada  Hess funding  and earnings  assumptions  of 7.61                                                                   
percent, which  the permanent fund corporation's  consultants                                                                   
have  provided as  the  most likely  scenario  for the  short                                                                   
term.                                                                                                                           
                                                                                                                                
2:20:02 PM                                                                                                                    
                                                                                                                                
The  result  is  an  annual  transfer  of  approximately  $33                                                                   
million  that would  fund (column  5  on page  10) the  lease                                                                   
appropriation  received.   This  has a  borrowing  rate of  6                                                                   
percent, which is  conservative based on the  ability to fund                                                                   
on a  tax-exempt basis.   It has a  reinvestment rate  on the                                                                   
fund  balance within  the corporation  proper  of 2  percent,                                                                   
which is lower  because it anticipates the  short-term nature                                                                   
of that  money and  the liquidity  needs of the  corporation.                                                                   
Outstanding bonds  show the nature of  flexible amortization.                                                                   
Flexible  principle payments  don't  start until  2007.   Mr.                                                                   
Mitchell  continued   to  explain  the  intricacies   of  the                                                                   
spreadsheet.                                                                                                                    
                                                                                                                                
Mr. Mitchell  explained that page  11 shows the  reserve fund                                                                   
reinvested  at  a  rate  of  4  percent.    Page  12  depicts                                                                   
obligations of the  construction fund, invested at  a rate of                                                                   
3 percent.                                                                                                                      
                                                                                                                                
2:22:47 PM                                                                                                                    
                                                                                                                                
TOM  BOUTIN,  DEPUTY  COMMISSIONER,  DEPARTMENT  OF  REVENUE,                                                                   
added that  in addition to talking  to the rating  analyst to                                                                   
insure  that this  structure  would not  be  included in  the                                                                   
state general  fund debt, the department worked  closely with                                                                   
bond  counsel  and  special  tax   counsel  about  tax-exempt                                                                   
status.   The department  also  "went out and  talked to  the                                                                   
market place a little bit" to  make sure it was an acceptable                                                                   
structure in the public finance market.                                                                                         
                                                                                                                                
Ms. Frasca explained how the proceeds  from the bond would be                                                                   
used.   She related  that $155 million  of the proposed  $340                                                                   
million  is for  several  road  projects in  two  categories,                                                                   
"roads  to resources"  and "congestion  relief or  bottleneck                                                                   
busters".   She  indicated  that there  is  also $74  million                                                                   
related  to  deferred  maintenance,   $71  million  to  match                                                                   
federal  highway   dollars,  and  $24  million   for  several                                                                   
University  of Alaska  projects,  including  the UAA  science                                                                   
complex.                                                                                                                        
                                                                                                                                
Ms. Frasca pointed  out that the idea to use  state funds for                                                                   
transportation projects  instead of federal funds,  came from                                                                   
the general obligation  bond packet which passed  in 2000 and                                                                   
provided that, for the first time,  state funds could be used                                                                   
for road projects, which relieved  the state from some of the                                                                   
federal requirements.                                                                                                           
                                                                                                                                
2:24:57 PM                                                                                                                    
                                                                                                                                
JOHN MCKINNON, DEPUTY DIRECTOR,  DEPARTMENT OF TRANSPORTATION                                                                   
AND PUBLIC  FACILITIES, explained  how the proceeds  from the                                                                   
bonds  would   be  used  on  transportation   projects.    He                                                                   
explained that  road projects were  chosen if they  would fit                                                                   
the criteria  of resource roads, bottleneck  busters, tourism                                                                   
development, or  bridges necessary for gas  line development.                                                                   
The projects  that were  decided upon  were badly needed  and                                                                   
would  benefit, both  in cost  and delivery,  by using  state                                                                   
funds.  He pointed  out that  without  constraint by  federal                                                                   
rules, delivery can be sped up and costs can be reduced.                                                                        
                                                                                                                                
2:27:15 PM                                                                                                                    
                                                                                                                                
MURPHY O'BRIAN,  PLANNING DIRECTOR, MATSU  BOROUGH, expressed                                                                   
excitement  over   projects  that  would  provide   a  needed                                                                   
east/west  connection  in his  area.    He agreed  that  this                                                                   
infrastructure would  enhance transportation.   He encouraged                                                                   
the pursuit of Amerada Hess funds for capital projects.                                                                         
                                                                                                                                
JANE  DALE, PALMER,  spoke  on Mayor  John  Comb's behalf  in                                                                   
support of  the funding to  lessen congestion  between Palmer                                                                   
and Wasilla.   She noted  that the area  has doubled  in size                                                                   
since  the 1990  Census.   A  second route  would  facilitate                                                                   
everyone using  the growing retail  available in  Wasilla and                                                                   
accessing  the  growing  technical and  professional  end  in                                                                   
Palmer.                                                                                                                         
                                                                                                                                
GARY DAVIS,  ROAD SERVICE DIRECTOR, KENAI  PENINSULA BOROUGH,                                                                   
voiced  appreciation for  the  bond approach.    He shared  a                                                                   
story about  the importance  and value  of bond  initiatives.                                                                   
He noted  that the Kenai  Borough is primarily  interested in                                                                   
Channel Kalifornski  Beach road  repair, an alternate  access                                                                   
highway to the southern peninsula.   Setbacks and delays have                                                                   
been due to federal highway funding problems.                                                                                   
                                                                                                                                
2:31:49 PM                                                                                                                    
                                                                                                                                
MARK  BEGICH,  MAYOR, ANCHORAGE,  commented  on  the need  to                                                                   
relieve  traffic  congestion   in  Anchorage  because  it  is                                                                   
becoming a safety concern.  He  explained the Tudor/Lake Otis                                                                   
relief  package and the  Glenn Highway  Corridor project  and                                                                   
why they are needed.   He noted that the Lake  Otis and Tudor                                                                   
intersection  was  not  included  in  the package  and  is  a                                                                   
concern.    Another  $7  million is  needed  to  finish  that                                                                   
intersection.  He spoke  about the need  for improvements  in                                                                   
the Glenn  Highway/McGraw intersection,  which has  a growing                                                                   
number of commuters  going into the MatSu valley.   Relief in                                                                   
that  area  would allow  other  projects  to go  forward.  He                                                                   
expressed  support for  state  funding and  acknowledged  the                                                                   
debate  over  the  funding  mechanism.   He  emphasized  that                                                                   
transportation  issues  need   to  have  a  long-term  stable                                                                   
funding   mechanism  and   observed   that   48  percent   of                                                                   
Anchorage's roads are state-owned.                                                                                              
                                                                                                                                
In  response  to  a question  by  Representative  Croft,  Ms.                                                                   
Frasca clarified that $26 million  for the Anchorage Mid-Town                                                                   
Improvements includes:  $7 million  for Tudor and  Bragaw and                                                                   
$19 million for Dowling East Extension                                                                                          
                                                                                                                                
Mayor  Begich  stressed  the need  for  the  Lake  Otis/Tudor                                                                   
intersection  funding.    Traffic   flow  in  the  area  will                                                                   
continue  to  grow  without the  intersection  project.    He                                                                   
pointed out that Anchorage would  provide $7 million in local                                                                   
funds for the project.  Southbound  traffic continues to be a                                                                   
problem, especially for truckers.                                                                                               
                                                                                                                                
Representative  Croft  questioned  why  it is  not  a  better                                                                   
solution to  avoid the intersection.   Mayor Begich  observed                                                                   
that it would suffice for northbound  traffic, but southbound                                                                   
traffic  to downtown  and eastbound  traffic  would remain  a                                                                   
problem.   Most of  the commercial  development is  closer to                                                                   
Lake Otis and drivers are cutting through neighborhoods.                                                                        
                                                                                                                                
Representative  Weyhrauch  referred  to the  memorandum  from                                                                   
Commissioner  Condon (copy  on  file.) He  observed that  the                                                                   
legislature   is  free   to  repeal   the  statute   that  is                                                                   
sequestering  the funds.   Commissioner Condon expressed  the                                                                   
concern that oil and gas companies  will maintain that a fair                                                                   
trial cannot  be obtained.   He asked  if there was  anything                                                                   
that  would  preclude  the  legislature  from  repealing  and                                                                   
reenacting the legislation.                                                                                                     
                                                                                                                                
Ms.  Frasca acknowledged  the  right  of the  legislature  to                                                                   
change the settlement agreement  in the manner referred to by                                                                   
Representative  Weyhrauch,  but  expressed concern  that  the                                                                   
state would lose industry trust.                                                                                                
                                                                                                                                
Representative  Weyhrauch  referred  to  page  16,  number  5                                                                   
regarding a  downgrade of state  credit rating.  He expressed                                                                   
frustration  with the  idea that  the state  does not have  a                                                                   
fiscal  plan.   He  emphasized  that even  if  CBR funds  are                                                                   
spent,  the earnings  reserve  account  is tapped,  ANWAR  is                                                                   
developed,  and the  gas pipeline  goes  through, there  will                                                                   
still be a fiscal gap between  now and when those events come                                                                   
online.                                                                                                                         
                                                                                                                                
Mr. Boutin  spoke to the credit  issue.  The  structure would                                                                   
successfully separate  the funds from the general  fund as to                                                                   
not  jeopardize  the credit  rating  since the  earnings  are                                                                   
distinguished well enough.                                                                                                      
                                                                                                                                
Representative   Weyhrauch  stressed   that   he  is   really                                                                   
addressing  a philosophical  issue regarding  how to  educate                                                                   
the public and  get buy-in by the legislature  about a fiscal                                                                   
gap.  He termed it a difficult disconnect.                                                                                      
                                                                                                                                
Mr. Boutin emphasized that the  funding structure would bring                                                                   
immediate   benefit  to   Alaska.     Ms.  Frasca  said   she                                                                   
appreciates  the disconnect  and  noted the  Administration's                                                                   
work in  regards to a  fiscal plan.   The question  is should                                                                   
the state go on  hold for state needs while a  fiscal plan is                                                                   
being developed.  She agreed that  it sends a mixed signal to                                                                   
the  public  and  the  legislature,  but  the  Administration                                                                   
decided "it needed  to take action instead of  treading water                                                                   
for another year or two."                                                                                                       
                                                                                                                                
Representative  Weyhrauch  noted  that  the  issue  has  been                                                                   
around for a  while, but that the information  is only coming                                                                   
to light  in the current year.   He questioned how  many more                                                                   
funds  are  out there  waiting  to  be  tapped.   Ms.  Frasca                                                                   
stressed  that the  Administration  spent a  great amount  of                                                                   
time on  how to structure  the proposal  so as not  to impact                                                                   
the state's debt rating.                                                                                                        
                                                                                                                                
2:54:54 PM                                                                                                                    
                                                                                                                                
In response to  a question by Vice-Chair Stoltze,  Ms. Frasca                                                                   
replied  there  is  nothing  in the  bill  for  the  proposed                                                                   
Capitol project.   She added that  funding for a  new Capitol                                                                   
would be an appropriate use of bond proceeds.                                                                                   
                                                                                                                                
Representative Croft  asked about the nature of  the debt and                                                                   
why the  $343 million does  not require  a public vote.   Mr.                                                                   
Boutin clarified  that the earnings that are  contemplated to                                                                   
be  the   source  of   the  debt   service  are  subject   to                                                                   
appropriation.  If the revenues  of the fund were going to be                                                                   
pledged, then it would require going to the voters.                                                                             
                                                                                                                                
Mr.   Mitchell  added   that   there  would   be  an   annual                                                                   
appropriation  on  an  operating   lease  to  provide  for  a                                                                   
transfer from the  Alaska Capital Fund Account  to the Alaska                                                                   
Capital  Corporation.   Representative Croft  asked if  it is                                                                   
debt of  the corporation  and not state  debt.  Mr.  Mitchell                                                                   
concurred.   Mr.  Boutin further  clarified  that if  Amerada                                                                   
Hess had  been appropriated  through  the general fund,  then                                                                   
credit rating analysts would consider it state debt.                                                                            
                                                                                                                                
3:00:36 PM                                                                                                                    
                                                                                                                                
Ms. Frasca  added that the  governor's concern is  to protect                                                                   
the state's bond rating.  She  indicated that the tobacco tax                                                                   
used  the  corporate   structure  and  did   not  need  voter                                                                   
approval.  Representative Croft  inquired if this had gone to                                                                   
the general fund, and the state  tried to bond its way out of                                                                   
the  fiscal  gap,  if that  would  create  the  "wall  street                                                                   
problem".    Mr.  Boutin  said  yes.    Representative  Croft                                                                   
wondered if the $343 million in  bonding would replace Alaska                                                                   
Housing Finance  Corporation (AHFC)  and Alaska Student  Loan                                                                   
Corporation money in the capital  budget, and, in that sense,                                                                   
replace general fund holes in the budget.                                                                                       
                                                                                                                                
Ms. Frasca explained  that are $121 million  in proceeds from                                                                   
AHFC,  student  loans,  and  general  funds  in  the  capital                                                                   
proposal.  She explained that  the bond earnings would add to                                                                   
what is available for capital funds.                                                                                            
                                                                                                                                
Representative  Croft  questioned   the  disqualification  of                                                                   
Alaska  courts and  the use  of  the Amerada  Hess money  for                                                                   
capital projects.  Mr. Boutin  replied that is a question for                                                                   
legislative legal.                                                                                                              
                                                                                                                                
3:06:12 PM                                                                                                                    
                                                                                                                                
Representative  Croft  referred to  a "moral  obligation"  so                                                                   
risk would not affect the bond  rating.  Mr. Boutin explained                                                                   
that  moral  obligation  is  a   term  of  art,  a  level  of                                                                   
commitment  used for a  variety of  different kinds  of debt.                                                                   
He termed  it a backstop because  the earnings rate  can't be                                                                   
guaranteed.  He noted  that as  of June 30,  2004, there  was                                                                   
over  a billion  dollars  worth  of  State of  Alaska  moral-                                                                   
obligation debt outstanding.                                                                                                    
                                                                                                                                
Representative  Hawker  paraphrased   Representative  Croft's                                                                   
point that "the  legislature may appropriate"  would put this                                                                   
in  the  category  of  moral  obligation  debt,  not  general                                                                   
obligation debt,  which would require  a vote of  the people.                                                                   
Mr. Boutin  agreed and  added, "and  not general fund  debt."                                                                   
Representative  Hawker  clarified  that  is  also  not  state                                                                   
guaranteed debt, like AHFC debt.  Mr. Boutin agreed.                                                                            
                                                                                                                                
Representative Hawker  summarized that there is  a new source                                                                   
of general  fund revenue  that would  not impact the  state's                                                                   
credit rating.   Mr. Boutin agreed  that is the basis  and it                                                                   
would not  affect the  state's credit  rating.  He  explained                                                                   
that  he has  not heard  the Amerada  Hess  funds called  new                                                                   
general  fund  revenues,  and  the fact  that  they  are  not                                                                   
general fund revenues is the basis  upon which this borrowing                                                                   
is not general fund debt.                                                                                                       
                                                                                                                                
Mr. Wallace further  explained that the funds  would never go                                                                   
to the  general fund,  but to a  sub-account in the  earnings                                                                   
reserve.                                                                                                                        
                                                                                                                                
Representative  Hawker argued  that Amerada  Hess is  part of                                                                   
the  permanent  fund.     Mr.  Boutin  agreed   that  it  is.                                                                   
Representative Hawker  stated that Article IX,  Section 15 of                                                                   
the  Alaska  Constitution   says  that  all   income  of  the                                                                   
permanent fund  shall be deposited  in the general fund.   He                                                                   
asked if that makes it general fund earnings.                                                                                   
                                                                                                                                
Mr.  Burns  pointed   out  that  statute  says   it  must  be                                                                   
reinvested in the principal.   Representative Hawker asked if                                                                   
Amerada  Hess  earnings  automatically  go into  the  general                                                                   
fund.   Mr. Burns said it  is done automatically  by previous                                                                   
statute.                                                                                                                        
                                                                                                                                
3:15:02 PM                                                                                                                    
                                                                                                                                
Ms.  Frasca referred  to  the  fiscal summary  worksheet  and                                                                   
asked  if  Representative  Hawker  was  suggesting  that  the                                                                   
transaction   be   moved   to  the   general   fund   column.                                                                   
Representative  Hawker  replied that  the  fiscal summary  is                                                                   
only a worksheet  and does not reflect the  real transaction.                                                                   
Representative  Hawker pursued  the  idea that  if other  new                                                                   
general  fund  earnings  were  identified,  could  they  also                                                                   
support new bonded  debt with inconsequential  impacts on the                                                                   
state's credit rating.  Mr. Boutin,  speaking hypothetically,                                                                   
answered yes.                                                                                                                   
                                                                                                                                
Representative  Hawker  pointed  out  that in  the  past  two                                                                   
legislative sessions, new general  fund revenues in excess of                                                                   
$30 million  were imposed.   He inquired  why this  source of                                                                   
money  had to be  used, rather  than continuing  to use  past                                                                   
methods to raise money.  No one could answer that question.                                                                     
                                                                                                                                
Representative Hawker  continued to question.   "Do you truly                                                                   
believe that  taking these earnings  is the highest  and best                                                                   
use of this asset that sits within  the permanent fund?"  Ms.                                                                   
Frasca  responded that  the Administration  thinks that  this                                                                   
proposal advances  some opportunity in the  infrastructure in                                                                   
a way that has not been possible  for a long time.  She noted                                                                   
the Administration  is  open to other  ideas the  legislature                                                                   
may have.                                                                                                                       
                                                                                                                                
Representative  Hawker  asked  if  the  money  completes  all                                                                   
projects  or will  require more  funds in  order to  complete                                                                   
them.   He mentioned the science  complex in Anchorage  as an                                                                   
example  of a project  that will  require more  funding.   He                                                                   
asked  where  the  funds  would  come  from  to  sustain  and                                                                   
complete these projects.                                                                                                        
                                                                                                                                
3:19:33 PM                                                                                                                    
                                                                                                                                
Ms.  Frasca said  an analysis  would have  to be  done.   She                                                                   
noted  that it is  part of  the tradeoff  when determining  a                                                                   
capital  budget.   She opined  that there are  other ways  to                                                                   
finance some of  these projects.  She offered  to provide the                                                                   
information Representative Hawker requested.                                                                                    
                                                                                                                                
Co-Chair Meyer agreed it would  be good to see which projects                                                                   
would require  future funding.   Ms. Frasca replied  that the                                                                   
Administration wants  to invest in the future  and is willing                                                                   
to take the first step to initiate funding.                                                                                     
                                                                                                                                
Representative Croft  referred to page 12 in  the handout and                                                                   
asked if  the $343 million  is bonded  and paid out  over the                                                                   
next six years.  Mr. Boutin noted  that is one example of how                                                                   
it could work.  He pointed out  the volatility of the earning                                                                   
stream.                                                                                                                         
                                                                                                                                
Representative Croft  referred to page  18 and asked  how the                                                                   
proposal squares  with the governor's  proposal to  not touch                                                                   
the permanent fund without a public  vote.  Ms. Frasca agreed                                                                   
that it accurately  represents OMB's official  interpretation                                                                   
of the governor's commitment.                                                                                                   
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
The meeting was adjourned at 3:25 PM                                                                                            
                                                                                                                                

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