Legislature(2007 - 2008)HOUSE FINANCE 519
02/13/2007 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB107 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| *+ | HB 107 | TELECONFERENCED | |
HOUSE FINANCE COMMITTEE
February 13, 2007
1:41 P.M.
CALL TO ORDER
Co-Chair Chenault called the House Finance Committee meeting
to order at 1:41:30 PM.
MEMBERS PRESENT
Representative Mike Chenault, Co-Chair
Representative Kevin Meyer, Co-Chair
Representative Bill Stoltze, Vice-Chair
Representative Harry Crawford
Representative Richard Foster
Representative Les Gara
Representative Mike Hawker
Representative Mike Kelly
Representative Mary Nelson
Representative Bill Thomas Jr.
MEMBERS ABSENT
Representative Reggie Joule
ALSO PRESENT
Representative Andrea Doll; Karen Rehfeld, Director, Office
of Management and Budget; Pat Galvin, Commissioner,
Department of Revenue; Michael Barnhill, Assistant Attorney
General, Department of Law; Whitney Brewster, Director,
Division of Elections, Office of the Governor
SUMMARY
CONFIRMATION HEARING:
PAT GALVIN, COMMISSIONER, DEPARTMENT OF REVENUE
Commissioner Galvin was confirmed.
HB 107 An Act making appropriations for qualified
regional seafood development associations, for
investigation and litigation relating to the
public employees' retirement system and the
teachers' retirement system, and for a special
advisory election; and providing for an effective
date.
HB 107 was HEARD and HELD for further
consideration.
1:42:26 PM
^
CONFIRMATION HEARING:
PAT GALVIN, COMMISSIONER, DEPARTMENT OF REVENUE
PAT GALVIN, ACTING COMMISSIONER, DEPARTMENT OF REVENUE,
provided an overview of his resume, which includes a law
degree and Masters of Business Administration (MBA). He
noted that his background was as a business tax planning
attorney dealing with land use management for municipal and
village corporation clients. The land use planning lead to
work in the Alaska Coastal Management Program and oversaw
the Division of Governmental Coordination in the Knowles
Administration.
Commissioner Galvin added he was versed in the State's oil
and gas issues. Governor Palin requested that he serve as
the Commissioner of Revenue, providing an opportunity to
merge his education and experience in serving Alaska. He
recognized that the position presented a tremendous
fiduciary responsibility. He acknowledged that the
consistent element of his public service was the
responsibility to keep the interest of Alaskan's first.
1:49:10 PM
Representative Crawford asked about using earnings from the
Alaska Permanent Fund for development of a natural gas
pipeline. Commissioner Galvin commented that the vehicle
proposed by the current Administration will not involve the
level of investment associated with the previous contract
and is not an issue relevant to the Permanent Fund's
immediate future. In responsibility to manage the fund,
diversification is the tool to protecting assets; placing a
large portion into one sector would not be consistent with
that intent.
Representative Crawford referenced the Petroleum Production
Tax (PPT) and asked if the Department was up to the
challenges given the number of auditors on staff. Mr.
Galvin explained that the Department will need to hire more
auditors and are currently in a process of nationwide
recruiting. The Department is hopeful to fill those
positions.
1:51:45 PM
Vice Chair Stoltze thought that the statute previously
passed would allow the Alaska Permanent Fund Corporation
more latitude to make appropriations directly from the
principle. He inquired if that could come back to the
Legislature for approval. Mr. Galvin did not anticipate the
Permanent Fund Corporation being approached for a similar
investment as proposed by the Murkowski Administration.
Vice Chair Stoltze inquired if such a consideration were
before Commissioner Galvin, would he turn to the Legislature
for approval. Mr. Galvin understood that the Alaska
Permanent Fund investment strategy is governed by statutory
requirements to operate as a good investor. To make a
significant investment in one asset would not be in keeping
with that principle.
1:53:41 PM
Representative Gara asked about times when the
Administration is face with large policy decisions. He
hoped that during questions, there would be direct answers.
Mr. Galvin anticipated that anyone testifying would provide
direct answers based on facts; he agreed that any
information should be straight. Regarding employee
concerns, Governor Palin has made it clear that she expects
individuals to be free to disperse information for the
public discourse.
Co-Chair Meyer worried about the declining oil prices and
gaps in the budget. He pointed out that the savings in the
Constitutional Budget Reserve (CBR) could last two to three
years. He wondered how the State could bridge that lower
gap later. Commissioner Galvin pointed out that the
Governor has made it clear, it is her intention to
appropriate within the State's means. The CBR exists to
cushion the years when revenue dips below that need; it is
not intended to be a sustainable source for covering a gap.
He believed that the oil prices would need to drop more than
the $40-$50 bbl range before a threat resulted to the CBR.
Commissioner Galvin added that if there were long-term
deficits, Governor Palin has indicated prioritizing the
concern; the choices would be an income tax, sales tax, &
st
tapping the Alaska Permanent Fund earnings. Her 1 choice
would be a sales tax and then it would be a tie between the
other two. He said he supports that as it would protect
lower income citizens.
2:00:59 PM
Co-Chair Meyer advised that a few years ago, the Legislature
had looked at a statewide sales tax. He mentioned tapping
into the Alaska Permanent Fund earnings or excess reserve
funds. He understood that the Governor proposed moving some
of the excess funds into the principle. Co-Chair Meyer
hoped to keep a larger part of that to help bridge any gap.
Commissioner Galvin agreed with the need for a long-term
fiscal policy which integrates various options.
Co-Chair Meyer inquired about revenue sharing support or
community dividends. Commissioner Galvin replied that the
Administration believes that municipal revenue sharing is an
important responsibility for the State.
Co-Chair Meyer asked if Commissioner Galvin had been
involved with the previous Administration's gas line
negotiation. Commissioner Galvin said he was not. He added
that his role as the Commissioner of Revenue, had originated
under the Stranded Gas Act. Under the new approach, there
would be a similar sharing of that role for negotiations.
2:06:11 PM
Representative Gara understood the Governor mentioned that
if the State were being shortchanged through the oil tax,
that was the first place to look for revenue. Commissioner
Galvin claimed they were two different issues. The sales
tax scenario & looking from the long-term revenue structure.
Everyone is interested in looking at the reality of the PPT
model used. Governor Palin recognizes that if what the
State receives something different from the PPT than
anticipated, the issue would be revisited.
Vice Chair Stoltze asked about charitable gaming issues.
Commissioner Galvin noted he had not significantly addressed
that issue yet and that it would be regulated through the
Tax Division. To date, there has been no issue. Vice Chair
Stoltze pointed out bills in Committee to expand gambling.
Representative Crawford understood that the oil companies
could amend their returns for at least two years after the
true-up. He hoped that the oil companies would put forth
honest information on the true-up rather than submitting
amended returns at the end of the time. Commissioner Galvin
stated that the true-up is coming before the actual
regulations have been finalized. That would be an
unrealistic expectation to put on those companies to provide
a comprehensive and complete picture of their tax returns.
From a normal motivation point of view, it is more likely
that the companies would provide an underpayment at true-up
time. He anticipated a significant risk that oil companies
would be misleading the State by providing a larger check at
the beginning and that it would take time to understand the
whole picture.
2:12:15 PM
Representative Crawford worried that the oil companies would
come up with new deductions and credits during the true-up
window. Commissioner Galvin responded the challenge in
implementing the change would be anticipating the type of
deductions faced. It is complex to determine what can be
included. At this time, the State does not have a clear
picture of what is going to be included. There must be some
level of give and take in the decision making process and it
will take some time before a clean picture of what is
involved comes forward.
2:14:40 PM
Representative Gara understood that companies could take up
to two years to amend their returns. He worried that they
would withhold the more controversial items in order to buy
another two years. He asked if British Petroleum (BP) had
st
not deducted the repair costs from last summer by March 31,
would they then have those two years to come up with the
deduction. Commissioner Galvin offered to get that
information to the Committee.
Representative Kelly inserted if the oil companies "played
games" on that, it would aggravate the Department.
Commissioner Galvin anticipated that the oil companies will
play straight in order to develop an adequate relationship
with the Administration.
Representative Kelly asked the biggest differences between
Commissioner Galvin and Commissioner Corbus. Commissioner
Galvin commented that was not a fair comparison; he had not
been involved with the previous commissioner. The current
Administration plans to approach issues facing the State
with more openness and honesty. Both the citizens and the
Legislature will be called upon to come up with ideas. He
added that the previous commissioner had been so embroiled
in gas line issues that other policy issues suffered.
2:18:38 PM
Representative Hawker requested further background on
Commissioner Galvin's experience. Commissioner Galvin
responded that he had been in private practice as an
attorney in Anchorage; he took the position as the director
of the Division of Governmental Coordination in 1999 and
worked at that position for nearly three years. The work
included the oversight responsibility of the Coastal
Management program as well as coordinating natural resources
policy and permitting issues within the Department of
Department of Environmental Conservation, Department of
Natural Resources and Department of Fish and Game. He
worked closely with the commissioners of those departments
to put together State response to a number of different
issues.
Commissioner Galvin continued, when he moved to the
Department of Natural Resources, he took a position putting
together mitigation measures as a part of the leasing and
license issues, dictating environmental concerns. The
Division quickly evolved and took the lead on providing a
system geared toward protecting wildlife and birds. He had
become involved with the oversight of the Oil and Gas
Division, including issues of leasing and licensing.
Representative Hawker appreciated his extensive experience;
however, noted that the position of commissioner for the
Department of Revenue differed greatly from his position in
the Department of Natural Resources.
Representative Hawker asked about Alaska Housing Finance
Corporation (AHFC). Commissioner Galvin stated he was a
member of that board. There are a number of different
boards that the Commissioner serves on by statute, some of
which can be delegated and others that can not. He
clarified that the Alaska Permanent Fund Corporation and the
Alaska Retirement & Management Board (ARM) can not be
delegated. He hoped to participate in all the boards,
however, recognized that his duties would make it difficult
to participate at the level that he would like to have
represented.
Representative Hawker asked which boards would be delegated
to the management team. Commissioner Galvin responded that
he has delegated a "second" to the following:
· Alaska Industrial Development and Export Authority,
(AIDEA)
· Alaska Housing Finance Corporation (AHFC)
· Bond Bank
· Bond Committee
· Knick Arm & Bridge Authority
Representative Hawker noticed that the Alaska Housing
Finance Corporation would be delegated. Commissioner Galvin
responded that he would remain the primary & intended to
participate.
2:28:40 PM
Representative Hawker knew that the Alaska Permanent Fund
Corporation could not be delegated and asked Commissioner
Galvin's professional experience and qualifications to be on
that Board. Commissioner Galvin responded that he had a
Master of Business Administration (MBA) in financial
planning & taxation dealing with investment issues and
portfolio management. From his professional experience as
an attorney, a large portion of the practice dealt with
trusts in the State. He stated that he had no experience as
an investment manager but does have a background in
education.
2:30:03 PM
Representative Hawker asked if he had personal or
professional experience managing a large treasury or
investment banking experience. Commissioner Galvin said he
did not. Representative Hawker voiced concern as those are
daily operations of the Department of Revenue functions of
the State and questioned how those areas of responsibility
would be approached. Commissioner Galvin responded that his
primary responsibility would be to recognize that there are
investment professionals that are available to the State to
make decisions. In the end, it is the responsibility to the
beneficiaries of the trust to insure that the investment
principles are appropriate and managed in a way to preserve
interests. Commissioner Galvin concluded, there is an
appropriate investment strategy happening and that there are
professionals available to question. He was confident that
he would be able to accomplish the responsibilities.
2:33:59 PM
Representative Hawker inquired about taxation policy
concerns in the broadest sense. He pointed out that the
person hired to administer taxation policy was previously a
litigator. The person in that position during the Murkowski
Administration had a background as a Certified Public
Accountant (CPA). He worried about a tax policy of
litigation versus accounting. Commissioner Galvin responded
that John Iverson, who was hired as the tax accountant, is
an attorney and worked on tax cases within the Department of
Law, the Department of Revenue and natural gas royalty
cases. Commissioner Galvin emphasized Mr. Iverson should
not be characterized as a litigator. He is someone who can
bring "a fresh approach" to the Department. The deputy
commissioner and the tax director also need to address
technical issues, ranging from the PPT, cruise ship
initiative, gaming, and regaining the corporate income tax
system or any tax, which the State collects. He was
satisfied with the choices, reiterating that litigation was
not the driving force. Representative Hawker worried about
a lack of supervisory experience.
Representative Hawker reiterated the career track and
experience of Commissioner Galvin regarding resource issues
facing the State. He mentioned past "healthy tension"
between departmental activities and wondered if there would
be a merger between the departments. Representative Hawker
asked if Commissioner Galvin would be able to make the
decisions expected from that agency within the State.
Commissioner Galvin asserted that he will be the
Commissioner of the Department of Revenue and that the
Administration will guide him in decisions to be made. He
emphasized that Alaska is a natural resource State and the
revenue is derived from resource development. It is not
necessary to consider tax implications of that to be
completely separate. The premise of the question seems to
be about the "healthy tension" between the Department of
Revenue and the Department of Natural Resources. He
summarized that in the end, there must be people that can
work through such issues and create a singular policy. He
recognized that there is a tension between the departments
but realized the need is to provide a common answer for the
State of Alaska in resolving those issues. He hoped to
bring that voice to the cabinet of the Governor, when
resolving issues facing the State.
2:43:47 PM
Commissioner Galvin admitted that he is his own person and
that his staff, in the end, will have their own identity.
2:44:30 PM
In response to a query by Representative Crawford,
Commissioner Galvin explained that the perceived tension is
not a tension between the roles of revenue and natural
resources but rather natural resource management. The new
administration has the opportunity to evaluate which type of
tension they will foster. He hoped to see more integration
throughout the various departments. He believed that the
Governor recognizes that it is not inherent in the
Department that there be a tension & ultimately, the
Governor wants to bring in people that shared her view.
2:47:40 PM
Representative Kelly asked if he would be the acting
director of the Alaska Industrial Development and Export
Authority (AIDEA). Commissioner Galvin replied that he was
delegated as a second on that board; if he is able to
attend, he will participate especially in any policy
decision.
Representative Kelly asked the maximum number of employees
supervised in the past by the Commissioner. Commissioner
Galvin replied 35 at the Division of Governmental
Coordination and about 20 at the Division of Oil and Gas.
There are approximately 500 employees in the Department of
Revenue. He added he had no direct experience in dealing
with Unions. He stated that he worked for a legal firm,
addressing tribal law and worked with the North West Arctic
Borough and various village and tribal councils.
2:51:10 PM
Representative Thomas asked the time frame of his move from
the Governor's office to the Division of Natural Resources.
Commissioner Galvin replied that was in June, 2002.
Representative Thomas asked if there was a vacancy at that
time. Commissioner Galvin explained someone had retired.
Representative Thomas worried about the logging that
happened in the Tongass during the Knowles Administration
and asked if Commissioner Galvin had been involved.
Commissioner Galvin replied that he was not involved in
overall timber policy. He acknowledged that he did partake
in some of the evaluation and negotiations with the U.S.
Forest Service.
2:53:41 PM
Co-Chair Meyer MOVED that the House Finance Committee refer
the Governor's appointee for Commissioner of Revenue, Pat
Galvin, to the House and recommended that his appointment be
th
considered in joint session of the 25 Legislature.
Representative Hawker OBJECTED for a comment. He observed
that the Governor should be able appoint anyone to any
position, but he worried about the qualifications of Mr.
Galvin to run the Department of Revenue. He reiterated that
he would be supporting the nominations presented by Governor
Palin.
Representative Hawker WITHDREW his OBJECTION. There being
NO further OBJECTION, it was so ordered, the confirmation of
Pat Galvin, Commissioner, Department of Revenue.
AT EASE: 2:55:12 PM
RECONVENE: 3:02:48 PM
HOUSE BILL 107
An Act making appropriations for qualified regional
seafood development associations, for investigation and
litigation relating to the public employees' retirement
system and the teachers' retirement system, and for a
special advisory election; and providing for an
effective date.
Co Chair Chenault noted that the Committee would hear
testimony, but would not entertain any amendments at this
meeting.
KAREN REHFELD, DIRECTOR, OFFICE OF MANAGEMENT AND BUDGET,
provided testimony on the legislation.
DEPARTMENT OF COMMUNITY & ECONOMIC DEVELOPMENT
Office of Economic Development
Regional Seafood Development Tax pass-through to the
Copper River/Prince William Sound Marketing
Association. The appropriation was inadvertently
omitted from the FY07 budget bills. The 1% tax
assessment generated $152,464 during calendar year
2005, which was to be appropriated to the association
as of July 1, 2006. $152.4 Pass Through
Ms. Rehfeld noted that the request is for pass-through funds
for the Copper River/Prince William Sound Marketing
Association, who was the first group to organize as a
regional seafood development association. The Department of
Revenue collected the tax but there was not an appropriation
to flow those collected taxes back to the development
association.
Representative Hawker pointed out that the request had been
an oversight. Ms. Rehfeld agreed and clarified that the
appropriation language is now included in the FY 08 budget.
Representative Thomas advised that the funds were monies
used for marketing last year and is now desperately needed
by that community.
3:06:07 PM
DEPARTMENT OF LAW
Civil Division, Labor & State Affairs
Funding for the investigation and proposed litigation
related to actuarial services received by the State of
Alaska. The investigation would be completed during
FY07, and the proposed litigation is contemplated to
begin before the end of the FY07. The amount of the
appropriation is the estimated costs to complete the
investigation and take the case from inception through
trial. $12.0 million Department of Law/PERS/TRS
Ms. Rehfeld noted that the request was in the amount of $12
million dollars to be used for the Department of Law's
proposed litigation against actuarial services provided to
the State. She observed the estimated amount of unfunded
liabilities for the retirement system. It is complicated
litigation; the anticipated time of the case is
approximately two years.
3:07:51 PM
Representative Gara asked for an overview of the litigation.
MICHAEL BARNHILL, ASSISTANT ATTORNEY GENERAL, LABOR & STATE
AFFAIRS SECTION, DEPARTMENT OF LAW, explained that there was
not the expertise within the State of Alaska, Department of
Law for actuarial malpractice suits. In 2006, the
Department received a request from Senator Hollis French
asking for a review of the matter. Money was received for
outside counsel. He noted that $400 thousand was
appropriated & the Paul Weis Law Firm out of New York was
hired, a firm that has taken such cases to a jury verdict.
The Firm advised the State Department of Law that there are
actually valid claims against Mercer. The Department of Law
is now seeking funds to pursue with that legal case. The
Department believes that these are extraordinary times and
it is not an ordinary case.
3:13:05 PM
Representative Gara wanted reassurance that the State is not
spending "bad money". He thought that the defense will be
that "even if they failed to tell the State to place the
money into the pension fund, there was no harm, because the
State kept those funds".
3:14:39 PM
Mr. Barnhill acknowledged the question, noting that he could
not comment in detail. He acknowledged that such arguments
previously had been raised. He acknowledged there are not a
lot of cases, however, there is some case law to support the
claim.
3:16:29 PM
Representative Gara advised that there are differences
between the two cases referenced by Mr. Barnhill, observing
that the previous case did not go retroactively after the
funds. In the State of Alaska's case, the funds remained or
were spent in other categories.
3:17:32 PM
Mr. Barnhill did not agree with the characterization of the
State's situation. There are 160 participating employers &
many school districts in the Teacher's Retirement System
(TRS). Representative Gara acknowledged that a portion
could not be accessed and wondered if there was sufficient
grounds to proceed. Mr. Barnhill advised that he was
"uncomfortable" discussing the defense for the State of
Alaska.
3:19:44 PM
Mr. Barnhill reiterated that good arguments could be made to
support the State's claims.
3:20:07 PM
Representative Hawker pointed out that the funding source
was the pension trust assets for the Public Employees
Retirement System (PERS) and Teacher's Retirement System
(TRS). Mr. Barnhill stated that the $400 thousand dollars
came from the PERS & TRS Trust as will the requested
appropriation. He was confident that the fund source was
appropriate and that the Alaska Retirement and Management
(ARM) Board concurs.
Representative Hawker questioned if there is an argument
that the Trust itself did not cause its own injury, but was
caused by administrative decisions made outside the Trust.
Mr. Barnhill acknowledged that the Trust did not create the
injury.
3:22:41 PM
Representative Hawker questioned if the funding source could
be questioned. Mr. Barnhill reiterated that the fund source
was appropriate. Representative Hawker asked if $12 million
dollars would be sufficient to try the case. Mr. Barnhill
estimated the costs to litigate the case to run between $10
- $15 million dollars.
3:23:37 PM
Representative Gara asked if the ARM board approves the
expenditure from the Trust. Mr. Barnhill stated that they
have approved the request.
Representative Gara inquired if it was possible for the
funds to come out of the General Fund and if the State wins,
then place the proceeds into the pension fund. Mr. Barnhill
emphasized that this case was "not a lark". He said since
the Trust is the recipient, it is an appropriate funding
source. He added that he would be remiss to not pursue
recovery of the damages.
3:25:59 PM
Representative Gara stressed that the Administration is
pursuing the suit with someone else's money [State
employees]; it would be a stronger statement to back it with
its own General Fund money. He noted that a contingency fee
could be negotiated at a high rate.
He inquired if the case had been put out for a competitive
biding process. Mr. Barnhill advised he has had experience
with similar cases. Contingency fees have been negotiated
around 8 to 8.5 percent in other cases. He added that some
law firms operate on a contingency fee. He stated it would
be preferable to pay on an hourly fee basis. Contingency fee
agreements have been negotiated, but they were not found to
be as beneficial as the hourly fees. Fees could double or
triple over the hourly rate. The issue remains whether to
pay up front or in the end.
3:30:28 PM
Representative Thomas requested that further discussion be
held in executive session or individual meetings with the
attorney, Mr. Barnhill.
3:31:14 PM
Representative Gara pointed out that "contingency"
representation is one of the measures regarding whether a
law firm believes there is a good case; he asked if any
firms agreed to take the case on a contingency base. Mr.
Barnhill responded that at least one firm had offered.
3:32:10 PM
Ms. Rehfeld asked that the Legislature consider changing the
effective date for an appropriation made in Section 2, from
February 16, 2007 to November 1, 2006. That change would
allow the Administration to pay a couple bills that occurred
on the investigation portion of the supplemental. Co-Chair
Chenault said okay.
3:32:52 PM
OFFICE OF THE GOVERNOR
Elections
Funding for the costs associated with the April 3,
2007, special advisory election required by ch.1, FSSLA
2006, on the subject of employment benefits for same-
sex partners of public employees and retirees.
$1.2 million General Funds
Ms. Rehfeld reviewed Section 3, pertaining to a special
advisory election on April 3, 2007. She pointed out that
there was no fiscal note or appropriation accompanying the
legislation. At this point, the Division has incurred costs
for printing of ballots in preparation for the election.
Representative Gara asked about the high cost of the
election.
WHITNEY BREWSTER, DIRECTOR, DIVISION OF ELECTIONS, noted
that the Municipality of Anchorage (MOA) does conduct a
rd
special election also on April 3. No final agreement has
been made regarding workers that might be jointly shared.
She acknowledged that no other municipality holds an
election in April outside of Anchorage.
HB 107 was HELD in Committee for further consideration.
ADJOURNMENT
The meeting was adjourned at 3:35 P.M.
| Document Name | Date/Time | Subjects |
|---|