Legislature(2007 - 2008)HOUSE FINANCE 519

03/28/2007 01:30 PM FINANCE

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01:41:25 PM Start
01:44:24 PM HB168
01:55:48 PM HB218
03:29:47 PM HB72
04:07:37 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
Scheduled But Not Heard
Moved Out of Committee
                  HOUSE FINANCE COMMITTEE                                                                                       
                       March 28, 2007                                                                                           
                         1:41 P.M.                                                                                              
CALL TO ORDER                                                                                                                 
Co-Chair Meyer called the House  Finance Committee meeting to                                                                   
order at 1:41:25 PM.                                                                                                          
MEMBERS PRESENT                                                                                                               
Representative Mike Chenault, Co-Chair                                                                                          
Representative Kevin Meyer, Co-Chair                                                                                            
Representative Bill Stoltze, Vice-Chair                                                                                         
Representative Harry Crawford                                                                                                   
Representative Les Gara                                                                                                         
Representative Mike Hawker                                                                                                      
Representative Reggie Joule                                                                                                     
Representative Mike Kelly                                                                                                       
Representative Mary Nelson                                                                                                      
Representative Bill Thomas Jr.                                                                                                  
MEMBERS ABSENT                                                                                                                
Representative Richard Foster                                                                                                   
ALSO PRESENT                                                                                                                  
Representative  Gabrielle   LeDoux;  Eddy   Jeans,  Director,                                                                   
Education  Support  Services,  Department  of  Education  and                                                                   
Early Development;  David Scott,  Staff, Representative  Kyle                                                                   
Johansen;   Wendy   Lindskoog,  Assistant   Vice   President,                                                                   
Corporate   Affairs,  Alaska   Railroad  Corporation;   Derek                                                                   
Miller,  Staff,  Representative   Mike  Kelly;  Peggy  Cowan,                                                                   
Superintendent  of Schools,  Juneau Borough  Schools, City  &                                                                   
Borough  of Juneau;  Pat Ladner,  President  and CEO,  Alaska                                                                   
Aerospace  Development  Corporation;   Mary  Siroky,  Special                                                                   
Assistant,   Department   of    Transportation   and   Public                                                                   
Facilities;   Emil   Notti,   Commissioner,   Department   of                                                                   
Commerce, Community and Economic Development                                                                                    
PRESENT VIA TELECONFERENCE                                                                                                    
Sharon  Anderson,  Alaska Aerospace  Development  Corporation                                                                   
Board of  Directors, Anchorage;  Jerome Selby, Mayor,  Kodiak                                                                   
Borough;  John  Williams,  Mayor,  Kenai  Peninsula  Borough;                                                                   
Erick   Campbell,    CPA,   Alaska   Aerospace    Development                                                                   
Corporation (AADC), Anchorage                                                                                                   
HB 72     An Act  relating to  the district cost  factors for                                                                   
          state  funding of public  education; providing  for                                                                   
          an   effective  date   by  repealing  the   delayed                                                                   
          effective  date of sec.  6, ch.  41, SLA  2006; and                                                                   
          providing for an effective date.                                                                                      
          HB 72 was HEARD and HELD in Committee for further                                                                     
HB 137    An   Act   amending   the  requirements   for   the                                                                   
          identification  card   needed  for  sport  fishing,                                                                   
          hunting,   and  trapping   without  a  license   by                                                                   
          residents who are 60 years of age or more.                                                                            
#         HB 137 was SCHEDULED but not HEARD.                                                                                   
HB 168    An  Act authorizing two  exchanges of land  between                                                                   
          the Alaska Railroad  Corporation and the Department                                                                   
          of  Transportation   and  Public   Facilities;  and                                                                   
          providing for an effective date.                                                                                      
          HB 168 was reported out of Committee with a "no                                                                       
          recommendation"  and  with  zero  note  #1  by  the                                                                   
          Department   of  Commerce,  Community   &  Economic                                                                   
          Development  and zero note #2 by the  Department of                                                                   
          Transportation & Public Facilities.                                                                                   
HB 218    An Act relating to the  payment of dividends by the                                                                   
          Alaska  Aerospace  Development Corporation  to  the                                                                   
          state,  and to  appropriation of  the dividend  for                                                                   
          fiscal year 2008.                                                                                                     
          HB 218 was HEARD and HELD in Committee for further                                                                    
1:42:47 PM                                                                                                                    
HOUSE BILL NO. 168                                                                                                            
     An  Act authorizing  two exchanges  of land between  the                                                                   
     Alaska  Railroad  Corporation   and  the  Department  of                                                                   
     Transportation and Public  Facilities; and providing for                                                                   
     an effective date.                                                                                                         
DAVID SCOTT,  STAFF, REPRESENTATIVE KYLE  JOHANSEN, explained                                                                   
that HB 168 would authorize two  land transfers.  It provides                                                                   
10  acres  of  land  exchange  between  the  Alaska  Railroad                                                                   
Corporation  (ARRC) and  the Department  of Transportation  &                                                                   
Public  Facilities.   The legislation  ensures  that all  the                                                                   
appropriate  titles   to  property  are  in   place  for  the                                                                   
Department of Transportation & Public Facilities projects.                                                                      
   ·    Section 1 - Parks Highway Improvement Project                                                                           
   ·    Section 2 - Fairbanks International Airport Heavy                                                                       
        Aircraft Cargo Apron                                                                                                    
Mr. Scott noted  that both projects require  that ARRC adjust                                                                   
the track  and right of way  lands.  Alaska  Statutes require                                                                   
legislative approval  for ARRC  to exchange, donate,  sell or                                                                   
otherwise convey its entire interest in land.                                                                                   
1:44:24 PM                                                                                                                    
Vice Chair  Stoltze said he  welcomed the bill's  language as                                                                   
the Railroad  has previously  engaged in illegal  activities.                                                                   
The  Railroad is  reminded they  are a  public entity,  which                                                                   
carries the  responsibility to report.   He asked  if Wasilla                                                                   
and Fairbanks had authorized the transfer.                                                                                      
1:45:55 PM                                                                                                                    
MARY SIROKY, SPECIAL ASSISTANT,  DEPARTMENT OF TRANSPORTATION                                                                   
AND PUBLIC FACILITIES,  advised that the Department  had gone                                                                   
through the public process addressing  the roads; she did not                                                                   
know about the airport expansion.                                                                                               
Vice  Chair Stoltze  understood that  there had  not been  an                                                                   
official endorsement  from local governments.   He hoped that                                                                   
answers  would  be  forth  coming during  the  process.    He                                                                   
assumed it was a straightforward land transfer.                                                                                 
1:47:52 PM                                                                                                                    
Representative   Kelly   explained   that   the   legislation                                                                   
accommodates the  runway expansion and airport  modification.                                                                   
It is  a beneficial  swap for  both the  State and  the local                                                                   
areas.  He doubted any objection by local governments.                                                                          
Co-Chair Chenault noted that he  was not familiar with either                                                                   
project.  He asked if the Railroad  track had been realigned.                                                                   
Ms.  Siroky  said  yes,  during   the  construction  easement                                                                   
portion of the project.                                                                                                         
1:49:27 PM                                                                                                                    
WENDY   LINDSKOOG,   ASSISTANT  VICE   PRESIDENT,   CORPORATE                                                                   
AFFAIRS,  ALASKA  RAILROAD  CORPORATION,  offered  to  answer                                                                   
questions of the Committee.                                                                                                     
PUBLIC TESTIMONY CLOSED                                                                                                       
1:50:42 PM                                                                                                                    
Vice Chair  Stoltze MOVED to REPORT  HB 168 out  of Committee                                                                   
with  individual recommendations  and  with the  accompanying                                                                   
fiscal note.  There being NO OBJECTION, it was so ordered.                                                                      
HB   168  was   reported  out   of  Committee   with  a   "no                                                                   
recommendation" and  with zero note  #1 by the  Department of                                                                   
Commerce, Community  & Economic Development and  zero note #2                                                                   
by the Department of Transportation & Public Facilities.                                                                        
1:52:04 PM                                                                                                                    
HOUSE BILL NO. 218                                                                                                            
     An  Act relating  to  the payment  of  dividends by  the                                                                   
     Alaska Aerospace  Development Corporation to  the state,                                                                   
     and  to appropriation  of the dividend  for fiscal  year                                                                   
REPRESENTATIVE MIKE  KELLY, SPONSOR, addressed  the intent of                                                                   
HB 218  & how it  addresses the deficit  concerns.   In 1991,                                                                   
the  Legislature  created the  Alaska  Aerospace  Development                                                                   
Corporation  (AADC).  The  mission of  the Corporation  is to                                                                   
create a new  high-technology industry for the  State's space                                                                   
launch service.  Since 1991, the  State has appropriated over                                                                   
$15  million  dollars  to the  corporation  and  received  no                                                                   
payment in  return.  It  is in the  State's best  interest to                                                                   
look for new revenue from diversified  sources.  HB 218 would                                                                   
accomplish that by having AADC pay an annual dividend.                                                                          
HB 218 would add  language to the AADC statute  to provide an                                                                   
annual dividend, not less than  25%, nor more than 50% of new                                                                   
income, in  a given  fiscal year.   The bill also  stipulates                                                                   
that a  dividend may  not exceed  the total unrestricted  net                                                                   
income for AADC  in that year.  If there was  no unrestricted                                                                   
net income, they would not pay the State a dividend.                                                                            
Representative  Kelly  noted   that  HB  218  was  a  revenue                                                                   
generating bill and urged the Committee's support.                                                                              
1:55:48 PM                                                                                                                    
DEREK MILLER,  STAFF, REPRESENTATIVE  MIKE KELLY,  provided a                                                                   
sectional  summary of  the bill  and noted  it should not  be                                                                   
considered  as an  authoritative  interpretation.   The  bill                                                                   
carries the best statement of contents.                                                                                         
   ·    Section 1 adds language requiring the Alaska                                                                            
        Aerospace Development  Corporation to adopt  a policy                                                                   
        that pays  out a dividend  to the  State each  fiscal                                                                   
        year.  It  also establishes  methods for  calculating                                                                   
        that dividend and defines the terms.                                                                                    
   ·    Section 2 permits the FY08 Aerospace dividend to be                                                                     
        appropriated to the Teachers Retirement  System (TRS)                                                                   
        Fund or for any other public purpose.                                                                                   
Vice Chair Stoltze remembered  past conversations he had with                                                                   
Mr.  Pat   Ladner,  President   and  CEO,  Alaska   Aerospace                                                                   
Development  Corporation,  regarding  forthcoming  dividends.                                                                   
He  applauded the  work accomplished  by  the Corporation  to                                                                   
date; yet, shared Representative Kelly's concerns.                                                                              
1:59:14 PM                                                                                                                    
PAT LADNER,  PRESIDENT AND CEO, ALASKA  AEROSPACE DEVELOPMENT                                                                   
CORPORATION,  reiterated  that Alaska  Aerospace  Development                                                                   
Corporation was legislated into  existence in 1991.  The goal                                                                   
of Corporation  is economic diversification.   He  provided a                                                                   
handout  &   power  point  presentation   highlighting  their                                                                   
marketing  strategy.     The  original  $15   million  dollar                                                                   
appropriation  has created a  $100 million dollar  operation.                                                                   
He pointed out over 10 launches in the past 10 years.                                                                           
VIDEO PRESENTATION:                                                                                                           
2006 Highlights:                                                                                                              
   ·    LAUNCH SERVICES: The tenth launch from the Kodiak                                                                     
        Launch  Complex   (KLC)   on  September   1   was   a                                                                   
        significant    milestone   for    Alaska    Aerospace                                                                   
        Development  Corporation  (AADC).    It  demonstrated                                                                   
        AADC's   ability    to   deliver   launch    services                                                                   
        consistently, professionally and  cost-effectively as                                                                   
        a commercial facility.                                                                                                  
   ·    TELECOMMUNICATION LEADER:  The new fiber optic cable                                                                  
        project spearheaded  by  AADC  and the  Kodiak  Kenai                                                                   
        Cable    Company     will     bring    high     speed                                                                   
        telecommunications technology  to  Kodiak Island  and                                                                   
        the Kenai Peninsula for  the first time.   That major                                                                   
        economic infrastructure  development  will bring  the                                                                   
        KLC  online  with  secure,  fast   data  transmission                                                                   
        capabilities  and   provide   high-speed  access   to                                                                   
        residents and  businesses  of  Kodiak and  the  Kenai                                                                   
   ·    SUPPORT FOR EDUCATION:  AADC broadened its support                                                                    
        of  education   in   2006   with   an   increase   in                                                                   
        contributions to the  AADC Scholarship Program  and a                                                                   
        continued commitment to  the Space Explorers  Program                                                                   
        for grades K-12.  AADC is also the  major sponsor for                                                                   
        a  fundraising  event   to  benefit  the   Challenger                                                                   
        Learning Center of Alaska (CLCA).                                                                                       
   ·    INFRASTRUCTURE DEVELOPMENTS:  AADC completed the                                                                      
        construction   and  installation   of   a   permanent                                                                   
        telemetry site in Cordova for the  second unit of the                                                                   
        Range  Safety  and   Telemetry  System.     The  dual                                                                   
        systems, one  at Cordova  and  one at  the KLC,  have                                                                   
        also been  expanded  to  provide data  receiving  and                                                                   
        processing capabilities.                                                                                                
The Year in Review:                                                                                                             
   ·    Launch Success - Tenth Launch for KLC, which is a                                                                       
        milestone for the mature AADC                                                                                           
   ·    Kodiak Island - High speed telecommunications come                                                                      
        to Kodiak Island & Kenai Peninsula                                                                                      
   ·    Economic Impact - KLC operations impact Kodiak                                                                          
   ·    Infrastructure - KLC facilities upgrades and                                                                            
        increases capabilities                                                                                                  
2:10:18 PM                                                                                                                    
Mr. Ladner  addressed the Board's  intent.  Funding  is based                                                                   
on the number of launches and  is received through contracts.                                                                   
The Board  places dollars into  future years even  when there                                                                   
are no launches so that expertise  is not lost.  He commented                                                                   
on costs associated  with keeping the launch  center in great                                                                   
order.  There are  many expenses.  He agreed  that a dividend                                                                   
is in order,  however, premature at this time.   He requested                                                                   
that the  Alaska Aerospace  Development Corporation  business                                                                   
accountant and auditor testify.                                                                                                 
2:13:15 PM                                                                                                                    
SHARON  ANDERSON,  (TESTIFIED   VIA  TELECONFERENCE),  ALASKA                                                                   
AEROSPACE DEVELOPMENT CORPORATION  (AADC) BOARD OF DIRECTORS,                                                                   
ANCHORAGE, stated  that she was  a resident of  Anchorage and                                                                   
was  representing  the  Board  of Directors  for  the  Alaska                                                                   
Aerospace  Development  Corporation  (AADC), which  owns  and                                                                   
operates  the Kodiak  Launch Complex  (KLC).   The 11  member                                                                   
board  is  a diverse  representation  of  the  aerospace  and                                                                   
defense industries, University  of Alaska and the Geophysical                                                                   
Institute,  the State  of Alaska  Administration and  private                                                                   
industry.  She  spoke in opposition to HB 218,  while stating                                                                   
that it  was the unanimous  position of  last years  Board of                                                                   
Directors  to provide  the  State of  Alaska  with an  annual                                                                   
dividend, it is financially wise at this time.                                                                                  
Ms.  Anderson  thanked  the  State   of  Alaska  for  vision,                                                                   
support, and the initial seed  investment of $10 million from                                                                   
the Alaska  Science & Technology  Foundation.   Within AADC's                                                                   
first  decade   of  operations,   they  have  conducted   ten                                                                   
successful  launches  in  support  of  science  and  national                                                                   
defense  missions.   It was  AADC President  Pat Ladner  that                                                                   
recognized Kodiak  Island's latitude and  unobstructed flight                                                                   
paths away from populated areas,  making it an ideal site for                                                                   
launching  satellites  into  polar   orbits  and  sub-orbital                                                                   
payloads.  It has been and will  remain a wise investment for                                                                   
the State of  Alaska as AADC continues to expand  revenue and                                                                   
customer base.                                                                                                                  
2:17:00 PM                                                                                                                    
Ms.  Anderson pointed  out that  during the  last two  years,                                                                   
AADC has  completed two  projects that  expanded into  a $100                                                                   
million  facility   with  the  capabilities  to   perform  an                                                                   
essential  supportive role  to National  Defense and  growing                                                                   
commercial aerospace,  high-technology industries  in Alaska.                                                                   
The high speed communications  via a new fiber optic project,                                                                   
between Kodiak  Island and the  Kenai Peninsula,  expands the                                                                   
capabilities for  the University of Alaska,  Telemedicine and                                                                   
Homeland  Security,  as  well   as  KLC  current  and  future                                                                   
customers.   The construction  and installation of  the Range                                                                   
Safety and Telemetry System has  been completed, which allows                                                                   
the KLC  to perform  on the  same or  higher level  of rocket                                                                   
data gathering capabilities.                                                                                                    
Since the  initial investment,  AADC has  been totally  self-                                                                   
supporting,  primarily  through   launch  contracts.    Doing                                                                   
business  in  the aerospace  and  defense  industries  brings                                                                   
challenges.     Although  working   within  a  very   capital                                                                   
intensive   industry,   AADC   provides  its   own   payroll,                                                                   
retirement,  employee  benefits, as  well  as  a very  costly                                                                   
annual   maintenance   of  the   sophisticated   and   highly                                                                   
technological   equipment   required    to   support   launch                                                                   
infrastructure.   The  financial  impact on  Kodiak has  been                                                                   
significant as  well as support  to the University  of Alaska                                                                   
and Fairbanks  with development  of earth stations  and Poker                                                                   
Flat  research   projects.     The  Board  did   establish  a                                                                   
scholarship  program in  partnership with  the University  of                                                                   
Alaska  Foundation to  enable high school  seniors seeking  a                                                                   
Bachelor's degree in math, physics,  engineering, business or                                                                   
a technical field  such as computer science,  the opportunity                                                                   
to apply for scholarships.                                                                                                      
AADC  also  supports  the  Challenger   Learning  Center  and                                                                   
nationally  recognized   Space  Explorers   Program  bringing                                                                   
interactive science  materials for  students from K-12.   The                                                                   
Board  views  all  of these  as  vital  dividends  to  Alaska                                                                   
2:19:00 PM                                                                                                                    
Ms. Anderson  reviewed  AADC financials,  which is where  the                                                                   
basic  business  model  differences began  between  AADC  and                                                                   
other independent State corporations.   AADC does not provide                                                                   
long-term  loans  or  rents that  secure  revenue  over  long                                                                   
periods of  time that  can be used  to cover expenditures  of                                                                   
the  organization  and  enable   them  to  provide  a  stable                                                                   
dividend  to  the State.    In  early years,  AADC  conducted                                                                   
commercial  launches, but  currently has  only one  customer,                                                                   
the Missile  Defense Agency (MDA)  in support of  the Ground-                                                                   
based Midcourse  Defense program.   The problem  with relying                                                                   
on  revenues from  launches  is  that scheduling  is  totally                                                                   
unpredictable  and not  guaranteed  creating  a challenge  in                                                                   
predicting year to year revenues.                                                                                               
She  pointed  out  that  AADC  has  very  strict  demands  to                                                                   
maintain   a  high   level  of   readiness   both  from   the                                                                   
intellectual  and  personnel skill  base  but  also with  the                                                                   
complicated   electronic   hardware   and   software,   fiber                                                                   
communications,   vehicles,   large  metal   buildings   with                                                                   
integral  cranes,  a  high  tech  clean  room  for  satellite                                                                   
processing,  and  multiple  HVAC   systems.    Due  to  these                                                                   
expensive  preventative maintenance  costs,  which vary  from                                                                   
year  to   year,  daily  operating   cash  amounts   must  be                                                                   
maintained at a higher level than most organizations.                                                                           
Ms. Anderson added that revenues  must also be reinvested for                                                                   
future capital expenditures.   To expand and diversify AADC's                                                                   
customer and revenue base, a third  launch sub-orbital launch                                                                   
pad is necessary.  Continuous  funding for various quantities                                                                   
of  launch  support  equipment   is  required,  as  they  are                                                                   
reaching  the   10  year  mark,  others  require   repair  or                                                                   
replacement.       The   current   draft    KLC   Improvement                                                                   
Modernization Plan totals over $16 million.                                                                                     
Ms.  Anderson stated  that the  AADC Board  of Directors  has                                                                   
every intention of providing the  State a dividend as soon as                                                                   
it is financially practical.   However, to provide a dividend                                                                   
using the  proposed HB 218  model without having  the ability                                                                   
to  set  aside   appropriate  funding  for   capital  repair,                                                                   
replacement,  and expansion,  would not  be financially  wise                                                                   
and would  have serious  negative affects  on the ability  to                                                                   
sustain the KLC.   The Corporation is working  to improve the                                                                   
infrastructure and capabilities.                                                                                                
2:23:24 PM                                                                                                                    
Representative Hawker  asked when the State  could anticipate                                                                   
a dividend.  Ms. Anderson replied  that when the third launch                                                                   
pad  is in  place and  there is  an account  large enough  to                                                                   
maintain and sustain maintenance, then AADC will be ready.                                                                      
Representative  Hawker commented  that  it was  "troublesome"                                                                   
that a  corporation that  has been  in existence for  sixteen                                                                   
years can  not yet  pay back.   He wanted  to see a  business                                                                   
plan, noting  that the only client  AADC has at this  time is                                                                   
the federal  government.  Ms.  Anderson recognized  that AADC                                                                   
only has  one customer;  however, pointed  out that  ADDC has                                                                   
brought science,  modern technology  and high paying  jobs to                                                                   
the State.   Representative Hawker was disappointed  that the                                                                   
presentation  did not  include all information.   Mr.  Ladner                                                                   
interjected  it   was  included  in  each   member's  packet.                                                                   
Representative Hawker stood corrected.                                                                                          
2:26:25 PM                                                                                                                    
Co-Chair Meyer inquired if AADC  receives State dollars.  Mr.                                                                   
Ladner  replied that  they do  not receive  any General  Fund                                                                   
dollars, only funds  from customers.  He added  that there is                                                                   
a marketing  plan in place and  that all their  insurance and                                                                   
Public Employees  Retirement System (PERS) costs  are paid in                                                                   
house.   He  guaranteed  that  the  company is  not  standing                                                                   
Co-Chair Meyer asked about the  State owned road going out to                                                                   
the launch site.  Mr. Ladner commented  that there is a road,                                                                   
which also  continues to  the bay where  there are  homes and                                                                   
cabins.   He pointed  out that  when a  launch is  happening,                                                                   
approximately  150  people visit  the  area  for an  extended                                                                   
period of time.                                                                                                                 
Co-Chair  Meyer asked  about the  length  of the  road.   Mr.                                                                   
Ladner replied that from the airport,  the road extends forty                                                                   
one miles.   Co-Chair  Meyer maintained  that there  had been                                                                   
State assistance  in building and maintaining the  road.  Mr.                                                                   
Ladner pointed out  that the Larand Coast Guard  station also                                                                   
exists on that road.                                                                                                            
2:29:58 PM                                                                                                                    
Representative Gara inquired how  a dividend could work as he                                                                   
knew it could not be removed from  a federal grant.  He asked                                                                   
about the general breakdown for funds received.                                                                                 
Mr.  Ladner  offered to  provide  a  written outline  of  all                                                                   
contracts and the  amount associated with each.   Each launch                                                                   
is a separate task order and depending  on the contract, AADC                                                                   
receives 8%  if it is  less risk  up to 11%  if it is  a high                                                                   
risk venture, which is how the income is derived.                                                                               
Ms. Anderson commented  that in 2006, launches  totaled $16.8                                                                   
million  dollars; operating  expenses  totaled $20.2  million                                                                   
dollars with  a net operating  loss of $3.3 million  dollars.                                                                   
Fees   are   limited   by  federal   regulation   &   capital                                                                   
contributions and  grants through the National  Guard totaled                                                                   
$15.8 million dollars.                                                                                                          
Representative Gara  asked for a  launch fee breakdown.   Ms.                                                                   
Anderson responded  that there was only one  entity using the                                                                   
service at this time, the Missile Defense Agency (MDA).                                                                         
2:34:13 PM                                                                                                                    
Representative  Hawker  stated   that  a  complete  financial                                                                   
annual report should include an  audited financial statement.                                                                   
He worried  about audit  assurances.   Mr. Ladner noted  that                                                                   
they could provide the audit reports to the Committee.                                                                          
2:35:37 PM                                                                                                                    
Vice Chair Stoltze  stated that the statute  was specific and                                                                   
lengthy with regard to the reserve  fund and asked how it had                                                                   
been  incorporated  into  the  AADC financial  report.    Mr.                                                                   
Ladner explained  that they had never used  the reserve fund.                                                                   
He  added  that  their  annual   report  is  distributed  and                                                                   
expenses are reviewed.                                                                                                          
Vice  Chair  Stoltze  asked  about the  video.    Mr.  Ladner                                                                   
explained  that the  video  explains the  difference  between                                                                   
Kodiak and distances  all the way to Vandenberg,  Germany; it                                                                   
is shown to all potential clients to market AADC.                                                                               
2:39:26 PM                                                                                                                    
Representative  Crawford appreciated the  video.   He pointed                                                                   
out that  the road had  been in place  before the  launch was                                                                   
built  and that  there is  a Department  of Transportation  &                                                                   
Public Facilities station in place  to maintain it.  He asked                                                                   
about  future  projects.    Mr.  Ladner  explained  that  the                                                                   
facility  was built  in  order to  protect  viewers from  the                                                                   
increment weather, by providing an indoor environment.                                                                          
2:42:16 PM                                                                                                                    
Mr. Ladner addressed  safety distances that are  essential to                                                                   
maintain.  He thought that a third  pad would entice entities                                                                   
that want  to use  a big pad.   Alaska Aerospace  Development                                                                   
Corporation continues  to request  federal funds.   There are                                                                   
potential customers  out there.   Everyone knows  that safety                                                                   
and environment are important.                                                                                                  
Representative  Crawford pointed out  that one launch  pad is                                                                   
locked  in, while  the rest  are in  development. Mr.  Ladner                                                                   
agreed  and  observed  that  MDA  has  contracted  for  three                                                                   
launches each  year but because  of delays, usually  only one                                                                   
2:44:56 PM                                                                                                                    
Representative  Gara inquired  if it was  possible to  take a                                                                   
dividend from  federal funds.   Co-Chair Meyer  requested the                                                                   
question be held.                                                                                                               
JEROME SELBY,  (TESTIFIED VIA TELECONFERENCE),  MAYOR, KODIAK                                                                   
BOROUGH, spoke  in opposition to  the legislation.   He urged                                                                   
that  the money  be  maintained  and that  opportunities  for                                                                   
future launches be  retained.  He maintained  that a dividend                                                                   
would   reduce   AADC's   capital  funds.      He   addressed                                                                   
scholarships  currently offered  by AADC.   He  spoke to  the                                                                   
road and  noted that it had  been paid for by  federal funds,                                                                   
reducing the State's contribution.    Mr. Selby stressed that                                                                   
the road is now being used for increased recreation.                                                                            
2:49:59 PM                                                                                                                    
Vice Chair  Stoltze noted  that the  statute provides  for an                                                                   
assessment  of local &  municipal taxes;  he questioned  what                                                                   
other contributions had been made.   Mr. Selby emphasized the                                                                   
economic  positive impact  of $15  to $25  million dollars  a                                                                   
year in  salaries and  the number of  visitors that  come for                                                                   
launches.    The economic  impact  has  been "huge"  to  that                                                                   
community.   He  reiterated the  benefits of  having a  paved                                                                   
road and the scholarships offered.                                                                                              
Representative Gara  observed that the facility  does not pay                                                                   
property taxes  to the Borough.   He questioned if  the State                                                                   
gives the  Borough any  funds in  lieu of  taxes.  Mr.  Selby                                                                   
noted there were no payments made by the State.                                                                                 
2:53:36 PM                                                                                                                    
JOHN WILLIAMS,  (TESTIFIED VIA  TELECONFERENCE) MAYOR,  KENAI                                                                   
PENINSULA   BOROUGH,   testified   in   opposition   to   the                                                                   
legislation.   He  pointed out  that Section  2 assumes  that                                                                   
some  of the  dividend  may be  appropriated  to the  Teacher                                                                   
Retirement System  (TRS).  He pointed out the  prohibition of                                                                   
dedicated funds.   He did not  think AADC should  be compared                                                                   
to the  Alaska Housing  Finance Corporation  (AHFC)  & Alaska                                                                   
Industrial Development  and Export  Authority (AIDEA).   They                                                                   
have entirely separate missions  and do not contribute to the                                                                   
economy in  the same  manner.  It  is important to  recognize                                                                   
the  federal  requirements for  accounting  restrictions  and                                                                   
allocation  of funds.    All AADC  money  has been  federally                                                                   
earmarked for missile defense since 1993.                                                                                       
Mr. Williams pointed  out that AADC is a high  tech operation                                                                   
and maintained that they need  more time before dividends are                                                                   
discussed.    He  noted  the benefit  of  their  location  in                                                                   
relationship  to polar orbits.   He spoke  to the  ability of                                                                   
providing a dividend from federal funds.                                                                                        
The unrestricted  funds are  being kept  in reserve  for long                                                                   
term maintenance  and continued operations during  the launch                                                                   
calendar.    That calendar  does  not  require "day  by  day"                                                                   
financing but other aspects of operation do.                                                                                    
Mr. Williams  spoke to the  community contribution  aspect of                                                                   
the Board.   The Challenge  Learning Center  was built  as an                                                                   
adjunct to the AADC; it was built  with federal funds as part                                                                   
of a third wheel to the launch  facility.  He maintained that                                                                   
AADC has contributed to the schools  and has brought in funds                                                                   
from  other groups  that have  contributed  heavily to  other                                                                   
areas.   He reiterated the  scholarship fund contributions  &                                                                   
observed that  many funds have  come to fruition as  a result                                                                   
of AADC.   He concluded  that a high  tech industry  has been                                                                   
created for  the State of Alaska.   He warned  against taking                                                                   
3:01:59 PM                                                                                                                    
ERICK CAMPBELL,  (TESTIFIED VIA TELECONFERENCE),  CPA, ALASKA                                                                   
AEROSPACE  DEVELOPMENT CORPORATION  (AADC), ANCHORAGE,  spoke                                                                   
against the Corporation's  ability to pay a  dividend, noting                                                                   
that his determination  was based on a June  30,  2006 audit,                                                                   
indicating that  AADC had $15  million dollars in cash  & and                                                                   
of that  amount, $12  million dollars  was deferred  revenue,                                                                   
belonging to the  federal government until spent  on approved                                                                   
projects.    There   is  another  $1.7  million   dollars  of                                                                   
liabilities  not  included the  Public  Employees  Retirement                                                                   
System (PERS)  obligation, which leaves $1.4  million dollars                                                                   
for operations.   Operating expenses  for the past  two years                                                                   
averaged around $20 million dollars.                                                                                            
Mr. Campbell summarized at this  time, there is approximately                                                                   
one month  reserve for operations.   He recommends that  at a                                                                   
minimum, there  are three  to six  months reserves  built up.                                                                   
To pay a  dividend would make  it difficult for AADC  to meet                                                                   
it reserves.                                                                                                                    
3:03:47 PM                                                                                                                    
Representative  Hawker questioned  when  the Committee  could                                                                   
anticipate   receiving   a   dividend    payment   from   the                                                                   
Corporation.  Mr. Campbell stated  that would depend upon the                                                                   
marketing success and when the  third launch pad is finished.                                                                   
Federal dollars can not be used for State dividends.                                                                            
Representative  Kelly interjected  that the obligation  could                                                                   
be  "turned out"  and asked  if  the debt  could be  assessed                                                                   
against the federal government.   Mr. Campbell explained that                                                                   
expenses are normally required  to be directly related to the                                                                   
3:05:39 PM                                                                                                                    
Representative  Kelly continued to  question if a  subsidiary                                                                   
could pay back the parent.  Mr.  Campbell felt that repayment                                                                   
could come  later in  the year.   Representative Kelly  noted                                                                   
the   State   has  invested   over   $20   million   dollars,                                                                   
recommending  that a 5%  payback should  occur at $1  million                                                                   
dollars, or three  times the scholarship value.   He asked if                                                                   
AADC could make such a payment.  Mr. Campbell did not know.                                                                     
3:10:03 PM                                                                                                                    
EMIL NOTTI,  COMMISSIONER, DEPARTMENT OF  COMMERCE, COMMUNITY                                                                   
AND ECONOMIC  DEVELOPMENT, observed that the  Agency received                                                                   
$15  million dollars  for construction  costs  and the  State                                                                   
paved  20-miles  of  the  road,  costing  an  additional  $20                                                                   
million dollars.   Commissioner Notti agreed  that the agency                                                                   
should  pay  the State  a  dividend,  but observed  that  the                                                                   
question is when.   He maintained that an examination  by the                                                                   
Legislative Budget  and Audit (LBA) could  provide direction.                                                                   
In response  to a  question by  Co-Chair Meyer,  Commissioner                                                                   
Notti clarified  that there  is no  audit request at  present                                                                   
3:11:54 PM                                                                                                                    
Vice  Chair   Stoltze  acknowledged   the  need   for  better                                                                   
accounting and direction through legislative discussion.                                                                        
Representative Hawker  referred to the enabling  statutes and                                                                   
questioned  if   the  entity   would  ever  be   economically                                                                   
profitable.   He observed  that the  statutes are within  the                                                                   
University   of  Alaska   portion  and   affiliated  by   the                                                                   
University.    The statutes  prohibit  termination  if it  is                                                                   
detrimental to the University.   He questioned if AADC should                                                                   
be put  under the University's  purview.  Commissioner  Notti                                                                   
did not have an opinion regarding such a change.                                                                                
3:14:42 PM                                                                                                                    
PUBLIC TESTIMONY CLOSED                                                                                                       
Ms. Anderson responded to the  issue of taxes.  She clarified                                                                   
that as  long as the  federal government  is the  customer of                                                                   
AADC, the  government does  not allow  for payment  of taxes.                                                                   
Any  funds would  have  to  come out  of  the profit  of  the                                                                   
corporation.    Interest  on   debt  is  not  allowed.    She                                                                   
reiterated the importance of a third launch paid.                                                                               
Co-Chair  Meyer  noted  his  intent   to  hold  the  bill  in                                                                   
Representative  Gara  questioned  if  there  is  anything  in                                                                   
statute  that would  preclude AADC  seeking private  funding.                                                                   
Mr. Ladner  advised that there  is nothing in  statute, which                                                                   
precludes that.                                                                                                                 
3:18:10 PM                                                                                                                    
In response to  a question by Representative  Kelly regarding                                                                   
the  State's obligation  on the  road,  Mr. Ladner  explained                                                                   
that  before paving  was  done with  funds  from the  federal                                                                   
government, a portion of the road  on a school route; was not                                                                   
maintained.   He  noted that  AADC  bought a  grader and  has                                                                   
taken  care of  the  road maintenance  and  will continue  to                                                                   
provide  that  service.   He  addressed  the use  of  federal                                                                   
funds,  using a  debt document,  a copy  of the  loan.   That                                                                   
grant document could be provided  and it would not qualify as                                                                   
a loan document.                                                                                                                
3:20:35 PM                                                                                                                    
Representative  Kelly summarized that  if there was  going to                                                                   
be  a dividend,  it would  have  to come  though the  private                                                                   
sector  contracts.   Mr.  Ladner  was uncertain  about  that.                                                                   
Representative Kelly  emphasized that the intent  was to find                                                                   
a  way to  bring  funds into  the  State from  their  initial                                                                   
Co-Chair Meyer added  his intent to maximize  all the State's                                                                   
investments.   Co-Chair Chenault pointed out  that some State                                                                   
funding had been used for the road.                                                                                             
HB  218  was   HEARD  and  HELD  in  Committee   for  further                                                                   
3:22:51 PM                                                                                                                    
HOUSE BILL NO. 72                                                                                                             
     An Act relating  to the district cost factors  for state                                                                   
     funding of public education;  providing for an effective                                                                   
     date by repealing the delayed  effective date of sec. 6,                                                                   
     ch. 41, SLA 2006; and providing for an effective date.                                                                     
3:24:26 PM                                                                                                                    
REPRESENTATIVE MIKE CHENAULT,  SPONSOR, stated that HB 72 was                                                                   
written  to enact  the cost  differential  factors for  State                                                                   
school funding.   HB 72 implements  100% of the  Institute of                                                                   
Social and Economic Research (ISER)  Study.    He stated that                                                                   
if the  ISER numbers are correct,  it would mean  $10 million                                                                   
dollars a  year for the  Kenai District.   The lack  of those                                                                   
funds has caused a terrible discrepancy.                                                                                        
Co-Chair  Chenault commented  his school  district was  being                                                                   
unfairly   represented   by  the   current   available   cost                                                                   
differential numbers.  He addressed  some items that would be                                                                   
lost in  his school  district's funding  which were  not met.                                                                   
His district is  the 4  largest in the State &  while they do                                                                   
have many  elementary schools,  they do not  have a  nurse or                                                                   
drug prevention  specialists.  Kenai has smaller  schools but                                                                   
also  has a  larger land  mass.   Since  SB 36  was put  into                                                                   
effect, the  district is in drastic  need.  He hoped  that HB                                                                   
72  would provide  an effort  to  move forward  & offered  to                                                                   
answer questions of the Committee.                                                                                              
3:29:47 PM                                                                                                                    
Co-Chair  Meyer pointed  out that  Anchorage is  used as  the                                                                   
base level  to determine the  Base Student Allocation  (BSA).                                                                   
He  inquired if  the  legislation passed,  would  Anchorage's                                                                   
funding be reduced.  Co-Chair  Chenault responded that if the                                                                   
BSA was  raised with  an increase  to the cost  differential,                                                                   
then Anchorage  would  not be  affected.  If  the funds  were                                                                   
taken  from the  current cost  base  and no  new monies  were                                                                   
added, then Anchorage would be reduced.                                                                                         
Representative   Gara  addressed   a   lack  of   achievement                                                                   
occurring  in the Anchorage  schools.   After basic  courses,                                                                   
the  elective options  are grim.    The needs  in big  school                                                                   
districts are  not as bad  as the other  & that  he supported                                                                   
moving forward  to address cost  differentials.  He  asked if                                                                   
HB 72  was implemented and the  PERS/TRS rate was  paid down,                                                                   
would all school district's BSA be at $77 million dollars.                                                                      
Co-Chair Chenault  replied that  it would  depend on  how the                                                                   
numbers  were   moved  around.    If  the   Public  Employees                                                                   
Retirement  System/Teacher's   Retirement  System  (PERS/TRS)                                                                   
issues  were  addressed,  then  the  larger  districts  would                                                                   
receive  more  by moving  the  funding outside  the  formula.                                                                   
Currently, with  the funding  inside the foundation  formula,                                                                   
the   numbers   are   dispersed   according   to   the   cost                                                                   
differential.   He objected  to that  model, commenting  that                                                                   
the numbers  should change.   He  encouraged that the  entire                                                                   
concept be addressed including the PERS/TRS issue.                                                                              
3:33:38 PM                                                                                                                    
Co-Chair  Meyer  informed  those waiting  online  that  there                                                                   
would be no  public testimony at this meeting.   He indicated                                                                   
that an arranged  time and date would be selected  to discuss                                                                   
the matter.                                                                                                                     
Representative  Thomas  commented  he represented  12  school                                                                   
districts  and thought  the bill  could  provide millions  of                                                                   
dollars  for the past  eight years.   Over  that period,  the                                                                   
total amount was over $90 million dollars.                                                                                      
Vice Chair  Stoltze looked  forward to continued  discussion.                                                                   
He  realized it  was  not an  option  for some  small  school                                                                   
districts,  while  the  larger  ones like  Kenai,  have  more                                                                   
options.    He  represents  the  1   and  2   largest  school                                                                   
districts  in  the State.    He  questioned the  options  for                                                                   
districts  smaller than  Kenai, who opt  for smaller  schools                                                                   
and the "trade-offs" associated with those choices.                                                                             
3:39:08 PM                                                                                                                    
Co-Chair  Chenault  advised  that smaller  schools  were  the                                                                   
District's  choice  with four  high  schools.   The  distance                                                                   
between  those  schools is  vast;  some are  75-miles  apart.                                                                   
They  could consolidate  but the  parents want  to see  their                                                                   
children at schools closer to  home with less traveling time.                                                                   
Smaller distances build community  and not having the funding                                                                   
has  made   the  school  district   more  responsible.     He                                                                   
guaranteed that there are no excess  dollars in that district                                                                   
& congratulated  his borough.   The  community has  funded to                                                                   
the cap  allowed.  He urged  raising the BSA,  stressing that                                                                   
his district should no longer be penalized.                                                                                     
3:44:32 PM                                                                                                                    
Representative  Nelson   added  her  gratitude   to  Co-Chair                                                                   
Chenault for  the bill.  She pointed  out that ¾ of  the ISER                                                                   
study  would  amount to  $72.5  million  dollars.   The  full                                                                   
implementation of  the ISER study would be a  little over $97                                                                   
million  dollars.   She encouraged  school  districts to  put                                                                   
forward  their additional  energy costs  since the study  was                                                                   
commissioned.   The air study  was released in 2003  based on                                                                   
2002 prices.   The ISER study  was released in 2005  based on                                                                   
2004 prices.   She  thought that  the "loaf"  had grown  even                                                                   
more.   When SB 36  was written, the  price of crude  oil was                                                                   
$12.31 dollars  per barrel,  and today it  is at  $57 dollars                                                                   
per barrel.                                                                                                                     
Co-Chair Chenault  said he could not speak to  the fuel issue                                                                   
& pointed out that the other ¼  of the loaf was placed in the                                                                   
operating budget.  He realized  that fuel & energy costs have                                                                   
increased throughout the State.                                                                                                 
Representative Kelly  inquired if there was an  option to cap                                                                   
some districts.   He worried about  a double jump.   Co-Chair                                                                   
Chenault  addressed   capping,  noting  that  the   bill  was                                                                   
introduced  at 100% of  the ISER  Study.   The number  is not                                                                   
known as they have not been able  to settle on what should be                                                                   
considered.   He hoped to get  100% but did not know  if that                                                                   
was the  correct number.   The  process is  intended to  help                                                                   
districts  address their  cost  factors and  PERS/TRS; it  is                                                                   
hoped to  settle upon  a number  to provide school  districts                                                                   
with the opportunity to move forward.                                                                                           
3:50:19 PM                                                                                                                    
Representative  Kelly   stated  for  the  record   that  some                                                                   
districts are  too small for  the funding that  they receive.                                                                   
He voiced serious concern with  future increased funding, yet                                                                   
agreed that the current system is not adequately working.                                                                       
3:51:57 PM                                                                                                                    
EDDY  JEANS,  DIRECTOR,  SCHOOL  FINANCE,  EDUCATION  SUPPORT                                                                   
SERVICES,  DEPARTMENT  OF EDUCATION  AND  EARLY  DEVELOPMENT,                                                                   
offered to answer questions on  the fiscal note or queries on                                                                   
how the State got to where it is.                                                                                               
Co-Chair Meyer addressed the BSA  and how those numbers would                                                                   
affect Anchorage.                                                                                                               
Mr. Jeans observed  that one would have to go  back to SB 36,                                                                   
in which the McDowell Group made  it clear that those numbers                                                                   
were based on the manner that  school districts were spending                                                                   
at that time.  The McDowell Group  recommended that the issue                                                                   
be  revisited in  a couple  years.   The Legislature  assumed                                                                   
that burden  and commissioned the  study and then  asked ISER                                                                   
to  do  a  peer  review.   Based  on  the  peer  review,  the                                                                   
Legislature took those recommendations  & asked ISER to rerun                                                                   
the numbers.   There  were two  areas of  great concern,  the                                                                   
first being how  the air group calculated the  energy portion                                                                   
of the index.   They used  a lot of criteria  for adjustment.                                                                   
ISER recommended  going back to the financial  statements and                                                                   
using  what  the  districts are  currently  spending  as  the                                                                   
measure.  He noted that the largest  component was addressing                                                                   
the teacher compensation component.   ISER recommended making                                                                   
an   adjustment  for   longevity,   experience  and   teacher                                                                   
3:56:13 PM                                                                                                                    
Mr.  Jeans noted  that in  the  peer review,  ISER was  clear                                                                   
about  the adjustments  that were  needed.   The  Legislature                                                                   
paid for those  adjustments.  Everyone thought  they went too                                                                   
far the other way,  which he agreed with.  Mr.  Jeans pointed                                                                   
out  frustration  with the  cost  differentials.   The  total                                                                   
package needs to  be a complete rewrite.  He  did not support                                                                   
a 100% cost  differential as the correct formula.   He looked                                                                   
forward to a dialogue on the issue.                                                                                             
3:57:34 PM                                                                                                                    
Co-Chair  Meyer  reiterated  concerns  and  worried  about  a                                                                   
possible cut to  Anchorage.  Mr. Jeans explained  that if the                                                                   
cost differentials  were adopted and not funded,  there would                                                                   
be  redistribution and  Anchorage  would  get less;  however,                                                                   
funding  the cost  differentials, Anchorage  would not  loose                                                                   
any funding.  It  will be a correction to the  formula, which                                                                   
needs to be made.                                                                                                               
3:58:24 PM                                                                                                                    
Representative   Joule   referenced  teacher   salaries   and                                                                   
questioned the benefit of offering  a single bargaining unit.                                                                   
Co-Chair  Meyer  interjected  that  was  not  an  appropriate                                                                   
question  at this  time.  Mr.  Jeans added  that some  states                                                                   
have a  built in a  salary schedule the  State is  willing to                                                                   
pay and that anything  beyond that is picked up  at the local                                                                   
3:59:27 PM                                                                                                                    
Representative Gara  requested a chart indicating  the affect                                                                   
to each school  district if the bill were passed.   Mr. Jeans                                                                   
offered  to  provide   that.    Co-Chair  Meyer   agreed  and                                                                   
suggested  several different  scenarios  shown  in the  chart                                                                   
with the  PERS/TRS outside and  then one with it  included in                                                                   
the formula, one  with the cost differential  implemented and                                                                   
then not funded.                                                                                                                
Representative Kelly questioned  the Department's legislative                                                                   
efficiencies.    Mr. Jeans  noted  the Statute  requires  the                                                                   
Department  to  look  at cost  differentials  and  then  make                                                                   
recommendations  to  the  Legislature.   The  Department  has                                                                   
requested funds to  do that; the Legislature  elected to take                                                                   
on the task to define cost differentials.   He said he sat on                                                                   
the  Legislative Budget  &  Audit (LBA)  Subcommittee,  which                                                                   
defined the areas.                                                                                                              
Representative  Kelly asked if  the Department's  methodology                                                                   
would  reflect  less than  100%  of  the application  to  the                                                                   
formula.   Mr. Jeans said  he did not  believe the  100% ISER                                                                   
cost differentials  were the real numbers nor  did he believe                                                                   
that those  were the accurate  differentials, and  thought it                                                                   
was less.                                                                                                                       
4:02:58 PM                                                                                                                    
Representative   Hawker  mentioned   the  amount  of   public                                                                   
testimony taken during the LBA  Committee and concerns voiced                                                                   
by adopting  the ISER results.   Mr. Jeans agreed that  was a                                                                   
fair representation.                                                                                                            
4:04:29 PM                                                                                                                    
PEGGY  COWAN,  SUPERINTENDENT   OF  SCHOOLS,  JUNEAU  BOROUGH                                                                   
SCHOOLS, CITY &  BOROUGH OF JUNEAU, stated that  the proposed                                                                   
legislation  is critical  to the Juneau  School District  and                                                                   
Juneau  students.  The  Juneau community  funds education  to                                                                   
the maximum allowed  & looks to the Legislature  for measures                                                                   
of adequacy  and fairness.   Since  1998, everyone  has lived                                                                   
with the rates established in  SB 36, loosing ground in terms                                                                   
of educational programs provided.   The ISER study may not be                                                                   
perfect but the  SB 36 rates are flawed.  She  urged that the                                                                   
Legislature take action.  Each  community has different needs                                                                   
& educational funding should do the same.                                                                                       
4:06:37 PM                                                                                                                    
Vice  Chair   Stoltze  requested  information   on  what  the                                                                   
bargaining units have obligated  their legislators to do.  He                                                                   
worried how  the request  would fit  into the overall,  State                                                                   
budget priorities.                                                                                                              
HB 72 was HELD in Committee for further consideration.                                                                          
4:07:37 PM                                                                                                                    
The meeting was adjourned at 4:07 P.M.                                                                                          

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