Legislature(2013 - 2014)HOUSE FINANCE 519

03/28/2013 01:30 PM FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Delayed to 1:45 p.m. Today --
Heard & Held
-- Open Public Testimony --
Heard & Held
-- Public Testimony --
+ Bills Previously Heard/Scheduled TELECONFERENCED
Heard & Held
                  HOUSE FINANCE COMMITTEE                                                                                       
                      March 28, 2013                                                                                            
                         1:53 p.m.                                                                                              
1:53:08 PM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair Stoltze called the  House Finance Committee meeting                                                                    
to order at 1:53 p.m.                                                                                                           
MEMBERS PRESENT                                                                                                               
Representative Bill Stoltze, Co-Chair                                                                                           
Representative Mark Neuman, Vice-Chair                                                                                          
Representative Mia Costello                                                                                                     
Representative Les Gara                                                                                                         
Representative Lindsey Holmes                                                                                                   
Representative Scott Kawasaki, Alternate                                                                                        
Representative Cathy Munoz                                                                                                      
Representative Steve Thompson                                                                                                   
Representative Tammie Wilson                                                                                                    
MEMBERS ABSENT                                                                                                                
Representative David Guttenberg                                                                                                 
Representative Alan Austerman, Co-Chair                                                                                         
Representative Bryce Edgmon                                                                                                     
ALSO PRESENT                                                                                                                  
Rex  Shattuck, Staff,  Representative  Mark Neuman;  Michael                                                                    
Foster, Chair, Board of Directors,  Knik Arm Bridge and Toll                                                                    
Authority; Paul  Grossi, Lobbyist,  Iron Workers  of Alaska;                                                                    
Tom Brice,  Alaska District Council of  Laborers, Anchorage;                                                                    
Lois   Epstein,   Self,   Anchorage;  Joe   Michel,   Staff,                                                                    
Representative  Bill  Stoltze; Representative  Mike  Hawker,                                                                    
Sponsor; Rena Delbridge,  Staff, Representative Mike Hawker;                                                                    
Patricia Hull,  Alaska Film Group, Juneau;  Randy Daly, Film                                                                    
Industry   Participant,   Kenai;   D.K.   Johnston,   Alaska                                                                    
Filmmakers,  Anchorage; Ron  Holmstrom, Screen  Actors Guild                                                                    
and  American Federation  of Television  and Radio  Artists,                                                                    
Anchorage; Representative Shelley Hughes.                                                                                       
PRESENT VIA TELECONFERENCE                                                                                                    
Larry  DeVilbiss,  Mayor,   Mat-Su  Borough;  Dan  Sullivan,                                                                    
Mayor,  City of  Anchorage; Verne  Rupright, Mayor,  City of                                                                    
Wasilla; Susanne  DiPietro, Self, Anchorage;  Aves Thompson,                                                                    
Executive Director, Alaska  Trucking Association, Anchorage;                                                                    
Bob   French,  Self,   Anchorage;  James   Kenworthy,  Self,                                                                    
Anchorage; Darcy  Solomon, Member, Mat-Su  Borough Assembly;                                                                    
Mike Delvin, CEO, Evergreen  Films, Anchorage; Cody Lawhorn,                                                                    
SprocketHeads  LLC, Anchorage;  Deborah Schildt,  President,                                                                    
The  Alaska   Film  Group,   Anchorage;  Diana   Fejes,  Tax                                                                    
Consultant,  Anchorage;  Pius   Savage,  OMAYACON  Pictures,                                                                    
Anchorage;  Gary Zimmerman,  General Manager,  Alaska Rental                                                                    
Car  Inc., Anchorage;  Merna Jenson  for Kelly  Bender, Lazy                                                                    
Otter  Charters, Whittier/Anchorage;  Robin Kornfield,  Vice                                                                    
President,   Corporations  and   Marketing,  NANA   Regional                                                                    
Corporation,  Anchorage;  Steve Rychetnik,  Cinematographer,                                                                    
SprocketHeads  LLC,  Anchorage;   Maya  Salganek,  Director,                                                                    
University  of  Alaska  Fairbanks Film  Program,  Fairbanks;                                                                    
Charlie Hewitt, Mirror Studios, Anchorage.                                                                                      
HB 4      IN-STATE GASLINE DEVELOPMENT CORP                                                                                     
          HB 4 was HEARD and HELD in committee for further                                                                      
HB 23     KNIK ARM BRIDGE AND TOLL AUTHORITY                                                                                    
          HB 23 was HEARD and HELD in committee for further                                                                     
HB 112    REPEAL FILM PRODUCTION TAX CREDIT                                                                                     
          HB 112 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
HOUSE BILL NO. 23                                                                                                             
     "An Act  relating to bonds  of the Knik Arm  Bridge and                                                                    
     Toll  Authority;  relating  to  reserve  funds  of  the                                                                    
     authority;  relating  to  taxes and  assessments  on  a                                                                    
     person  that  is  a  party to  an  agreement  with  the                                                                    
     authority;  and  establishing  the  Knik  Arm  Crossing                                                                    
1:54:28 PM                                                                                                                    
23  primarily  worked  on  the  Knik  Arm  Bridge  and  Toll                                                                    
Authority (KABATA) and  the effort to build  a bridge across                                                                    
Cook   Inlet.  The   bill  would   allow  a   public-private                                                                    
partnership to move forward.                                                                                                    
Co-Chair Stoltze clarified that  the bridge would cross Knik                                                                    
Vice-Chair  Neuman confirmed  that  the  bridge would  cross                                                                    
Knik Arm.  He detailed that  the bill would allow  KABATA to                                                                    
form a partnership with a  private investor. The legislation                                                                    
would also  increase the  authority of  pass-through federal                                                                    
bonds from  $500 million  to $600  million. He  relayed that                                                                    
his staff would provide a sectional analysis.                                                                                   
Co-Chair   Stoltze  noted   that   an  extensive   committee                                                                    
conversation on HB 23 would occur at a subsequent meeting.                                                                      
Vice-Chair  Neuman discussed  that  the goal  was to  reduce                                                                    
costs in  safety corridors.  He spoke to  the danger  of the                                                                    
current highway  systems and to  the importance  of reducing                                                                    
traffic.  He shared  that the  Mat-Su  Borough had  provided                                                                    
information on  future expansions into Point  MacKenzie; the                                                                    
information   showed  a   prospective   town-site  plan   in                                                                    
anticipation of  the bridge. The  area was located  north of                                                                    
the  14  square  mile  industrial  port  where  a  potential                                                                    
pipeline could run.  He expounded that a rail  spur would be                                                                    
located in the  area and modules for Prudhoe  Bay were built                                                                    
there  as  well. He  pointed  to  new information  from  the                                                                    
Department of  Revenue (DOR)  related to  moral obligations.                                                                    
He looked  at the  last page  of a  DOR letter  and observed                                                                    
that the commissioner had  tremendous confidence in KABATA's                                                                    
revenue  projections and  financial  analysis. He  discussed                                                                    
earlier testimony  by Representative Mike Hawker  related to                                                                    
the  benefits  of  moving a  project  forward  with  private                                                                    
sector help.  He stated that the  public-private partnership                                                                    
was  a new  model being  used  across the  United States  to                                                                    
provide increased  funds for transportation  projects; users                                                                    
also paid for the projects.                                                                                                     
1:58:57 PM                                                                                                                    
Vice-Chair   Neuman  emphasized   the   importance  of   the                                                                    
legislation to his community and  further west into the Mat-                                                                    
Su region. He relayed that one of the goals was to turn                                                                         
state resources into jobs for Alaskans.                                                                                         
Co-Chair Stoltze noted that a slideshow would not be                                                                            
presented during the meeting.                                                                                                   
REX SHATTUCK, STAFF, REPRESENTATIVE MARK NEUMAN, provided a                                                                     
sectional analysis:                                                                                                             
     Section  1   repeals  and  reenacts   AS  19.75.211(a).                                                                    
     Authorizes  the authority  to  borrow  money and  issue                                                                    
     refund bonds  on which the  principal and  interest are                                                                    
     paid  out  of and  secured  by  (1) the  gross  revenue                                                                    
     derived from  fees, rents,  tolls, rates,  charges, and                                                                    
     other  revenue;  (2)  revenue  received  by  a  private                                                                    
     person or  enterprise that has  entered into  a public-                                                                    
     private  partnership agreement  with the  authority; or                                                                    
     (3) any revenue or  money appropriated to the authority                                                                    
     for that purpose, except a state tax or license.                                                                           
     Section 2 raises the limit  on the amount of aggregated                                                                    
     bonds the authority may issue to $600,000,000.                                                                             
     Section 3  adds a new  subsection to AS  19.75.211 that                                                                    
     requires  the authority  to submit  to  the state  bond                                                                    
     committee  a  description  of  the  bond  issue  before                                                                    
     issuing bonds. The  bonds may not be  issued unless the                                                                    
     state  bond  committee  finds   that  the  revenue  can                                                                    
     reasonably be  expected to be  adequate for  payment of                                                                    
     principle and interest on the bonds.                                                                                       
     Section 4  amends AS 19.75.221(h) to  specify what must                                                                    
     be  deposited  in  the  reserve  fund,  which  includes                                                                    
     revenue  derived by  the  authority  from fees,  rents,                                                                    
     tolls,  rates, charges,  or other  revenue appropriated                                                                    
     for that  purpose; and other  revenue available  to the                                                                    
     Section  5  adds  new   subsections  to  AS  19.75.221.                                                                    
     Subsection  (i)  specifies  the specific  purposes  for                                                                    
     which  the  money in  the  reserve  fund can  be  used.                                                                    
     Subsection (j) allows the  authority to transfer income                                                                    
     or interest earned  by the reserve fund  to other funds                                                                    
     or accounts  of the authority  as long as  the transfer                                                                    
     does  not reduce  the  reserve fund  to  less than  the                                                                    
     reserve fund requirement.  Subsection (k) specifies how                                                                    
     to value securities the fund  is invested in to compute                                                                    
     the  amount   of  the  reserve  fund.   Subsection  (1)                                                                    
     requires the chair of the  board to notify the governor                                                                    
     annually of the amount  required to restore the reserve                                                                    
     fund to  the reserve  fund requirement.  Subsection (m)                                                                    
     defines "reserve fund requirement."                                                                                        
     Section 6  amends AS 19.75.261  to exempt any  real and                                                                    
     personal property,  assets, income, or  other interests                                                                    
     held by a private person  or enterprise under a public-                                                                    
     private partnership  from all ad valorem  taxes on real                                                                    
     or  personal property  and special  tax assessments  of                                                                    
    the state or a political subdivision of the state.                                                                          
     Section  7  adds  a new  section,  AS  19.75.345,  that                                                                    
     establishes the Knik Arm Crossing fund.                                                                                    
Representative Gara  asked whether  there was  a cap  on the                                                                    
reserve fund.                                                                                                                   
2:03:38 PM                                                                                                                    
Vice-Chair Neuman replied  that the fund would  be capped at                                                                    
$150  million.  He  detailed that  the  governor's  proposed                                                                    
transportation  plan included  $10 million  for the  current                                                                    
year and $35 million for the next four years.                                                                                   
Representative Gara  asked whether the fund  could go beyond                                                                    
$150 million. He asked for the location in the bill.                                                                            
Vice-Chair Neuman replied that it  was not expected to reach                                                                    
$150 million.  He did not know  whether there was a  cap. He                                                                    
noted  that  the  KABATA  board   chair  was  available  for                                                                    
technical questions.                                                                                                            
Co-Chair Stoltze  noted there  was not  an effort  to exceed                                                                    
the $10 million appropriation [for the current year].                                                                           
Vice-Chair Neuman  agreed. He added  that if the  bill moved                                                                    
forward, but  the governor  did not  sign the  contract, the                                                                    
money would be returned to the general fund.                                                                                    
Representative Gara surmised  that there was no  cap [on the                                                                    
reserve fund],  but that people  would be careful  about the                                                                    
amount. He  pointed to past  testimony by some  stating that                                                                    
the project could be short by  $1.5 billion due to a lack in                                                                    
toll revenue;  he understood that KABATA  disagreed with the                                                                    
statement. He  asked whether the state  would be responsible                                                                    
for making up  the difference if tolls were  not adequate to                                                                    
cover the cost  of bridge operation and  construction in the                                                                    
MICHAEL FOSTER,  CHAIR, BOARD OF DIRECTORS,  KNIK ARM BRIDGE                                                                    
AND  TOLL AUTHORITY,  replied in  the affirmative.  He added                                                                    
that the funding would be subject to appropriation.                                                                             
Representative  Gara noted  that  the bill  did not  contain                                                                    
language specifying that  the state could owe  the money. He                                                                    
wondered  if the  moral obligation  was related  to how  the                                                                    
bonds worked.                                                                                                                   
Mr.  Foster  answered  that the  public-private  partnership                                                                    
financial plan  model specified that KABATA  was responsible                                                                    
for making the availability  payments. He explained that the                                                                    
reserve fund  would cover payments to  the private developer                                                                    
in  the initial  years  when a  shortfall  in revenue  would                                                                    
occur. He  expounded that the  financial market  was reliant                                                                    
on the "subject to  appropriation" language, specifying that                                                                    
the state  would secure any  payments that KABATA  could not                                                                    
2:06:53 PM                                                                                                                    
LARRY    DEVILBISS,     MAYOR,    MAT-SU     BOROUGH    (via                                                                    
teleconference),   testified  in   strong  support   of  the                                                                    
legislation.  He  stated  that  every mayor  in  the  Mat-Su                                                                    
Borough  supported  the  project.   He  discussed  that  the                                                                    
community was  in the process  of laying out  two town-sites                                                                    
that would  be located at  the northern end of  the project;                                                                    
the  location included  new high  school  and middle  school                                                                    
projects.  He stated  that without  the infrastructure  from                                                                    
KABATA  the  community  was  paying a  price  in  blood.  He                                                                    
stressed that  current transportation  infrastructure needed                                                                    
to be  taken in  a different  direction because  the fastest                                                                    
growing areas  were on the west  side of the region.  He was                                                                    
shocked to see that the  fatal injury rate per 100,000 miles                                                                    
was 22.48  on the Knik  Goose Bay  Road compared to  17.3 on                                                                    
the Parks  Highway, 13.1 on  the Turnagain Arm  Highway, and                                                                    
13.2  on   the  Seward  Highway.  He   emphasized  that  the                                                                    
infrastructure   was  needed   for  residents'   safety.  He                                                                    
reminded  the committee  that the  importance  of the  issue                                                                    
went  much further  than the  borough; the  Alaska Municipal                                                                    
League  Conference of  Mayors had  voted in  support of  the                                                                    
project the prior year.                                                                                                         
Co-Chair   Stoltze  commented   on   the  tragic   [highway]                                                                    
statistics from the Mat-Su Valley.                                                                                              
2:11:46 PM                                                                                                                    
DAN    SULLIVAN,    MAYOR,    CITY   OF    ANCHORAGE    (via                                                                    
teleconference),  spoke in  support of  the legislation.  He                                                                    
stated that the project would  create over 1,000 jobs during                                                                    
its  construction  phase.  He  discussed  that  people  were                                                                    
stranded when  Glenn Highway  closures occurred;  the bridge                                                                    
would provide an important  alternate route. He communicated                                                                    
that  the Port  of  Anchorage was  the  primary state  port,                                                                    
which  generated  significant   truck  traffic  through  the                                                                    
downtown  area; the  bridge would  divert  the traffic  away                                                                    
from downtown.  He believed the  reduction in  truck traffic                                                                    
would improve  the quality  of life in  the city.  He stated                                                                    
that  over 98  percent of  Anchorage's developable  land had                                                                    
been developed; he believed the  bridge would provide access                                                                    
to new  undeveloped land for commercial  and residential use                                                                    
in  Mat-Su.  He   opined  that  a  bridge   with  access  to                                                                    
developable land  was a  great economic  development concept                                                                    
in  light of  population growth  in Mat-Su.  He communicated                                                                    
that  with population  growth in  Anchorage and  Mat-Su, the                                                                    
Glenn  and Parks  Highways would  be expanded;  the projects                                                                    
would cost  billions of  dollars. He  believed accommodating                                                                    
an  alternate  route that  would  provide  toll revenue  and                                                                    
would not require highway expansions was a "win-win."                                                                           
Representative    Gara    referred    to    Department    of                                                                    
Transportation  and  Public  Facilities testimony  that  the                                                                    
highway  expansions would  take  place with  or without  the                                                                    
bridge. Mr.  Sullivan replied that a  near-term expansion in                                                                    
conjunction with  the bridge may preclude  another expansion                                                                    
later on.                                                                                                                       
2:15:35 PM                                                                                                                    
VERNE    RUPRIGHT,    MAYOR,    CITY   OF    WASILLA    (via                                                                    
teleconference),   vocalized   strong    support   for   the                                                                    
legislation.  He spoke  to population  growth in  the Mat-Su                                                                    
region. He  stated that the  project would provide  a second                                                                    
route  to and  from Anchorage  and would  provide a  shorter                                                                    
trucking  route from  the Anchorage  port  to Fairbanks.  He                                                                    
mentioned the  potential for heavier cargo  and freight from                                                                    
Point MacKenzie.  He remarked that  if the project  had been                                                                    
done over 30 years earlier  it would have been significantly                                                                    
less expensive.  He opined that population  growth in Alaska                                                                    
would  not let  up. He  believed that  the expansion  of the                                                                    
Parks Highway  corridor in tandem  with the bridge  would be                                                                    
helpful.  He  stressed  that   wider  and  faster  multilane                                                                    
highways were not the answer  as discovered in the Lower 48.                                                                    
He stated that  a bridge would save truckers  time and would                                                                    
open a  better connectivity at  a lower rate. He  was unsure                                                                    
how  the  financing would  all  work,  but he  believed  the                                                                    
project  was  needed for  the  state's  economic health  and                                                                    
growth. He emphasized that the  project would be a strategic                                                                    
piece  of infrastructure  on  an  American national  defense                                                                    
level. The bill would tie  Port of Anchorage and Mat-Su into                                                                    
the Fairbanks  area. He shared  that the project  would have                                                                    
been stalled for  an undetermined period if  Wasilla had not                                                                    
brought  actions  against  the Anchorage  Metropolitan  Area                                                                    
Transportation System (AMATS) in 2009.                                                                                          
Co-Chair  Stoltze  thanked  Mr. Rupright  for  standing  his                                                                    
2:19:12 PM                                                                                                                    
SUSANNE  DIPIETRO,  SELF,  ANCHORAGE  (via  teleconference),                                                                    
spoke in  opposition to the legislation.  She suggested that                                                                    
the bill was  not about building the bridge,  given that the                                                                    
legislature had  previously passed enabling  legislation for                                                                    
KABATA; the bill related to  the financing mechanism for the                                                                    
project. She believed  Sections 4 and 5 of the  bill took an                                                                    
unprecedented and needless approach  that would obligate the                                                                    
state  to   cover  unlimited   shortfalls  in   the  project                                                                    
expenses. She detailed that the  bill would create a reserve                                                                    
fund to  be funded  by legislative appropriation  and KABATA                                                                    
would use  the money to pay  its debts and obligations  to a                                                                    
private  partner. She  referenced language  in Section  5(l)                                                                    
detailing   that  KABATA   would  tell   the  governor   and                                                                    
legislature  the amount  needed in  the reserve  fund on  an                                                                    
annual basis  to cover  debts. She  noted that  the language                                                                    
may  seem  innocuous;  however,  it  provided  a  pledge  to                                                                    
ratings agencies  that the legislature would  be responsible                                                                    
for  covering any  debt due  to  insufficient revenues.  The                                                                    
markets would understand  that the debts would  be backed by                                                                    
the state.                                                                                                                      
Ms.  Dipietro  acknowledged  that the  legislation  did  not                                                                    
require  the  legislature  to  appropriate  money  annually;                                                                    
however,  a  failure  by  the   state  to  honor  the  moral                                                                    
obligation  would be  treated  as  a default.  Subsequently,                                                                    
markets  would  downgrade  the state's  credit  rating.  She                                                                    
cited  a DOR  letter to  former Senator  Joe Thomas  warning                                                                    
about the hazard  (dated March 30, 2011, copy  on file). She                                                                    
believed  passing the  bill would  set  the state  up for  a                                                                    
"Hobson's   choice";  the   legislature   could  refuse   to                                                                    
appropriate  funds,  which would  result  in  damage to  the                                                                    
state's credit  rating or it  could continue to  spend money                                                                    
that the  state may  not be able  to afford.  She emphasized                                                                    
that  using  a  moral   obligation  reserve  fund  to  cover                                                                    
operating  expenses had  never  been allowed  in Alaska  and                                                                    
should  not  be  allowed  for   the  [KABATA]  project.  She                                                                    
expounded  that   the  project  would  greatly   expand  the                                                                    
existing financial  risk the  state would  be exposed  to by                                                                    
the  project.  She  stressed that  passing  the  bill  could                                                                    
create financial  exposure that could cause  rating agencies                                                                    
to  negatively respond  when  reviewing  the state's  credit                                                                    
rating  for future  bonds. She  pointed to  existing statute                                                                    
that  currently  allowed KABATA  to  create  a reserve  fund                                                                    
without   committing    the   legislature    to   continuous                                                                    
appropriations for  the life of  the project. She  urged the                                                                    
committee  to   delete  Sections   4,  5,   and  7   of  the                                                                    
2:23:39 PM                                                                                                                    
Representative Kawasaki  noted that the letter  mentioned by                                                                    
Ms.  DiPietro did  not  appear to  be  included in  members'                                                                    
packets.  Ms. DiPietro  believed  the  information had  been                                                                    
provided to committee members, but  could follow up with the                                                                    
Co-Chair  Stoltze  noted  that  the [DOR]  letter  would  be                                                                    
provided to the committee.                                                                                                      
2:24:19 PM                                                                                                                    
AVES   THOMPSON,   EXECUTIVE   DIRECTOR,   ALASKA   TRUCKING                                                                    
ASSOCIATION,  ANCHORAGE (via  teleconference), testified  in                                                                    
support  of the  legislation on  behalf of  the association.                                                                    
The organization believed the  bridge would provide a needed                                                                    
link  to  the  Mat-Su  area,  that  it  would  establish  an                                                                    
efficient freight corridor to  Interior and northern Alaska,                                                                    
and would offer a new route  to the Port of Anchorage, which                                                                    
would  alleviate   truck  traffic  in   downtown  Anchorage.                                                                    
Additionally, the  association hoped that the  project would                                                                    
provide congestion relief on the Glenn and Parks Highways.                                                                      
Co-Chair Stoltze asked  Mr. Thompson if he liked  both SB 23                                                                    
and HB 23. Mr. Thompson replied in the affirmative.                                                                             
2:26:26 PM                                                                                                                    
PAUL  GROSSI, LOBBYIST,  IRON WORKERS  OF  ALASKA, spoke  in                                                                    
support of  the legislation.  The organization  believed the                                                                    
bill would provide  jobs for Alaskans and  would establish a                                                                    
corridor  towards  development  that would  increase  future                                                                    
jobs.  Additionally, the  organization believed  the project                                                                    
was vital for  [highway] safety. He told  an anecdotal story                                                                    
related to the highway;  the organization's manager had been                                                                    
stuck  on the  highway as  a result  of a  closure due  to a                                                                    
police  chase for  over 8  hours. He  urged the  committee's                                                                    
support for the bill.                                                                                                           
Co-Chair Stoltze recalled the specific highway closure.                                                                         
2:29:00 PM                                                                                                                    
TOM BRICE,  ALASKA DISTRICT COUNCIL OF  LABORERS, ANCHORAGE,                                                                    
testified in  support of  the legislation  on behalf  of the                                                                    
council. He  cited safety concerns, the  need for additional                                                                    
access,   and   the   opportunity   for   further   economic                                                                    
development as reasons for the council's support.                                                                               
Representative  Gara  asked  for  verification  that  safety                                                                    
concerns on  Knik Goose  Bay Road and  other areas  could be                                                                    
alleviated  by  widening  roads.   Mr.  Brice  replied  that                                                                    
laborers generally  appreciated expanding  access throughout                                                                    
Alaska including Lynn Canal Highway and Knik Arm.                                                                               
Co-Chair  Stoltze remarked  that a  right-of-way acquisition                                                                    
related  to the  Palmer  Wasilla Highway  corridor had  been                                                                    
estimated to cost over $150 million.                                                                                            
2:31:31 PM                                                                                                                    
BOB FRENCH,  SELF, ANCHORAGE (via teleconference),  spoke in                                                                    
opposition  to  the  legislation.  He  stated  that  it  was                                                                    
important to keep in mind  that the bill related to KABATA's                                                                    
current   financial  plan   that  would   require  a   moral                                                                    
obligation of  the state. He stated  that the lack of  a low                                                                    
interest   federal   TIFIA  [Transportation   Infrastructure                                                                    
Finance  and Innovation  Act] loan  would  result in  higher                                                                    
financing costs.  He stated  that the  key missing  piece of                                                                    
information  was  how  the  factors   and  the  accuracy  of                                                                    
KABATA's  toll  revenue  predictions would  result  in  some                                                                    
unknown cost  to the state.  He remarked that  a legislative                                                                    
audit  intended to  provide guidance  on the  issue had  not                                                                    
been released  to the  public. He referred  to a  DOR letter                                                                    
addressed   to  Senator   Joe   Thomas   stating  that   the                                                                    
authorization  used in  the  legislation  should be  further                                                                    
defined  to eliminate  the  ability of  a  private party  to                                                                    
securitize  the monetary  obligations  of  KABATA. He  noted                                                                    
that DOR had  come out with a Request for  Proposal (RFP) in                                                                    
January that was supposed to:                                                                                                   
     ...review,  verify, and  confirm recommended  financing                                                                    
     structures for  the state's  participation in  the Knik                                                                    
     Arm   crossing.  The   selected   consultant  will   be                                                                    
     providing  assistance  to   the  state  in  comparative                                                                    
     financial analysis of certain  aspects of the project's                                                                    
     financing proposals.  It will  advise on the  impact of                                                                    
     the state finances by participating  in the project and                                                                    
     advise on  the most advantageous terms  for the state's                                                                    
Mr.  French  stated  that unfortunately  there  had  been  a                                                                    
protest  of the  bid  award, which  meant  that the  finance                                                                    
committee would  not receive the information  unless the RFP                                                                    
was   reissued.  He   recommended   waiting   to  hear   the                                                                    
legislation until  KABATA had submitted a  current financial                                                                    
plan and independent, expert reviews were available.                                                                            
2:34:37 PM                                                                                                                    
Representative  Gara asked  why the  current financial  plan                                                                    
was  different than  the prior  plan.  Mr. French  responded                                                                    
that  the  current plan  relied  on  $500 million  in  TIFIA                                                                    
financing,  which represented  roughly half  of the  project                                                                    
financing.  He continued  that when  KABATA had  been denied                                                                    
the federal funding  the prior year, the  authority had been                                                                    
told that  if any federal  money was provided that  it would                                                                    
be  no more  than  33  percent of  the  project's costs.  He                                                                    
furthered  that  as  a  result, at  least  $200  million  in                                                                    
funding  would   be  missing.  He  stated   that  any  other                                                                    
financing  option  for  the $200  million  would  result  in                                                                    
higher costs.  He communicated that KABATA  had testified in                                                                    
prior meetings that  the reserve fund could  exceed the $150                                                                    
million by $100 million or  more due to the higher financing                                                                    
costs.  He believed  the cost  could  be approximately  $2.6                                                                    
billion more.                                                                                                                   
2:36:15 PM                                                                                                                    
LOIS EPSTEIN,  SELF, ANCHORAGE,  testified in  opposition to                                                                    
the  legislation.  She stated  that  the  proposed Knik  Arm                                                                    
bridge  was  not  ready  for  construction  and  was  not  a                                                                    
financially sound investment  using the so-called innovative                                                                    
financing mechanism. She relayed  that it was not reasonable                                                                    
to  assume   that  the  bridge   would  improve   safety  on                                                                    
Southcentral  roads; there  were many  ways to  improve road                                                                    
safety and  building an additional  road was not one  of the                                                                    
strongest solutions. She stated  that the bridge's financial                                                                    
plan  showed  KABATA  receiving   a  $500  million  low-cost                                                                    
federal  loan; however,  it had  not been  approved for  the                                                                    
loan during  its five prior attempts.  She communicated that                                                                    
the  proposed toll  was among  the highest  in the  country;                                                                    
therefore,  many drivers  would likely  take the  free Glenn                                                                    
Highway  alternative.  She   furthered  that  KABATA's  toll                                                                    
revenue forecasts were based  on its consultant's projection                                                                    
of  Mat-Su population  growth, which  was  far greater  than                                                                    
projections  from other  sources including  DOR and  the UAA                                                                    
Institute of Social and Economic Research.                                                                                      
Ms. Epstein  continued that  its bridge  revenue projections                                                                    
were inconsistent  with all  other experts  including AMATS.                                                                    
She noted  that KABATA's  consultant put most  future growth                                                                    
in  the   western  region  of   the  borough,  not   in  the                                                                    
Wasilla/Palmer areas  where most  experts believed  the most                                                                    
growth would  occur. She was  disappointed that  the state's                                                                    
plan to conduct an independent  audit of bridge toll revenue                                                                    
was  recently canceled.  She relayed  that any  needed Glenn                                                                    
Highway  expansion could  be  toll-funded including  levying                                                                    
tolls only  at peak  times in order  to spread  out traffic;                                                                    
electronic tolling  could be used,  which would  prevent the                                                                    
need for drivers to slow down.                                                                                                  
Ms. Epstein  pointed to a  project cost of $2.6  billion and                                                                    
noted there  were substantial  costs to  the state  that had                                                                    
been unaccounted for by KABATA.  She urged committee members                                                                    
to spend  time analyzing the  project to ascertain  how much                                                                    
the project  would cost  the state on  an annual  basis. She                                                                    
stressed  that inaccurate  traffic projections  had resulted                                                                    
in  an  annual subsidy  of  more  than  $2 million  for  the                                                                    
Whittier  tunnel, which  was a  much  smaller toll  project;                                                                    
traffic had  peaked in 2007.  She emphasized that  a subsidy                                                                    
could reach $4  million per month. She  accentuated that the                                                                    
bridge was  not a wise fiscally  conservative investment and                                                                    
that    it   would    harm   the    state's   transportation                                                                    
infrastructure  as  a whole  by  syphoning  away money  that                                                                    
would  otherwise be  spent on  maintenance  and upgrades  to                                                                    
existing roads and bridges.                                                                                                     
2:39:52 PM                                                                                                                    
JAMES  KENWORTHY,  SELF,   ANCHORAGE  (via  teleconference),                                                                    
testified  in  opposition  to the  bill.  He  addressed  the                                                                    
state's liability  in the project  and pointed to  Section 5                                                                    
of the  bill. He relayed that  the state would have  a moral                                                                    
obligation  and  KABATA  would  annually  certify  how  much                                                                    
working capital it needed the  legislature to appropriate to                                                                    
the  reserve  fund;  the  state's  credit  rating  would  be                                                                    
adversely impacted  if the  legislature did  not appropriate                                                                    
the money.  He expected that the  contingent liability would                                                                    
cut  the state's  credit rating  if  the bill  passed and  a                                                                    
contract was signed in the  fall. He recommended obtaining a                                                                    
DOR  opinion  in  writing  related  to  the  effect  of  the                                                                    
provision  on  the  state's   credit  rating.  He  suggested                                                                    
looking  to other  reserve  fund  legislation that  included                                                                    
language specifying  that it did  not include  an obligation                                                                    
of the  state. He  emphasized that HB  23 included  the most                                                                    
open-ended blank  check of all  reserve funds  considered by                                                                    
the state.                                                                                                                      
Mr. Kenworthy addressed the size  of the cost related to the                                                                    
project.  He  referenced a  memorandum  he  had provided  to                                                                    
committee members (dated March 27,  2013, copy on file) that                                                                    
documented a minimum cost of  $2.6 billion. He stressed that                                                                    
Wilbur Smith (the  traffic consultant used by  KABATA) had a                                                                    
record  on all  of its  national projects  of overestimating                                                                    
toll revenue by 118 percent;  two projects in South Carolina                                                                    
and  California had  gone bankrupt  and  others were  having                                                                    
their finances  restructured. He  believed the  $600 million                                                                    
extra to finance the bridge  through a private party made no                                                                    
sense; KABATA's August 2012 financial  sheet showed that the                                                                    
private  partner would  put  in $72  million  in equity  and                                                                    
would take  out $737  million in cash  flow. He  stated that                                                                    
the  difference between  the State  of  Alaska (which  could                                                                    
borrow long  at less than  4 percent) and  KABATA's estimate                                                                    
(that they  would finance  at a  12 percent  annual payment)                                                                    
was $600 million sent outside the state.                                                                                        
Mr. Kenworthy  continued that KABATA  had 17,000  fewer jobs                                                                    
than the Mat-Su Borough's  current forecast. He relayed that                                                                    
KABATA's  forecasts assumed  over  4  people per  household,                                                                    
while the  actual number  had been between  2.6 and  2.8. He                                                                    
stated that  KABATA's projection of 36,000  bridge trips per                                                                    
day  in 2035  was  a result  of  inflated numbers  including                                                                    
larger  families and  more people.  He  noted that  KABATA's                                                                    
number  was  twice  the amount  projected  by  CH2MHill.  He                                                                    
concluded that the  tolls would be off by a  factor of 2. He                                                                    
believed the  legislature should  wait to review  the audit;                                                                    
KABATA had a copy and comments were due on April 4, 2013.                                                                       
Mr. Kenworthy spoke to how  the project's liability compared                                                                    
to other  projects under consideration including  a dam, the                                                                    
pipeline,  and other.  He cautioned  that the  credit rating                                                                    
hit  would raise  the  price of  other  projects before  the                                                                    
upcoming   year.    He   estimated   that    deficits   were                                                                    
approximately  $55 million  per  year until  2035 and  would                                                                    
increase to $90 million per  year due to substantial balloon                                                                    
payments included  in the availability payment.  He stressed                                                                    
that the deficits were more  than the state was providing to                                                                    
AMATS  in  Anchorage or  to  Mat-Su;  therefore, the  bridge                                                                    
deficits would be  more than the state aid.  He wondered how                                                                    
the  issue would  be sorted  out.  He wondered  if the  cost                                                                    
would be  put on  the state debt  service for  allocation to                                                                    
pay  $3,500   over  a  35-year   period.  He   stressed  the                                                                    
importance  of obtaining  financial  plan if  the state  was                                                                    
considering financial guarantee. He  relayed that the August                                                                    
2012  plan contained  four  lanes of  revenue  and only  two                                                                    
lanes of cost. He  believed the Legislative Finance Division                                                                    
should  review the  information  or  the legislature  should                                                                    
wait for  the release of  a recent audit. He  emphasized the                                                                    
need for a financial plan that  did not factor in TIFIA as a                                                                    
loan source and  that only included traffic  from four lanes                                                                    
of  revenue  when  the  cost  of  a  four  lane  bridge  was                                                                    
included. He stated that showing  four lanes of traffic on a                                                                    
two lane bridge equated to an extra $1.9 billion.                                                                               
Mr. Kenworthy concluded that the  plan should be for a 9,200                                                                    
foot bridge;  estimates in  2007 had  been conducted  for an                                                                    
8,200  foot  bridge.  He discussed  a  settlement  with  the                                                                    
Municipality of Anchorage  that would add costs  to the east                                                                    
approach road. He  relayed that KABATA had  not followed its                                                                    
geotechnical  consultant's advice  to conduct  more drilling                                                                    
on the  east side of the  inlet; there was clay  in the area                                                                    
and it was not known how deep the pilings would need to be.                                                                     
2:46:16 PM                                                                                                                    
Representative Gara was concerned  about the potential state                                                                    
liability  related   to  toll   revenue  and  the   cost  of                                                                    
construction  and operation.  He wondered  if Mr.  Kenworthy                                                                    
had an estimate and asked about his qualifications.                                                                             
Mr.  Kenworthy  replied  that  KABATA's  estimate  for  toll                                                                    
revenue was  $4.2 billion over  35 years. He pointed  to his                                                                    
memo and  relayed that the  figures had been  volatile since                                                                    
2007; the projection had been as  high as $6 billion; it was                                                                    
$4.8 billion  in 2011.  He stated  that all  other estimates                                                                    
were half of  the estimate. The second issue  related to the                                                                    
four  lane/two  lane  financial calculations.  He  explained                                                                    
that  it  was necessary  to  get  the  balance sheets  to  a                                                                    
minimum bond-cover  ratio of  approximately 1.3  (i.e. $1.20                                                                    
to  $1.40  of revenue  to  cover  $1.00 of  cost);  KABATA's                                                                    
traffic studies showed over 22,000  trips per day. He stated                                                                    
the number  was much  higher than  capacity on  a restricted                                                                    
highway by 2026; there were  four lanes of traffic with only                                                                    
two lanes paid for through 2051.                                                                                                
Representative  Gara asked  for an  estimate of  the state's                                                                    
moral obligation.  Mr. Kenworthy estimated the  figure to be                                                                    
$2.6 billion, which  he had provided in a  paper titled "The                                                                    
Real  Cost of  the  Knik  Arm Bridge."  He  pointed to  $2.1                                                                    
billion in KABATA's  projected toll revenue that  he did not                                                                    
believe  would  come to  fruition.  He  reiterated an  issue                                                                    
related  to  the  projection  for a  four  lane  bridge.  He                                                                    
addressed the  lack of a  TIFIA loan that had  been included                                                                    
in KABATA's financial plan. He  stated that TIFIA loans were                                                                    
currently  3.2  percent;  however,  private  market  revenue                                                                    
bonds were  approximately 7 percent. He  believed the bottom                                                                    
line did  not relate to the  traffic or the TIFIA  loan, but                                                                    
to the  fact that  the bill would  provide a  complete state                                                                    
guarantee to  pay whatever KABATA communicates  is necessary                                                                    
to fund the availability  payments under a 35-year contract.                                                                    
He  emphasized  that  the  cost of  the  contract  with  the                                                                    
consortium  was not  known; the  current  estimate was  $2.7                                                                    
billion and  previous estimates  on KABATA's  balance sheets                                                                    
had been  up to $4  billion. He  added that the  state would                                                                    
suffer  a  credit  downgrade  if  it did  not  make  up  the                                                                    
difference to the availability payments.                                                                                        
2:51:11 PM                                                                                                                    
DARCY   SOLOMON,  MEMBER,   MAT-SU  BOROUGH   ASSEMBLY  (via                                                                    
teleconference),  spoke in  support of  the legislation.  He                                                                    
believed   that  testimony   against   the  bill   contained                                                                    
fallacies. He had  been one of the  original KABATA members.                                                                    
He   discussed  vision   that  had   been  responsible   for                                                                    
developing  infrastructure  in  the  United  States  and  in                                                                    
Alaska.  He  recalled  the vision  to  create  a  360-degree                                                                    
intermodal  transportation  corridor  that would  bring  the                                                                    
economies  of Anchorage  and Mat-Su  together; the  plan had                                                                    
begun  with  Port MacKenzie.  He  stated  that there  was  a                                                                    
three-legged stool including the port,  the rail spur to the                                                                    
Interior, and the Knik Arm  Bridge. He believed that numbers                                                                    
presented by opposition did not  take into consideration the                                                                    
value of  what the vision  brought to Alaskan  residents. He                                                                    
emphasized that the people  of Alaska overwhelmingly favored                                                                    
the  bridge. He  discussed that  former Senator  Ted Stevens                                                                    
had stated that the bridge  could be built if Port MacKenzie                                                                    
was   constructed.   He   addressed   transporting   natural                                                                    
resources from the Interior and  bringing the workforce over                                                                    
from  Anchorage. He  pointed to  a 1,500  bed prison  in the                                                                    
area that  was one-third full and  employed 400 individuals.                                                                    
He stressed  that it was  necessary to focus on  the benefit                                                                    
that the  vision would bring  and not  the cost. He  did not                                                                    
believe  prior  testifiers  had been  in  support  of  other                                                                    
infrastructure projects  including the rail spur.  He opined                                                                    
that the  bridge would be  explosive and worthy  for Mat-Su,                                                                    
Anchorage, and  the North Star  Borough. He  emphasized that                                                                    
the project  would benefit the  state. He stressed  that the                                                                    
project was one  of the Mat-Su Borough's  top priorities. He                                                                    
believed  the   project  would  move  the   economy  forward                                                                    
2:56:36 PM                                                                                                                    
Co-Chair Stoltze CLOSED public testimony.                                                                                       
Representative Gara noted  he had a question  related to the                                                                    
moral   obligation.   Co-Chair  Stoltze   communicated   his                                                                    
preference to have the discussion when there was more time.                                                                     
Vice-Chair  Neuman stated  that  none of  the testifiers  in                                                                    
opposition to the bill were  experts in traffic analysis. He                                                                    
read  from  a DOR  letter  written  by Commissioner  Butcher                                                                    
dated March 30, 2011 (copy on file):                                                                                            
     Finally, you  asked about by confidence  in the revenue                                                                    
     projections and  financial analysis provided  by KABATA                                                                    
     in its  March 1  TIFIA letter  of interest.  KABATA has                                                                    
     retained CITI,  one of the largest  and most successful                                                                    
     financial services  firms in  the world,  especially as                                                                    
     it  relates to  government financing  of infrastructure                                                                    
     projects,  to  develop  its  financial  models.  KABATA                                                                    
     retained Wilbur Smith, a firm  that has advised on many                                                                    
     successful projects to do its  traffic and toll models.                                                                    
     I  am  confident  that   the  revenue  projections  and                                                                    
     financial  analysis  are  objective  and  done  to  the                                                                    
     highest of professional standards.  This is the type of                                                                    
     work  that will  be  accepted and  relied  upon by  the                                                                    
     institutional  investors  that  may  be  interested  in                                                                    
     financing this project.                                                                                                    
Vice-Chair Neuman expressed  emotion over misstatements that                                                                    
he believed  had been made.  He discussed  current financial                                                                    
restraints  and  the  search  for  ways  to  supplement  and                                                                    
diversify revenue.  He stressed that the  bridge development                                                                    
would   provide  over   $1  billion   in  private   industry                                                                    
investment and  1,500 jobs for  the state. He  remarked that                                                                    
the state was close to $1  billion in deficit and pointed to                                                                    
the increased number  of people on food  stamps. He stressed                                                                    
that the number  would continue to increase.  He believed it                                                                    
was important  to do everything  the state could  to partner                                                                    
with private  industry to create  jobs. He  mentioned safety                                                                    
Co-Chair Stoltze noted that the  date on the DOR letter from                                                                    
Commissioner Butcher  should be changed from  March 30, 2010                                                                    
to March 30, 2011.                                                                                                              
3:01:09 PM                                                                                                                    
Vice-Chair  Neuman noted  that  the bill  moved the  project                                                                    
forward to  a final  design and contractual  agreements that                                                                    
would   be  reviewed   by   the   Departments  of   Revenue,                                                                    
Transportation, and  Law. He stated that  road projects were                                                                    
not  typically  brought  back  before  the  legislature  for                                                                    
approval;  he   believed  that  doing   so  would   be  time                                                                    
consuming.  He  noted  that  the   bill  allowed  the  chief                                                                    
executive under  the Department  of Law  to ensure  that the                                                                    
state's interests were protected.                                                                                               
Co-Chair Stoltze stated that the  bill would be revisited in                                                                    
the near future.                                                                                                                
HB  23  was   HEARD  and  HELD  in   committee  for  further                                                                    
3:02:41 PM                                                                                                                    
AT EASE                                                                                                                         
3:22:06 PM                                                                                                                    
HOUSE BILL NO. 4                                                                                                              
     "An  Act relating  to  the  Alaska Gasline  Development                                                                    
     Corporation;  making  the  Alaska  Gasline  Development                                                                    
     Corporation,  a   subsidiary  of  the   Alaska  Housing                                                                    
     Finance Corporation, an  independent public corporation                                                                    
     of  the state;  establishing  and relating  to the  in-                                                                    
     state  natural   gas  pipeline  fund;   making  certain                                                                    
     information  provided  to  or  by  the  Alaska  Gasline                                                                    
     Development  Corporation exempt  from  inspection as  a                                                                    
     public record;  relating to the Joint  In-State Gasline                                                                    
     Development  Team;  relating   to  the  Alaska  Housing                                                                    
     Finance Corporation;  relating to judicial review  of a                                                                    
     right-of-way lease or an action  or decision related to                                                                    
     the  development  or  construction  of an  oil  or  gas                                                                    
     pipeline  on state  land; relating  to the  lease of  a                                                                    
     right-of-way   for   a  gas   pipeline   transportation                                                                    
     corridor,  including  a  corridor  for  a  natural  gas                                                                    
     pipeline that  is a contract  carrier; relating  to the                                                                    
     cost   of  natural   resources,  permits,   and  leases                                                                    
     provided    to   the    Alaska   Gasline    Development                                                                    
     Corporation;  relating  to  procurement by  the  Alaska                                                                    
     Gasline  Development   Corporation;  relating   to  the                                                                    
     review  by  the  Regulatory  Commission  of  Alaska  of                                                                    
     natural gas  transportation contracts; relating  to the                                                                    
     regulation by  the Regulatory  Commission of  Alaska of                                                                    
     an in-state  natural gas pipeline project  developed by                                                                    
     the  Alaska Gasline  Development Corporation;  relating                                                                    
     to  the  regulation  by the  Regulatory  Commission  of                                                                    
     Alaska  of  an  in-state   natural  gas  pipeline  that                                                                    
     provides transportation by  contract carriage; relating                                                                    
     to  the  Alaska   Natural  Gas  Development  Authority;                                                                    
     relating to the procurement  of certain services by the                                                                    
     Alaska  Natural  Gas Development  Authority;  exempting                                                                    
     property of  a project developed by  the Alaska Gasline                                                                    
     Development Corporation from  property taxes before the                                                                    
     commencement  of commercial  operations; and  providing                                                                    
     for an effective date."                                                                                                    
3:22:43 PM                                                                                                                    
Representative   Costello  MOVED   to  ADOPT   the  proposed                                                                    
Committee  Substitute  for  HB 4,  Work  Draft  28-LS0021\R,                                                                    
(Bullock, 3/27/13).                                                                                                             
Co-Chair Stoltze OBJECTED for discussion.                                                                                       
JOE  MICHEL, STAFF,  REPRESENTATIVE BILL  STOLTZE, addressed                                                                    
the changes in the CS. He turned to page 4, line 21.                                                                            
Vice-Chair Neuman asked for a copy of the changes.                                                                              
Mr. Michel agreed.  He began on page 4, line  21 and relayed                                                                    
that the CS  changed the governing body from 5  members to 5                                                                    
public members and 2  department commissioners designated by                                                                    
the governor.  Line 24  had been  changed from  "members" to                                                                    
"public members." Board terms had  been changed from 7 years                                                                    
to  5 years  (line  30). Additionally,  board members  would                                                                    
serve  at the  pleasure  of the  governor  instead of  being                                                                    
removed for cause.                                                                                                              
3:25:24 PM                                                                                                                    
Mr.  Michel   relayed  that  because  the   board  had  been                                                                    
increased to  7 members language  had been increased  from a                                                                    
vote  of 3  members up  to 4  members who  were required  to                                                                    
approve the  sale and issuance  of bonds (page 5,  line 27).                                                                    
Language on  page 6, lines 25  and 26 had been  changed from                                                                    
"the  corporation   shall  retain   an  attorney"   to  "the                                                                    
corporation  shall retain  legal  counsel";  the change  had                                                                    
been made  to allow the  corporation to  hire a law  firm or                                                                    
more than  one attorney.  Additionally, the term  "suit" had                                                                    
been changed to  "litigation" on line 26. He  turned to page                                                                    
9, line 26 where the term  "shall" had been changed to "may"                                                                    
in   the   sentence:   "...the  corporation   may   finance,                                                                    
construct,   or  operate   the  natural   gas  pipeline   as                                                                    
necessary." He pointed to the  concern that the term "shall"                                                                    
was  overly  prescriptive  and would  not  give  the  Alaska                                                                    
Gasline   Development  Corporation   (AGDC)   a  choice   in                                                                    
development   decisions  (e.g.   to   determine  whether   a                                                                    
community even wanted a pipeline).                                                                                              
Mr.  Michel moved  to  page 10,  lines 4  and  5. The  words                                                                    
"fees, rental  rates, and other  charges" had  been inserted                                                                    
for clarity  per a Department  of Law  (DOL) recommendation.                                                                    
He pointed  to page 11, lines  17 and 19 and  explained that                                                                    
the  bill maintained  language  that  Department of  Natural                                                                    
Resources shall  grant a right-of-way  lease if  AGDC agreed                                                                    
to the contract carrier covenants  in AS 38.35.121 and added                                                                    
common carrier  covenants in AS 38.35.120.  He detailed that                                                                    
AGDC wanted the  flexibility to elect or  provide service as                                                                    
a common or contract carrier  for future pipelines. The word                                                                    
"containing"  had  been  inserted   in  the  sentence:  "The                                                                    
portions  of  records  containing  information..."(Page  12,                                                                    
line 5).  The statute on  page 12,  line 6 had  been changed                                                                    
from  AS 40.25.110  to AS  45.25 to  exempt the  corporation                                                                    
from  the  Public Records  Act  (the  previous language  had                                                                    
exempted the  corporation from  a portion  of the  act). The                                                                    
language   "if   disclosed,   could  cause   commercial   or                                                                    
competitive harm"  were inserted  on page  12, line  19. The                                                                    
words  "except for  information that  is confidential  under                                                                    
another provision  of state  law or under  a federal  law or                                                                    
regulation" were  inserted on page  12, lines 21 and  22. He                                                                    
noted that  minor conforming  changes to  AS 40.25  had been                                                                    
3:30:23 PM                                                                                                                    
Mr.  Michel communicated  that  the  language "upon  request                                                                    
under AS 40.25" had been inserted on page 12, line 27.                                                                          
Representative  Gara asked  for  clarification  on the  page                                                                    
number being discussed.                                                                                                         
Mr.  Michel  replied that  he  was  addressing page  12.  He                                                                    
reiterated that  the language "upon request  under AS 40.25"                                                                    
had been  inserted on page  12, line 27. The  words "another                                                                    
provision of  state law, a  federal law or  regulation" were                                                                    
inserted following  language "disclosure of  the information                                                                    
will violate" on  page 13, lines 1 and 2.  The language "the                                                                    
corporation   shall  determine   fund  management   and  may                                                                    
contract   with  the   Department   of   Revenue  for   fund                                                                    
management"  was inserted  on page  13, lines  6 and  7; the                                                                    
language provided AGDC the option  for DOR or another entity                                                                    
to manage the funds. The  language "for the cost of managing                                                                    
the fund"  was inserted  on page  13, lines  11 and  12; the                                                                    
addition provided  that the fund management  cost would come                                                                    
out of the fund.                                                                                                                
3:32:14 PM                                                                                                                    
Mr. Michel turned to page 15,  lines 13 and 14, which placed                                                                    
AGDC  under   the  Executive  Budget  Act   related  to  its                                                                    
operating  budget  and  the corporation's  subsidiaries.  He                                                                    
detailed that  the organization's ability to  bond and other                                                                    
similar items  were not subject  to the act. A  section from                                                                    
the prior bill  under Article 2 had been  removed related to                                                                    
federal   taxation  of   interest   on  bonds   per  a   DOR                                                                    
recommendation.  The department  believed  the state  should                                                                    
not provide  investors with  reason to  think the  state may                                                                    
step  in and  repay  the debt  in the  event  that debt  was                                                                    
declared  taxable; especially  in light  of current  federal                                                                    
discussions   related    to   eliminating    municipal   tax                                                                    
exemptions. He  relayed that the  word "private",  which had                                                                    
fallen  in  between the  words  "the"  and "sale"  had  been                                                                    
removed.  He expounded  that DOL  had recommended  that AGDC                                                                    
should have  the ability to retain  an independent financial                                                                    
advisor with any bond sale.                                                                                                     
Mr. Michel moved to page 20  and explained that the bill did                                                                    
not  include  the term  "moral  obligation,"  but the  moral                                                                    
obligation  was  derived  by  the  formation  of  a  capital                                                                    
reserve fund. He read new language on lines 7 through 13:                                                                       
     The  corporation may  not establish  a capital  reserve                                                                    
     fund as  described in this section  except as expressly                                                                    
     authorized by  law. The enactment of  this section does                                                                    
     not  express that  authorization. Upon  enactment of  a                                                                    
     law  expressly  authorizing   the  establishment  of  a                                                                    
     capital reserve fund described in  this section and for                                                                    
     the  purpose of  securing  one or  more  issues of  its                                                                    
     obligations, the corporation may  establish one or more                                                                    
     special  funds,  called  "capital reserve  funds,"  and                                                                    
     shall pay into those capital reserve funds.                                                                                
Mr.  Michel  expounded that  the  language  provided that  a                                                                    
capital reserve fund  would not be created  until AGDC asked                                                                    
for permission  from the legislature.  A drafting  error had                                                                    
been corrected on  page 21, line 27 where the  word "of" was                                                                    
removed from  the language "under  of this chapter"  to read                                                                    
"under this  chapter." On page  24, line 22 the  language "a                                                                    
comparison of  the corporation's performance with  the goals                                                                    
of  the   corporation,"  was  removed  following   the  word                                                                    
3:36:51 PM                                                                                                                    
Representative Munoz  asked for the  change on page  24. Mr.                                                                    
Michel replied that language had  been removed from lines 21                                                                    
and 22.  He noted that  a copy of  all the changes  would be                                                                    
provided to committee members.                                                                                                  
Mr.  Michel  moved to  page  38  related to  the  Regulatory                                                                    
Commission of Alaska (RCA). The  language on lines 8 through                                                                    
11  had previously  stated that  the  RCA could  investigate                                                                    
disputes related  to a pipeline's open  season; the language                                                                    
had been changed to read:                                                                                                       
     ...to resolve the dispute, the  commission may order an                                                                    
     expansion of an in-state  natural gas pipeline or order                                                                    
     an  open  season  under  the   terms  provided  for  an                                                                    
     expansion  or  open  season  in   this  chapter  or  AS                                                                    
     38.35.121(a)(4) and (c).                                                                                                   
Mr.  Michel addressed  page  39,  lines 5  and  6 that  read                                                                    
"order an expansion  of an in-state natural  gas pipeline or                                                                    
order  an  open  season  under the  terms  provided  for  an                                                                    
expansion  or open  season in  this  chapter." Language  had                                                                    
been   inserted  on   lines   7  through   17   per  a   DOL                                                                    
recommendation, which  allowed the  RCA to  extend timelines                                                                    
up to 90 days with consent  of all parties for one-time only                                                                    
for  good cause  and written  order; the  provision did  not                                                                    
apply to a precedent agreement  filed before the issuance of                                                                    
a  certificate,  consideration  of   an  application  for  a                                                                    
contract  carriage   certificate  or  an   initial  recourse                                                                    
tariff. He  moved to page 41,  line 20 where the  words "but                                                                    
not before an initial recourse  tariff is approved" had been                                                                    
inserted. He  elaborated that the  language made  the intent                                                                    
explicit that a pipeline would  need an RCA approved initial                                                                    
recourse  tariff prior  to entering  into a  presubscription                                                                    
agreement with shippers.                                                                                                        
3:39:55 PM                                                                                                                    
Mr. Michel moved to page 42,  line 6 where the words "do not                                                                    
include"  had been  inserted per  a  DOL recommendation.  On                                                                    
lines  11  and  12  the   words  "and  of  uncommitted  firm                                                                    
transportation  capacity"   had  been  inserted.   The  word                                                                    
"service" was inserted to  read "firm transportation service                                                                    
agreement"  on page  43,  line 5.  The  word "approved"  was                                                                    
inserted on  page 43, lines  8 and 9  in front of  the words                                                                    
"recourse  tariff." Additionally,  the  word "approved"  had                                                                    
been inserted  in front of  the words  "precedent agreement"                                                                    
on line 14.                                                                                                                     
Co-Chair  Stoltze  remarked  on how  the  amendment  process                                                                    
would be addressed.                                                                                                             
3:42:39 PM                                                                                                                    
Mr. Michel  turned to  page 44,  lines 20  and 21  where the                                                                    
language  "that  the proposed  service  is  not required  by                                                                    
public convenience  and necessity" was added.  He elaborated                                                                    
that  the language  clarified that  an applicant  other than                                                                    
AGDC was fit, willing, and able  and that the service was in                                                                    
the public convenience and necessity.                                                                                           
Representative Gara asked Mr. Michel to repeat the change.                                                                      
Mr. Michel repeated the change to  page 44, lines 20 and 21.                                                                    
He directed attention  to page 46 lines 15 and  22 where the                                                                    
number "90" had  replaced the number "30" to  read "at least                                                                    
90 days."  The words  "depreciable life" replaced  the words                                                                    
"economic life"  on page  47, line 1.  Section (c)  had been                                                                    
inserted on page 47, lines 5 through 14.                                                                                        
Co-Chair Stoltze  asked for clarification  on the  change to                                                                    
page  47, line  1. He  believed  the change  should be  from                                                                    
"depreciation  life"  to   "depreciable  life."  Mr.  Michel                                                                    
Representative Gara  asked if everything in  Section (c) had                                                                    
been  added  on  page  47.   Mr.  Michel  responded  in  the                                                                    
Mr. Michel  pointed to  page 47 line  17 where  the language                                                                    
"or violates  a provision of  this chapter" had  been added.                                                                    
On page  47, line 19  the language  had been changed  from a                                                                    
30-day notice period to read  "90-day notice period, and the                                                                    
period of suspension."                                                                                                          
Co-Chair Stoltze  noted that the  issue would  be thoroughly                                                                    
discussed by the committee.                                                                                                     
Mr. Michel continued  on page 47, lines 24 and  25 where the                                                                    
clarifying language  "after construction or an  expansion of                                                                    
the pipeline,  and at any  time that  a carrier files  for a                                                                    
revised  recourse rate"  had been  added. Language  had been                                                                    
inserted on page 48, lines  5 through 7 reading "except that                                                                    
the depreciable life may be  adjusted in accordance with the                                                                    
time period between the approval  of the recourse tariff and                                                                    
the approval  of the revised  recourse tariff." He  moved to                                                                    
page 54, lines  13 and 19. He explained  that originally the                                                                    
bill defined  a pipeline as  a line that  transports natural                                                                    
gas; the language  "or will transport natural  gas" had been                                                                    
added. He  pointed to  page 54, line  21, which  stated that                                                                    
the  definition  of natural  gas  pipeline  had the  meaning                                                                    
given under AS 31.25.390.  He elaborated that previously the                                                                    
definition of a natural gas  pipeline had been moved from AS                                                                    
38.34 to  AS 31.25.390 to  conform to other portions  of the                                                                    
bill. The  language "including a  presubscription agreement"                                                                    
had been added on page 54, lines 22 and 23.                                                                                     
3:48:56 PM                                                                                                                    
Co-Chair  Stoltze  noted  that  the  changes  were  thorough                                                                    
because of  the important  nature of  the bill.  He WITHDREW                                                                    
his OBJECTION to  the CS. There being  NO further OBJECTION,                                                                    
the  workdraft was  ADOPTED. He  asked the  bill sponsor  to                                                                    
provide comment on any concerns related to the CS.                                                                              
REPRESENTATIVE MIKE  HAWKER, SPONSOR, voiced  agreement with                                                                    
most of  the changes. He  believed there were  several areas                                                                    
that would  have counterproductive  consequences and  may be                                                                    
detrimental  to the  progress of  a pipeline.  He asked  his                                                                    
staff to highlight the concerns.                                                                                                
RENA DELBRIDGE, STAFF, REPRESENTATIVE  MIKE HAWKER, spoke to                                                                    
inadvertent consequences the CS  would have for AGDC related                                                                    
to  confidentiality language  and within  the RCA  framework                                                                    
that could  delay timelines  and the  project significantly.                                                                    
She stressed  that a  6-month delay of  the project  cost an                                                                    
additional   $100  million   in   inflation.  She   believed                                                                    
continued discussions  on the items  with DOL could  lead to                                                                    
some resolutions with the committee.                                                                                            
Co-Chair Stoltze believed there were  a couple of policy and                                                                    
technical issues that would require compromise.                                                                                 
Representative  Hawker surmised  that  the issues  primarily                                                                    
related  to  unintended   consequences  rather  than  policy                                                                    
differentials. He did not  believe there were irreconcilable                                                                    
3:53:45 PM                                                                                                                    
Co-Chair  Stoltze pointed  to the  complexity of  the issue.                                                                    
Representative Hawker communicated  willingness to work with                                                                    
the committee.                                                                                                                  
Co-Chair  Stoltze  relayed  that  representatives  from  the                                                                    
administration, the sponsor, and  AGDC would be available to                                                                    
vocalize an agreement on the issue.                                                                                             
Vice-Chair  Neuman wondered  what  would happen  if an  open                                                                    
season was unsuccessful.                                                                                                        
Ms. Delbridge  replied that there was  no explicit provision                                                                    
that  defined  what  would  occur  if  an  open  season  was                                                                    
unsuccessful. She  elaborated that AGDC had  no authority to                                                                    
move  forward  without  a  successful  open  season  because                                                                    
commitments  from shippers  were needed  to fund  a project.                                                                    
She explained that  AGDC would continue to  retain assets if                                                                    
an open  season was unsuccessful; however,  a disposition of                                                                    
assets may  not be  appropriate at the  time given  that the                                                                    
corporation  was designed  to survive  the initial  pipeline                                                                    
and to consider other pipelines.                                                                                                
3:56:35 PM                                                                                                                    
Representative Holmes  believed the state would  have rights                                                                    
to the  assets because of  its ownership of AGDC.  She asked                                                                    
for verification  that the  state could  choose to  take the                                                                    
assets back at any time.                                                                                                        
Ms. Delbridge  answered that she  would obtain  legal advice                                                                    
from AGDC's  legal counsel  and DOL  related to  the assets.                                                                    
She confirmed  that the legislature  would have  the ability                                                                    
to terminate the corporation at any time.                                                                                       
Representative Holmes believed that  any funds that were not                                                                    
subject  to a  moral obligation  could be  reappropriated by                                                                    
the legislature if it chose to do so.                                                                                           
Representative  Hawker   replied  in  the   affirmative.  He                                                                    
elaborated  that the  legislature always  had dominion  over                                                                    
the  corporation; however,  the state  had an  obligation to                                                                    
live up  to any  contractual agreements.  He detailed  if an                                                                    
open season was unsuccessful there  would be no contracts or                                                                    
further obligation; however, the  bill was crafted to create                                                                    
tools that were  not limited by scope  and potential benefit                                                                    
to the state  in the building of one  pipeline. He expounded                                                                    
that  AGDC  was  allowed  to look  at  projects  that  would                                                                    
provide gas to other regions of the state.                                                                                      
3:58:57 PM                                                                                                                    
Representative Gara  asked when  it would be  appropriate to                                                                    
ask questions about the bill  that were unrelated to the CS.                                                                    
Co-Chair   Stoltze  responded   that  there   would  be   an                                                                    
opportunity to discuss the bill at a later time.                                                                                
Representative  Gara  asked when  the  bill  would be  heard                                                                    
again.  Co-Chair  Stoltze replied  that  the  bill would  be                                                                    
heard the following day. He  remarked that he was working to                                                                    
balance the Speaker's  desire for the bill  to move forward,                                                                    
while providing  the appropriate  due diligence  and process                                                                    
in committee.                                                                                                                   
Representative Hawker  offered to  speak with  any committee                                                                    
members to help clarify any questions.                                                                                          
Co-Chair Stoltze noted the importance of due diligence.                                                                         
Representative  Gara  noted   that  Co-Chair  Austerman  and                                                                    
Representative   Edgmon  were   absent.  He   wondered  when                                                                    
amendments  should be  ready. He  opined that  the following                                                                    
Monday  would  be easier.  Co-Chair  Stoltze  hoped to  have                                                                    
amendments  by  the  following   afternoon.  He  noted  that                                                                    
Representative Thompson  would be gone the  following day as                                                                    
well. He believed the issue would be heard on Monday.                                                                           
Representative   Thompson   remarked   that  he   had   made                                                                    
arrangements to be available the following day.                                                                                 
Representative Hawker appreciated the committee's time.                                                                         
HB  4   was  HEARD  and   HELD  in  committee   for  further                                                                    
4:03:57 PM                                                                                                                    
AT EASE                                                                                                                         
4:12:46 PM                                                                                                                    
HOUSE BILL NO. 112                                                                                                            
     "An  Act  repealing  the film  production  tax  credit;                                                                    
     providing  for  an  effective  date  by  repealing  the                                                                    
     effective dates  of secs.  31 - 33,  ch. 51,  SLA 2012;                                                                    
     and providing for an effective date."                                                                                      
4:14:22 PM                                                                                                                    
MIKE   DELVIN,   CEO,   EVERGREEN  FILMS,   ANCHORAGE   (via                                                                    
teleconference),  spoke  in  opposition   to  the  bill.  He                                                                    
communicated that the bill would  cause the company to cease                                                                    
its  projects in  Alaska. He  spoke to  his background;  the                                                                    
company  was  currently in  production  of  its first  major                                                                    
feature film  titled Walking with Dinosaurs  3D, which would                                                                    
be distributed  later in  the year by  20th Century  Fox. He                                                                    
detailed  that the  film had  been  shot in  Alaska and  New                                                                    
Zealand.   He  emphasized   that   the   company  had   made                                                                    
substantial capital  investments in  the state  including in                                                                    
the construction of  a $6 million facility  in Anchorage for                                                                    
the housing of post-production  and screening operations and                                                                    
a high-tech  advanced stage; the investment  did not qualify                                                                    
for the  tax credit, but represented  investment the company                                                                    
was  making  in  Alaska.  He communicated  that  the  global                                                                    
market  was  competitive  for  producers  who  had  to  find                                                                    
locations  that could  provide a  good economic  environment                                                                    
and a  talented labor  pool. He  stressed that  the existing                                                                    
tax credits  were necessary for  Alaska to  compete globally                                                                    
and for  the company to do  business in the state.  He spoke                                                                    
from his perspective  as an Alaska resident  and relayed his                                                                    
preference for doing business locally.                                                                                          
4:17:24 PM                                                                                                                    
PATRICIA  HULL,   ALASKA  FILM   GROUP,  JUNEAU,   spoke  in                                                                    
opposition to the  legislation. She spoke to  the purpose of                                                                    
the group.  She relayed that  films took many years  to plan                                                                    
and  culminated   in  weeks  or  months   of  activity.  She                                                                    
communicated   that  while   a  shoot   may  be   brief,  it                                                                    
represented a boon to communities  where filming took place,                                                                    
infusing millions  of dollars.  She pointed to  letters from                                                                    
small  businesses throughout  the state  that had  benefited                                                                    
from major films; one letter was  written by a "mom and pop"                                                                    
snow  removal  company that  had  expanded  to a  year-round                                                                    
business after  earning money from renting  equipment to the                                                                    
film  industry.  She  stated  that  the  27th  legislature's                                                                    
decision to  extend the credits  by 10 years  was visionary.                                                                    
She stressed that the credits  allowed the industry to begin                                                                    
planning projects in Alaska.                                                                                                    
Ms. Hull stressed  that the rumor that the  credits would be                                                                    
discontinued had  caused a chilling effect.  She stated that                                                                    
films that  should be  coming to the  state were  not; there                                                                    
was a film about the Nome  serum run that would be filmed in                                                                    
Canada. She  believed the legislative audit  brought forward                                                                    
an accurate  assessment of the  strengths and  weaknesses of                                                                    
the  tax incentives.  She accentuated  that the  program had                                                                    
returned  $2.00  for every  $1.00  that  was paid  out.  She                                                                    
stated that  improvements to the  program were  scheduled to                                                                    
go into effect on July  1, 2013 including incentives to hire                                                                    
more Alaskans  and a sliding scale  application process fee.                                                                    
Another change included a content  review; she believed that                                                                    
some  Alaskans  had  been  offended by  the  way  they  were                                                                    
portrayed in a reality television  show and had taken aim at                                                                    
the industry as a whole.  She stated that the content review                                                                    
would ensure that Alaska was  portrayed in a positive light.                                                                    
She emphasized  that the  state was  a unique  and beautiful                                                                    
location  to  make films.  She  pointed  to other  beautiful                                                                    
locations and  the aggressive courting of  the film industry                                                                    
by other  governments. She stated  that Alaska's  44 percent                                                                    
tax  credit was  the most  competitive. She  emphasized that                                                                    
the legislation would sabotage  years of constructive effort                                                                    
and would divert  the potential for hundreds  of millions of                                                                    
dollars  away from  the state.  She noted  that unlike  some                                                                    
forms  of   economic  development   activity,  it   was  not                                                                    
necessary  to   clean  up  after  the   film  industry.  She                                                                    
encouraged  the committee  to retain  the legislature's  10-                                                                    
year commitment to the film incentive program.                                                                                  
4:22:37 PM                                                                                                                    
Representative Wilson  noted that  some of  her constituents                                                                    
had been  upset about the way  they had been portrayed  in a                                                                    
show. She pointed out that  there had been a negative impact                                                                    
for  some individuals  related to  their jobs  and increased                                                                    
regulation  as  a  result. Ms.  Hull  understood  the  issue                                                                    
existed.  She  observed  that the  reality  television  show                                                                    
genre  was notorious  for portraying  people  in a  negative                                                                    
Co-Chair  Stoltze  relayed  that   his  motivation  for  the                                                                    
legislation was financial.                                                                                                      
Ms. Hull stressed the importance  of portraying the state in                                                                    
a positive way.                                                                                                                 
Representative  Wilson  noted  that  her  constituents  were                                                                    
miners and were working to make a living.                                                                                       
Representative  Munoz asked  whether Ms.  Hull believed  the                                                                    
reality  television portion  should  be  retained under  the                                                                    
incentive  program. Ms.  Hull replied  that she  was not  an                                                                    
expert related  to the  specific issue.  She added  that her                                                                    
comments related to the reality  television industry did not                                                                    
reflect the  opinion of  the Alaska  Film Group.  She stated                                                                    
that it  was difficult  to control  content in  the specific                                                                    
type of programming.                                                                                                            
4:25:11 PM                                                                                                                    
CODY    LAWHORN,   SPROCKETHEADS    LLC,   ANCHORAGE    (via                                                                    
teleconference), spoke to his  education in film production.                                                                    
He  stated that  Alaska's  image had  changed subsequent  to                                                                    
2010. He pointed to the  television show The Deadliest Catch                                                                    
and to  Alaska's great potential  for the film  industry. He                                                                    
discussed the Drew Barrymore film  Big Miracle that had been                                                                    
filmed in Alaska.  He had returned to Alaska  from school in                                                                    
2011 to work as an  unpaid production assistant on a Nicolas                                                                    
Cage  film  The  Frozen  Ground;  he  had  received  college                                                                    
credits and many valuable hours  learning about the job. The                                                                    
position had led to other  opportunities in the industry. He                                                                    
had  just   received  his  degree  in   film  production  in                                                                    
Portland.  He discussed  his  desire to  move  home to  make                                                                    
films and to  help grow the industry in Alaska.  He had come                                                                    
home to  stay and  had brought projects  with him.  He urged                                                                    
the  committee to  not pass  the legislation.  He asked  the                                                                    
legislature to maintain the film bill extension.                                                                                
4:29:24 PM                                                                                                                    
RANDY DALY,  FILM INDUSTRY PARTICIPANT, KENAI,  testified in                                                                    
opposition to the  bill. He spoke to his role  as the former                                                                    
president  of  the  Kenai   Peninsula  Borough  of  Economic                                                                    
Development district and in the  film industry. He addressed                                                                    
his    support    of    business    development,    economic                                                                    
diversification, and a year-round  stable economy in Alaska.                                                                    
He   highlighted  various   examples   of  private   funding                                                                    
responsible  for  building  film studios  in  Anchorage.  He                                                                    
emphasized that  industry had  invested millions  of dollars                                                                    
into  business  development  and production  facilities.  He                                                                    
stated  that film  and film  production was  a new  industry                                                                    
that  was diversifying  Alaska's economy  statewide; it  was                                                                    
capable of producing well-paying,  year-round jobs. He noted                                                                    
that energy  and government revenue  were in decline  in the                                                                    
state.  He  stressed  that  it  was  the  responsibility  of                                                                    
citizens to  explore new opportunities  to provide  a better                                                                    
future. He  opined that film  should be part of  the future.                                                                    
He  detailed that  over the  past  few years  the state  had                                                                    
worked  with  private  industry on  legislation  that  would                                                                    
allow the industry to move  forward; credits to the industry                                                                    
would  only be  maximized when  business was  conducted with                                                                    
Alaskans  and Alaskan  owned businesses.  He noted  that the                                                                    
legislation  also   included  a   cap  to   limit  financial                                                                    
exposure,  a  review  process  after  five  years,  and  the                                                                    
oversight  of third-party  certified public  accountants. He                                                                    
stressed that  it was time for  the state to keep  its word.                                                                    
He  urged the  state to  act  accountable and  to allow  the                                                                    
industry to conduct its work.  He stated that vacillation on                                                                    
the  issue sent  the message  that Alaska  was not  a stable                                                                    
place to  do business.  He urged the  committee to  not pass                                                                    
the legislation.                                                                                                                
4:32:22 PM                                                                                                                    
D.K. JOHNSTON,  ALASKA FILMMAKERS, ANCHORAGE,  spoke against                                                                    
the legislation. He provided his  personal background in the                                                                    
film and  education fields. He  had received  many questions                                                                    
about  why the  legislature would  entertain cutting  down a                                                                    
program  that  had  been  working  vigorously  to  establish                                                                    
itself over the past five  years. He stated that the program                                                                    
had helped  to create  jobs, diversify the  state's economy,                                                                    
promote new  forms of education  for Alaska's youth,  and to                                                                    
bring together  talented artists  to tell  Alaska's stories.                                                                    
He opined  that a repeal of  the film tax credit  was a step                                                                    
in  the wrong  direction; whereas,  the continuation  of the                                                                    
program was a  step towards new development.  He shared that                                                                    
millions of  dollars had been  invested in the  new industry                                                                    
and that  turning Alaska's back  on the industry would  be a                                                                    
mistake.  He  pointed  to  multiple  documents  in  members'                                                                    
packets expressing opposition to the bill (copy on file).                                                                       
4:35:16 PM                                                                                                                    
RON HOLMSTROM,  SCREEN ACTORS GUILD AND  AMERICAN FEDERATION                                                                    
OF  TELEVISION AND  RADIO ARTISTS,  ANCHORAGE, testified  in                                                                    
opposition to  the bill.  He shared that  he had  worked the                                                                    
film industry  since 1975  on both sides  of the  camera. He                                                                    
spoke  to  the  federation's   excitement  that  its  Alaska                                                                    
membership  had  more  than   tripled  since  the  incentive                                                                    
program's creation.  He communicated  that in the  past year                                                                    
12  feature films  had qualified  for the  program; however,                                                                    
following  the introduction  of the  legislation, there  had                                                                    
been no  applications. Additionally, the federation  had not                                                                    
had any  Alaskans join its rank  of professional performers.                                                                    
He observed that Alaska had  become less attractive to major                                                                    
production companies;  however, he  believed there  was time                                                                    
to experiment  with the program,  which could  be incredibly                                                                    
fruitful for  Alaskan workers and  local businesses.  He did                                                                    
not understand why  the bill to repeal the  program had been                                                                    
introduced. He was bewildered at  the idea of closing down a                                                                    
young  industry  that had  shown  itself  to be  financially                                                                    
sound. He was available  to discuss the business opportunity                                                                    
at any  time. He stressed  the importance of  rebuilding the                                                                    
state's  reputation  as  a  film  community  and  of  moving                                                                    
forward with the film industry.                                                                                                 
Co-Chair Stoltze  remarked that  government policy  did have                                                                    
deleterious effects on the economy.                                                                                             
Representative Gara  expressed support  for the  program. He                                                                    
asked  whether a  travel  credit could  work  if the  larger                                                                    
program was  discontinued. Mr.  Holmstrom replied  the issue                                                                    
came down  to arithmetic. He  had dealt with  motion picture                                                                    
budgets  his entire  adult life;  the issue  related to  how                                                                    
much it  would cost  to get everything  to the  location for                                                                    
filming. He  stated that  there had been  a move  to improve                                                                    
the grip, electric, and camera  equipment in Alaska, but the                                                                    
effort  was currently  not moving  forward.  He opined  that                                                                    
subsidizing  the  expenses   of  moving  trailers,  dressing                                                                    
rooms, wardrobe trailers, and  other could potentially help;                                                                    
however,  it  would  be difficult  to  balance  the  savings                                                                    
against  the tremendous  above-the-line expenses  (including                                                                    
actors, producers,  writers, and  directors), which  made up                                                                    
at least half of a motion picture budget.                                                                                       
4:40:02 PM                                                                                                                    
Co-Chair Stoltze commented that  the committee would look at                                                                    
alternatives to the overall elimination of the program.                                                                         
DEBORAH   SCHILDT,  PRESIDENT,   THE   ALASKA  FILM   GROUP,                                                                    
ANCHORAGE   (via   teleconference),    spoke   against   the                                                                    
legislation.    She   provided    information   about    the                                                                    
organization. She stated that 32  films had been shot in the                                                                    
state since  1924; 24 of the  films had been shot  the state                                                                    
subsequent to  2000 and only 7  of the 24 had  been entirely                                                                    
filmed  in  Alaska.  She  stressed that  all  7  films  shot                                                                    
entirely   in   Alaska   had   been   made   following   the                                                                    
implementation of  the film  credit program.  She emphasized                                                                    
that  incentives  were  the  way   the  business  worked  at                                                                    
present. She stated that HB  112 stifled the industry in the                                                                    
state.  She highlighted  that the  industry  had provided  a                                                                    
positive economic impact on the  workforce and businesses in                                                                    
Alaska. She pointed out that  the program included increased                                                                    
incentive  for  local  hire. There  were  currently  actors,                                                                    
students,  and tradespersons  enrolled in  training programs                                                                    
statewide.  The  organization   expected  that  hundreds  of                                                                    
skilled workers would  be added to the  state's workforce in                                                                    
the upcoming year. She wondered  where the individuals would                                                                    
go if the  legislation passed. She spoke to  the high paying                                                                    
jobs  provided  by  the  industry.   She  wondered  why  the                                                                    
legislature  would choose  to  discourage  the industry  and                                                                    
reduce employment opportunities.                                                                                                
Ms. Schildt discussed the program's  success and quoted from                                                                    
the 2012 legislative audit by Northern Economics (page 19):                                                                     
     ...the state  realizes a positive return  on investment                                                                    
     from the  AFPTIP. The AFPTIP generates  an estimated $2                                                                    
     in Alaskan economic  output for every $1  dollar in tax                                                                    
     credits  -  an economic  multiplier  of  $2.05 per  the                                                                    
     consultant's analysis.                                                                                                     
Ms.  Schildt stressed  that  the bill  failed  to take  into                                                                    
account that  only $8.4  million out of  the $34  million in                                                                    
issued  credits had  been redeemed;  leaving $27  million in                                                                    
funds   to  be   utilized  by   Alaskan  corporations.   She                                                                    
highlighted that  money spent in  Alaska generating  the tax                                                                    
credit amounted to  $109 million and that much  of the money                                                                    
continued to  circulate in  the state.  She stated  that the                                                                    
bill  was a  losing proposition;  many producers  had pulled                                                                    
out of  production after the  bill had been  introduced. She                                                                    
expounded that the state would  move backwards with the film                                                                    
industry if  the bill passed,  which would lead to  the loss                                                                    
of millions  of dollars. She  stressed that the  film credit                                                                    
program was  new and improved;  it was  more Alaska-centric,                                                                    
it  offered credits  as opposed  to  subsidies, and  offered                                                                    
proven  value to  Alaskans  statewide.  She urged  committee                                                                    
members to vote no on the legislation.                                                                                          
4:46:56 PM                                                                                                                    
Co-Chair  Stoltze  made  a  statement  about  his  influence                                                                    
related to the legislation.                                                                                                     
DIANA    FEJES,     TAX    CONSULTANT,     ANCHORAGE    (via                                                                    
teleconference),  spoke against  the bill.  In 2012  she had                                                                    
been asked  by NANA  Development Corporation to  examine the                                                                    
economics  of  the film  credit  program.  She conducted  an                                                                    
analysis using  other states  as models;  projections showed                                                                    
that over a 10-year period  the film industry could become a                                                                    
$1  billion  industry  if  the   state  had  an  experienced                                                                    
workforce and  the infrastructure  to support  larger films.                                                                    
She  continued  that  over time  almost  $4.00  of  economic                                                                    
benefit could be  realized for each $1.00  of credit issued.                                                                    
She  stated   that  indirect  spending  resulting   from  an                                                                    
industry is difficult  to predict, but is  a widely accepted                                                                    
concept.  She pointed  to the  2012  Legislative Budget  and                                                                    
Audit  Committee internal  audit; the  audit had  found that                                                                    
over $2.00  was returned  for each  $1.00 of  credit issued.                                                                    
She furthered that $50 million  of economic benefit had come                                                                    
directly from  the incentive program through  February 2012.                                                                    
She noted  that the data was  for a period of  time prior to                                                                    
the  strengthening  of  the  program,  which  would  provide                                                                    
additional benefit to the state.                                                                                                
Ms.  Fejes  stated that  total  spending  during the  4-year                                                                    
period  ending February  2012 was  over  $58 million,  which                                                                    
included all  films produced whether  or not the  credit was                                                                    
allowed. She provided an example  related to the benefits of                                                                    
the incentive  program; if a  film cost $20 million  to make                                                                    
and $10  million of  the amount was  spent on  Alaskan wages                                                                    
and businesses,  the average credit  was around  33 percent;                                                                    
therefore, cash  out the door  for the credit would  be just                                                                    
over $3  million, but $10  million remained in  the economy.                                                                    
She emphasized  that between  the multiple  economic effects                                                                    
and the  time value of money,  the $10 million could  have a                                                                    
significant impact. She  relayed that Alaska had  one of the                                                                    
highest corporate tax rates in  the U.S. at 9.4 percent. She                                                                    
stated  that buying  a  credit at  a discount  of  80 to  85                                                                    
percent  provided  industry  more   incentive  to  stay  and                                                                    
increase business in the state.                                                                                                 
4:50:58 PM                                                                                                                    
Co-Chair  Stoltze turned  the gavel  over to  Representative                                                                    
Ms.  Fejes  continued  to  testify  against  the  bill.  She                                                                    
relayed that if  the allowable tax credits were  to be fully                                                                    
used over the upcoming 10  years it would cost $200 million;                                                                    
however,  a $200  million credit  would generate  just under                                                                    
$600 million in revenue  for Alaska's economy. She discussed                                                                    
industries impacted  by the indirect  spend of the  money in                                                                    
the state.  She observed  that the  program was  not perfect                                                                    
and  that   adjustments  may   be  required;   however,  she                                                                    
suggested not  throwing the  baby out  with the  bath water.                                                                    
She  stated  that  the  program  had  energized  many  small                                                                    
businesses  and had  helped larger  businesses as  well. New                                                                    
productions  would  keep  individuals   in  the  state.  She                                                                    
stressed that starting  and stopping a program  from year to                                                                    
year would build distrust. She  pointed to other competitive                                                                    
locations where  film companies could  take their  work. She                                                                    
asked the legislators to continue the program.                                                                                  
4:53:06 PM                                                                                                                    
Representative   Gara  asked   what   the  film   production                                                                    
companies had paid in the  state since the credits had taken                                                                    
effect. Ms.  Fejes replied that  many companies did  not pay                                                                    
the  taxes in  state,  which was  the  reason the  incentive                                                                    
credits  had originated.  She  explained  that credits  were                                                                    
approved and  sold to  entities such  as banks,  cruise ship                                                                    
companies and  others conducting business in  the state. The                                                                    
program  helped the  businesses to  save on  their taxes  as                                                                    
credits were purchased at a discount.                                                                                           
Representative  Gara remarked  that he  would follow  up for                                                                    
more  detail from  the Department  of  Revenue. He  believed                                                                    
that companies were  taxed pro rata for their  presence in a                                                                    
state based on  the state's income taxes.  Ms. Fejes replied                                                                    
that the  statement was  accurate relating  to corporations;                                                                    
however,  many of  the film  companies  were constructed  as                                                                    
pass-through entities such as partnerships.                                                                                     
4:54:57 PM                                                                                                                    
PIUS    SAVAGE,    OMAYACON   PICTURES,    ANCHORAGE    (via                                                                    
teleconference),   spoke   against   the   legislation.   He                                                                    
discussed  his background  in the  film industry.  He shared                                                                    
that during  his work in  various locations people  had seen                                                                    
films  showing Alaska's  beauty; the  industry helped  small                                                                    
businesses and  tourism throughout the state.  He pointed to                                                                    
current work  with producers planning seven  films in Alaska                                                                    
as a  result of  the film  tax incentives.  He spoke  to one                                                                    
film that  would employ all  local actors. He  discussed his                                                                    
work  with   many  famous  producers  and   actors.  He  was                                                                    
currently  in conversations  with  investors  for a  project                                                                    
with  an  estimated  budget of  $10  million.  He  mentioned                                                                    
another production that would cost $16 million or more.                                                                         
4:59:10 PM                                                                                                                    
Co-Chair Stoltze resumed chairing the meeting.                                                                                  
Mr. Savage continued to speak  against the bill. He stressed                                                                    
that  the  beauty  of  Alaska  attracted  the  industry.  He                                                                    
mentioned that  the introduction of HB  112 was discouraging                                                                    
investment  and   causing  filmmakers   to  look   to  other                                                                    
locations such as  Iceland. He stated that  the decision was                                                                    
up to the legislature.                                                                                                          
5:00:32 PM                                                                                                                    
GARY  ZIMMERMAN, GENERAL  MANAGER, ALASKA  RENTAL CAR  INC.,                                                                    
ANCHORAGE (via  teleconference), spoke against the  bill. He                                                                    
communicated  that  the  company benefited  from  the  money                                                                    
spent  by  the industry  in  Alaska.  He relayed  that  film                                                                    
production  funds provided  a  substantial economic  benefit                                                                    
statewide.  He  communicated  that the  rental  car  service                                                                    
industry  generated  over  $22  million in  taxes  and  fees                                                                    
collected  from renters  and  paid to  the  state and  local                                                                    
government; when business increased,  the money going to the                                                                    
state  increased  as  well.   He  relayed  that  productions                                                                    
featuring Alaska  promoted the state more  successfully than                                                                    
advertising  campaigns; the  increased  awareness helped  to                                                                    
further the state's goal of  promoting tourism. He continued                                                                    
that the film  industry was just beginning  to gain traction                                                                    
in the state. He asked  the committee to allow the incentive                                                                    
program  to benefit  the film  industry, Alaskan  businesses                                                                    
and workers,  and the state.  He asked the committee  to not                                                                    
pass the bill.                                                                                                                  
5:02:53 PM                                                                                                                    
KELLY  BENDER,  LAZY  OTTER CHARTERS,  WHITTIER;  opposition                                                                    
testimony  was read  for  Ms. Bender  by  Merna Jenson  (via                                                                    
     Good afternoon  Chairman Stoltze and the  House Finance                                                                    
     Committee.  I am  not in  the film  industry; we  are a                                                                    
     business that  has benefitted  from the  film industry.                                                                    
     We  operate a  water taxi  and sightseeing  business in                                                                    
     Whittier; we also  have a small café.  We hire Alaskans                                                                    
     to work  and live  in the  community where  we operate.                                                                    
     The  impact  the  film   industry  has  sometimes  been                                                                    
     direct. We  helped out  with a  film shoot  onboard our                                                                    
     boat;  the show  aired  this past  fall. But  sometimes                                                                    
     it's indirect;  like when  we took  out members  of the                                                                    
     cast and crew  from movies that have been  shot here on                                                                    
     a  sightseeing  cruise.  This   was  about  $12,000  to                                                                    
     $15,000 to  our company.  Often this business  has come                                                                    
     during the shoulder  season, a time when  were slow and                                                                    
     can use  the additional  income. This  may seem  like a                                                                    
     drop in the bucket to some,  but to us it meant that we                                                                    
     paid our  Alaskan employees, it  meant we  bought goods                                                                    
     and services from our Alaskan  suppliers. To us this is                                                                    
     business  or some  might say  stimulating the  economy.                                                                    
     This  isn't really  about [indecipherable];  it's about                                                                    
     Alaskans and Alaska  businesses making a go  of it. The                                                                    
     state  puts  a lot  of  money  into industry  that  has                                                                    
     finite resources. This industry  has infinite reach and                                                                    
     trickle-down effect,  not to  mention what it  does for                                                                    
     tourism  like the  previous speaker  said.  As a  small                                                                    
     business owner  I'm asking you  to continue  to support                                                                    
     the  film  industry  in   Alaska,  which  really  means                                                                    
     supporting business  and economic diversity  in Alaska.                                                                    
     Please do not pass HB 112. Thank you.                                                                                      
Co-Chair Stoltze asked for a copy of the document.                                                                              
5:05:29 PM                                                                                                                    
ROBIN   KORNFIELD,   VICE    PRESIDENT,   CORPORATIONS   AND                                                                    
MARKETING,   NANA  REGIONAL   CORPORATION,  ANCHORAGE   (via                                                                    
teleconference), spoke against  the legislation. She pointed                                                                    
to the value of programs  that encouraged the development of                                                                    
new  opportunities  for  the   next  generation  of  Alaskan                                                                    
business.  She  relayed that  NANA  supported  the film  tax                                                                    
credit  because the  existing program  had created  jobs for                                                                    
its shareholders and  private sector income for  an array of                                                                    
Alaskan businesses. The organization wanted  to be a part of                                                                    
building  new economies  in the  state. She  discussed other                                                                    
developments the  organization had  been involved  in during                                                                    
the  past including  the Red  Dog Mine.  She furthered  that                                                                    
NANA had  looked at  the film  business as  it did  with any                                                                    
other  business opportunity;  the industry  required support                                                                    
services including  construction, food  service, information                                                                    
technology,   transportation,  hospitality,   and  security.                                                                    
Additionally,   the   industry   created   specialized   job                                                                    
opportunities  that were  not yet  widespread in  the state.                                                                    
She stressed that  the entire state could  get involved. The                                                                    
company   had  been   involved  in   the  production   of  a                                                                    
documentary about the people of  Diomede, Alaska and whales.                                                                    
She  pointed to  various  national commercials  shot in  the                                                                    
state.  She   relayed  that   investment  in   training  and                                                                    
facilities was made at NANA's  own risk and was not eligible                                                                    
for tax credits;  however, the credits were  needed to bring                                                                    
the business to Alaska. She  spoke to the global competition                                                                    
for production locations. She urged  the committee to reject                                                                    
the bill.                                                                                                                       
5:09:10 PM                                                                                                                    
STEVE   RYCHETNIK,   CINEMATOGRAPHER,   SPROCKETHEADS   LLC,                                                                    
ANCHORAGE (via  teleconference), spoke in opposition  to the                                                                    
bill.  He discussed  the company's  work  in the  developing                                                                    
film industry. He  stated that because of  the tax incentive                                                                    
program he had been hired  on multiple projects and had been                                                                    
able to remain  in Alaska. He had been asked  to be involved                                                                    
in several  large budget films working  to bring productions                                                                    
to the  state. He recalled  working on the film  Insomnia in                                                                    
the past that  had been filmed in Canada  because Alaska had                                                                    
no incentive  program. He emphasized that  incentives always                                                                    
trumped location;  he provided  an example. The  company was                                                                    
currently  working  with  over  10 feature  films  that  had                                                                    
invested  years of  time and  money  to come  to Alaska.  He                                                                    
pointed to  the economic benefit  provided to Maryland  as a                                                                    
result  of the  Netflix  original show  House  of Cards.  He                                                                    
spoke  to  the  benefit  a  dramatic  series  would  provide                                                                    
Alaska. He  stated that movie  making was a  business; there                                                                    
were  as  many  conservatives  as there  were  liberals.  He                                                                    
emphasized  that  a  film  business  in  Alaska  represented                                                                    
aggressive  economic development.  He urged  the legislature                                                                    
to keep its promise of  extending the film incentive program                                                                    
to 2023.                                                                                                                        
5:13:21 PM                                                                                                                    
MAYA  SALGANEK,  DIRECTOR,  UNIVERSITY OF  ALASKA  FAIRBANKS                                                                    
FILM PROGRAM,  FAIRBANKS (via teleconference),  testified in                                                                    
opposition  to the  bill. She  stated that  the university's                                                                    
film program  had been established  in 2011;  record numbers                                                                    
of students  had applied. She  stated that the  students had                                                                    
already demonstrated  great successes. She relayed  that the                                                                    
bill  would   eliminate  the  university  program   and  the                                                                    
opportunity for the  students to move forward  in the career                                                                    
field. She  continued that students interested  in the field                                                                    
had been  leaving the  state, which was  one of  the reasons                                                                    
for the  implementation of the  program. She  furthered that                                                                    
the industry  had turned to  the university  wondering where                                                                    
trained students  were. She elaborated that  the program was                                                                    
for a Bachelor  of Arts to create  producers, directors, and                                                                    
other; the  program prepared students  for work in  the film                                                                    
industry and  provided hands-on training.  There had  been a                                                                    
60 percent enrollment  increase since 2010 in  the number of                                                                    
student credit hours; there were  students enrolled from all                                                                    
over the state. The  credit program provided great publicity                                                                    
for the  state. She shared  that the program  enrollment was                                                                    
growing approximately  10 percent  per year;  the university                                                                    
anticipated the  figure would  go up  if the  tax incentives                                                                    
continued. She  spoke to the diverse  population of students                                                                    
in the  field. She  stated that 50  percent of  the students                                                                    
had been working on professional  productions in the past 30                                                                    
Ms. Salganek continued  that the students would go  on to be                                                                    
leaders in  the industry in  the future. She  estimated that                                                                    
the  tax incentive  had doubled  the amount  of work  in the                                                                    
state and was  bringing more labor hours  per production for                                                                    
Alaskans.  She stated  that  the  incentives were  providing                                                                    
hands-on training  opportunities; internships  would prepare                                                                    
students  for  higher level  positions  in  the future.  She                                                                    
discussed that the training program  had been in development                                                                    
for over a year. Students  would be devastated to learn that                                                                    
there would  no longer be long-term  career opportunities in                                                                    
the  industry  in  Alaska.  She  continued  to  speak  about                                                                    
benefits  of the  program. She  implored the  legislature to                                                                    
support the students and the film industry.                                                                                     
5:21:19 PM                                                                                                                    
CHARLIE    HEWITT,    MIRROR   STUDIOS,    ANCHORAGE    (via                                                                    
teleconference), spoke in opposition  to the bill. He shared                                                                    
that  he  was  a  Republican and  owner/operator  of  Mirror                                                                    
Studios  (a  recording  and   post  production  facility  in                                                                    
Anchorage). He  discussed an additional revenue  stream that                                                                    
was a  byproduct of the  film incentives. He  explained that                                                                    
when  a production  was working  in-state, many  actors were                                                                    
needed  for the  post production  process on  other projects                                                                    
elsewhere.  For example,  during the  filming of  the movies                                                                    
Big Miracle  and The Frozen  Ground there had  been numerous                                                                    
individuals  using the  studio for  other film  projects. He                                                                    
emphasized that  the dollars were not  insignificant and had                                                                    
not cost the state a  dime. He expended significant money to                                                                    
bring the  studio up to  par prior to the  implementation of                                                                    
the   film   incentive   program.   He   had   trusted   the                                                                    
legislature's  intent  when  it  had voted  to  approve  the                                                                    
credit program. He asked the  committee to drop the bill and                                                                    
to keep the film credits until 2023.                                                                                            
5:23:54 PM                                                                                                                    
Co-Chair Stoltze stated that his concerns about the issue                                                                       
were fiscal. He CLOSED public testimony.                                                                                        
HB 112 was HEARD and HELD in committee for further                                                                              
5:25:42 PM                                                                                                                    
The meeting was adjourned at 5:25 p.m.                                                                                          

Document Name Date/Time Subjects
HB 23 2012 Gov TIFIA Letter of Interest (2).pdf HFIN 3/28/2013 1:30:00 PM
HB 23
HB 23 Common Myths of Knik Arm Crossing.pdf HFIN 3/28/2013 1:30:00 PM
HB 23
HB 23 Importance of Legislation for TIFIA Loan.pdf HFIN 3/28/2013 1:30:00 PM
HB 23
HB 23 KABATA Fact Slides.pdf HFIN 3/28/2013 1:30:00 PM
HB 23
HB 23 KABATA Summary of Legislation.pdf HFIN 3/28/2013 1:30:00 PM
HB 23
HB 23 Sponsor Statement.pdf HFIN 3/28/2013 1:30:00 PM
HB 23
HB 23 Testimony Opposition.pdf HFIN 3/28/2013 1:30:00 PM
HB 23
HB 23 Memo to House Finance Kenworthy.pdf HFIN 3/28/2013 1:30:00 PM
HB 23
HB23-KABATA House Finance Presentation (PDF).pdf HFIN 3/28/2013 1:30:00 PM
HB 23
HB23 Traffic Safety Corridors.pdf HFIN 3/28/2013 1:30:00 PM
HB 23
HB23 Pt. MacKenzie Townsite.pdf HFIN 3/28/2013 1:30:00 PM
HB 23
HB23 Answers to Recents Comments.pdf HFIN 3/28/2013 1:30:00 PM
HB 23
CS WORKDRAFT HB 4 FIN R.pdf HFIN 3/28/2013 1:30:00 PM
HB 4
HB 23 DOR Letter SB 80 dated 3-30-11.pdf HFIN 3/28/2013 1:30:00 PM
HB 23
SB 80
HB4-RCAbackground.pdf HFIN 3/28/2013 1:30:00 PM
HB 4
HB 112 Support.pdf HFIN 3/28/2013 1:30:00 PM
HB 112
HB 112 Letters-Opposition Pkt 1.pdf HFIN 3/28/2013 1:30:00 PM
HB 112