Legislature(2013 - 2014)HOUSE FINANCE 519

01/31/2014 01:30 PM FINANCE


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01:31:59 PM Start
01:32:24 PM HB266 || HB267
01:32:24 PM Fy 15 Governor's Budget Overview: Department of Revenue
02:26:26 PM Fy 15 Governor's Budget Overview: Department of Natural Resources
03:29:19 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= HB 266 APPROP: OPERATING BUDGET/LOANS/FUNDS TELECONFERENCED
+= HB 267 APPROP: MENTAL HEALTH BUDGET TELECONFERENCED
+ - Governor's Budget Overview: TELECONFERENCED
Dept. of Revenue
Dept. of Natural Resources
+ Bills Previously Heard/Scheduled TELECONFERENCED
                  HOUSE FINANCE COMMITTEE                                                                                       
                     January 31, 2014                                                                                           
                         1:31 p.m.                                                                                              
                                                                                                                                
                                                                                                                                
1:31:59 PM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Austerman called the House Finance Committee                                                                           
meeting to order at 1:31 p.m.                                                                                                   
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Alan Austerman, Co-Chair                                                                                         
Representative Bill Stoltze, Co-Chair                                                                                           
Representative Mark Neuman, Vice-Chair                                                                                          
Representative Mia Costello                                                                                                     
Representative Bryce Edgmon                                                                                                     
Representative Les Gara                                                                                                         
Representative David Guttenberg                                                                                                 
Representative Lindsey Holmes                                                                                                   
Representative Cathy Munoz                                                                                                      
Representative Steve Thompson                                                                                                   
Representative Tammie Wilson                                                                                                    
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
None                                                                                                                            
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Angela  Rodell, Commissioner,  Department of  Revenue; Jerry                                                                    
Burnett,  Director,  Division  of  Administrative  Services,                                                                    
Department of Revenue;  Joe Balash, Commissioner, Department                                                                    
of  Natural Resources;  Jeanmarie Davis,  Director, Division                                                                    
of Support Services, Department of Natural Resources.                                                                           
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
FY 15 GOVERNOR'S BUDGET OVERVIEWS:                                                                                              
                                                                                                                                
     Department of Revenue                                                                                                      
     Department of Natural Resources                                                                                            
                                                                                                                                
HB 266    APPROP: OPERATING BUDGET/LOANS/FUNDS                                                                                  
                                                                                                                                
          HB 266 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
                                                                                                                                
HB 267    APPROP: MENTAL HEALTH BUDGET                                                                                          
                                                                                                                                
          HB 267 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
                                                                                                                                
HOUSE BILL NO. 266                                                                                                            
                                                                                                                                
     "An  Act making  appropriations for  the operating  and                                                                    
     loan  program  expenses  of state  government  and  for                                                                    
     certain  programs,   capitalizing  funds,   and  making                                                                    
     reappropriations; making appropriations  under art. IX,                                                                    
     sec. 17(c),  Constitution of the State  of Alaska, from                                                                    
     the constitutional budget reserve fund."                                                                                   
                                                                                                                                
HOUSE BILL NO. 267                                                                                                            
                                                                                                                                
     "An  Act making  appropriations for  the operating  and                                                                    
     capital    expenses   of    the   state's    integrated                                                                    
     comprehensive mental health program."                                                                                      
                                                                                                                                
1:32:24 PM                                                                                                                    
                                                                                                                                
^FY 15 GOVERNOR'S BUDGET OVERVIEW: DEPARTMENT OF REVENUE                                                                      
                                                                                                                                
1:32:24 PM                                                                                                                    
                                                                                                                                
ANGELA   RODELL,   COMMISSIONER,  DEPARTMENT   OF   REVENUE,                                                                    
presented  the  PowerPoint  presentation: "State  of  Alaska                                                                    
Department of  Revenue Budget Overview"  (copy on  file) She                                                                    
began with slide 2: "Alaska Department of Revenue":                                                                             
                                                                                                                                
     The  mission  of  the  Department   of  Revenue  is  to                                                                    
     collect,  distribute   and  invest  funds   for  public                                                                    
     purposes.                                                                                                                  
                                                                                                                                
     The Department has four major programs:                                                                                    
                                                                                                                                
        · Tax Division                                                                                                          
               Enforces the tax laws of the state; collects                                                                     
               and accounts for tax revenues                                                                                    
        · Treasury Division                                                                                                     
              Manages and invests state funds                                                                                   
        · Permanent Fund Dividend Division                                                                                      
               Administers the PFD program and distributes                                                                      
               the annual dividend payment to eligible                                                                          
               Alaskans                                                                                                         
        · Child Support Services Division                                                                                       
               Collects and distributes child support to                                                                        
               custodial parents                                                                                                
                                                                                                                                
Commissioner Rodell presented slide 3: "Results in 2013":                                                                       
                                                                                                                                
     Department of Revenue as a Whole                                                                                           
        · The  Department's website  was updated  to provide                                                                    
          easy  links  to  current fund  balances  and  fund                                                                    
          performance                                                                                                           
        · All   Department  of   Revenue  regulations   were                                                                    
          reviewed and updated as necessary                                                                                     
                                                                                                                                
     Treasury Division                                                                                                          
        · Alaska  received its  third AAA  bond rating  from                                                                    
          Fitch in  FY 13  making it one  of the  few states                                                                    
          with top rating from all three rating agencies                                                                        
        · The FY 13  returns for 37 out of  39 funds managed                                                                    
          by Treasury exceeded the benchmark returns.                                                                           
        · PERS  and TRS  funds  returned  12.50 percent  and                                                                    
          12.59 percent.                                                                                                        
                                                                                                                                
1:36:46 PM                                                                                                                    
                                                                                                                                
Commissioner Rodell reviewed slide 4: "Results in 2013":                                                                        
                                                                                                                                
     Permanent Fund Dividend Division (PFD)                                                                                     
        · The  cost  of  reviewing  a  PFD  application  and                                                                    
          paying the  dividend declined each year  from 2011                                                                    
          TO 2013.                                                                                                              
        · Of  the   139,254  eligibility  cases   that  were                                                                    
          created, 97 percent of them  were contacted by the                                                                    
          time dividend  amount was announced  in September.                                                                    
          That  is  7 percent  better  than  the 90  percent                                                                    
          contact  rate in  2012, and  12 percent  above our                                                                    
          performance measure goal of 85 percent.                                                                               
        · The division  had the lowest number  of unreviewed                                                                    
          cases ever  recorded by the division  at the point                                                                    
          of  the dividend  announcement.  Only 3,937  cases                                                                    
          remained  under reviewed  at that  point in  time.                                                                    
          Down from 16,410 in 2012.  The net effect was that                                                                    
          of the  670,000 applicants in 2013,  only one half                                                                    
          of  one percent  has  not  been reached  regarding                                                                    
          their application.                                                                                                    
        · The division also overhauled our technician                                                                           
          training  program in  2013, hiring  a new  trainer                                                                    
          and lead, who subsequently  shaved an entire month                                                                    
          off  of  our   previously  3-month  long  training                                                                    
          program. This means  technicians are working cases                                                                    
          and  fielding  questions  from the  public  faster                                                                    
          than ever.                                                                                                            
                                                                                                                                
1:38:06 PM                                                                                                                    
                                                                                                                                
Commissioner Rodell directed attention to slide 5: "Results                                                                     
in 2013, Child Support Services Division":                                                                                      
                                                                                                                                
        · The federally required self-assessment review                                                                         
          showed    that   CSSD    exceeded   all    federal                                                                    
          requirements for the child support program.                                                                           
        · CSSD increased its teenage outreach program,                                                                          
          making 70  presentations in 48  schools throughout                                                                    
          the state.                                                                                                            
                                                                                                                                
1:39:10 PM                                                                                                                    
                                                                                                                                
Commissioner Rodell explained slide 6: "Results in 2013":                                                                       
                                                                                                                                
     Tax Division                                                                                                               
        · Began   implementation   of    our   Tax   Revenue                                                                    
          Management   System   (TRMS),    for   which   the                                                                    
          legislature  appropriated  $34.7  million  in  the                                                                    
          2011 session.                                                                                                         
             o Phase 1 of the project is in its final                                                                           
               stages, and will be rolled out for all                                                                           
               corporate income tax filers, and many excise                                                                     
               tax filers;                                                                                                      
             o Phase 2 will be starting within the next few                                                                     
               weeks (includes oil and gas production tax,                                                                      
               property tax, and economic research).                                                                            
        · Successfully drafted and finalized a large                                                                            
          regulations  package  within  6-7  months  of  the                                                                    
          passage of  SB 21  (MAP), so  they were  in effect                                                                    
          when  most  of  the bill's  provisions  went  into                                                                    
          effect   (January   1,    2014).   Interest   rate                                                                    
          calculation regulations  have been filed  with the                                                                    
          Lt. Gov. as of last week.                                                                                             
        · 98.5 percent of known taxpayers filed tax returns                                                                     
          and made their payments timely                                                                                        
                                                                                                                                
1:40:57 PM                                                                                                                    
                                                                                                                                
Commissioner  Rodell referenced  slide  7: "Authorities  and                                                                    
Corporations":                                                                                                                  
                                                                                                                                
        · Alaska Housing Finance Corporation                                                                                    
               To provide  Alaskans access to  safe, quality                                                                    
               and affordable housing.                                                                                          
        · Alaska Permanent Fund Corporation                                                                                     
               To maximize  the value of the  Permanent Fund                                                                    
               within return objectives.                                                                                        
        · Alaska Mental Health Trust Authority                                                                                  
               To administer the  Alaska Mental Health Trust                                                                    
               as  a   perpetual  trust  and  to   ensure  a                                                                    
               comprehensive  and  integrated mental  health                                                                    
               program    to    improve   the    lives    of                                                                    
               beneficiaries.                                                                                                   
        · Alaska Municipal Bond Bank Authority                                                                                  
               To  provide   municipalities  with  financing                                                                    
               options for capital projects.                                                                                    
                                                                                                                                
Commissioner  Rodell  presented  slide   8:  "Look  Back  at                                                                    
Department Activities."  She reported a 58  percent increase                                                                    
in  revenues  collected  by  the Tax  Division,  and  a  147                                                                    
percent  increase  in  returns  collected  by  the  Treasury                                                                    
Division over the last eight  years. She also acknowledged a                                                                    
7 percent  climb in the  number of Permanent  Fund Dividends                                                                    
paid  to  Alaskans  from  FY  05 to  FY  14.  She  cited  an                                                                    
escalation  in  the  number  of child  support  cases  of  4                                                                    
percent as  well as a 15  percent rise in the  dollar amount                                                                    
distributed to custodial parents from FY 05 to FY 13.                                                                           
                                                                                                                                
1:42:43 PM                                                                                                                    
                                                                                                                                
Commissioner  Rodell  reviewed  slide 9:  "Growth  in  State                                                                    
Funds 2005  - 2014  CBRF and GeFonsi."  She stated  that the                                                                    
chart reflected  tremendous growth  in reserve funds  in the                                                                    
state savings account over the last eight years.                                                                                
                                                                                                                                
1:43:19 PM                                                                                                                    
                                                                                                                                
Commissioner  Rodell  explained  slide  10:  "Department  of                                                                    
Revenue Share  of Total Agency  Operations." She  noted that                                                                    
agency operations costs stayed within  a range of .80 to 1.0                                                                    
percent of  the total state budget  for unrestricted general                                                                    
funds only. The department's  budget had remained relatively                                                                    
stable over the last few years.                                                                                                 
                                                                                                                                
Commissioner  Rodell  discussed  slide  11:  "Department  of                                                                    
Revenue  Percent  of  Total   Department's  Budget  by  Fund                                                                    
Group."  She  indicated that the main change  in the percent                                                                    
of  the department's  budget by  fund  group was  due to  an                                                                    
increase  in  federal  receipts  designated  for  the  Child                                                                    
Support Services Division.  She  also noted increases in the                                                                    
"other state  funds" category as well  as increased revenues                                                                    
in the Permanent Fund and pension funds.                                                                                        
                                                                                                                                
Commissioner  Rodell  referenced  slide 12:  "Department  of                                                                    
Revenue  FY  2015 Governor's  Budget  by  Fund Source."  She                                                                    
outlined the  department's budget  by fund source  using the                                                                    
pie chart as a visual reference.                                                                                                
                                                                                                                                
1:44:41 PM                                                                                                                    
                                                                                                                                
Commissioner  Rodell  presented  slide  13:  "Department  of                                                                    
Revenue  FY 15  Governor's Budget  by Program."  She defined                                                                    
the  budget  allocations by  program  as  shown in  the  pie                                                                    
chart.  The   Alaska  Permanent  Fund  program   was  easily                                                                    
identified as the major contributor to state revenues.                                                                          
                                                                                                                                
1:45:39 PM                                                                                                                    
                                                                                                                                
JERRY   BURNETT,   DIRECTOR,  DIVISION   OF   ADMINISTRATIVE                                                                    
SERVICES, DEPARTMENT  OF REVENUE,  continued with  slide 14:                                                                    
"Key  FY 15  Budget Changes."  He commented  that he  worked                                                                    
with the commissioner to  determine potential reductions for                                                                    
external  services going  forward, strategically  evaluating                                                                    
each division.   The largest  reduction within  the Treasury                                                                    
Division   was  non-pension,   trust-related  administrative                                                                    
costs for  the state's  retirement board. He  explained that                                                                    
the associated  services were no  longer in  demand relative                                                                    
to previous years.   Aside from small  decreases within each                                                                    
division, four full-time  positions, one part-time position,                                                                    
and  one temporary  position were  eliminated either  within                                                                    
the Tax  Division or the  Permanent Fund  Dividend Division.                                                                    
Rates charged for health benefits  were slightly lowered and                                                                    
working reserve  was somewhat diminished.  He cited  a total                                                                    
of approximately $1 million in  cutbacks. The department had                                                                    
one increment  of $23.8 million  in management  fees because                                                                    
of  the  balance  of  the growing  Permanent  Fund  and  the                                                                    
complexity of managing Permanent Fund assets.                                                                                   
                                                                                                                                
1:48:29 PM                                                                                                                    
                                                                                                                                
Mr. Burnett discussed slide 15: "FY 15 Capital":                                                                                
                                                                                                                                
        · PFD Division Computer Replacement 130.0 PFD Fund                                                                      
        · Child Support Computer Replacement 158.5 Fed/81.6                                                                     
          GF                                                                                                                    
        · Alaska Housing Finance Corp Multiple Projects                                                                         
          76,800.0 GF/850.0 Other/12,200.0 Fed                                                                                  
             o $29 million Weatherization                                                                                       
            o $17.5 million Home Energy Rebate                                                                                  
             o $8 million Homeless Assistance Program                                                                           
             o $7 million Supplemental Housing Development                                                                      
               Program                                                                                                          
             o $6 million Teacher, Health, Public Safety                                                                        
               and VPSO Housing Loans                                                                                           
             o $4.5    million   Senior    Citizen   Housing                                                                    
               Development                                                                                                      
                                                                                                                                
Mr. Burnett  elaborated that the Child  Support Services and                                                                    
Permanent Fund  Dividend Divisions  had submitted  an appeal                                                                    
for  computer replacement  funds.   The department  has each                                                                    
division on a computer  replacement cycle. Historically, the                                                                    
department has submitted a capital  request every year since                                                                    
2004  to satisfy  its replacement  efforts.  The balance  of                                                                    
capital  requests for  the department  came from  the Alaska                                                                    
Housing Finance Corporation for multiple projects.                                                                              
                                                                                                                                
1:49:48 PM                                                                                                                    
                                                                                                                                
Mr.  Burnett  discussed slides  16  and  17: "Department  of                                                                    
Revenue Ten Year Expenditure Projection":                                                                                       
                                                                                                                                
   · The mission of the Department of Revenue is to                                                                             
     collect,  distribute   and  invest  funds   for  public                                                                    
     purposes. The  department achieves its  mission through                                                                    
     the  efforts  of  four  core  agencies,  two  corporate                                                                    
     agencies, and four boards and authorities.                                                                                 
   · The following document provides an estimate of the                                                                         
     department's budget  changes over  the next  ten years.                                                                    
     Projecting budgets  ten years  into the future  for the                                                                    
     various programs and funding  sources of the Department                                                                    
     of Revenue is a  challenge. Changes to the department's                                                                    
     programs   are  not   anticipated  but   are  sometimes                                                                    
     affected  by  legislative  action.  As  a  result,  the                                                                    
     assumptions  and numbers  that  make up  the plan  will                                                                    
     continue   to  change   as   new  information   becomes                                                                    
     available.                                                                                                                 
                                                                                                                                
   Baseline Scenario Assumptions for DOR:                                                                                       
   · The  department's operations  costs  were increased  by                                                                    
     using  a  2.5  percent  annual  inflation  factor.  The                                                                    
     inflation   calculation  does   not  include   personal                                                                    
     services or investment management fees.                                                                                    
   · External  custody and  investment management  fees were                                                                    
     calculated   using   anticipated   rates   applied   to                                                                    
     estimated future market values.                                                                                            
                                                                                                                                
   Baseline Scenario Assumptions for AHFC:                                                                                      
   · Alaska Housing Finance  Corporation's (AHFC) operations                                                                    
     costs  were  increased  by  using  2.5  percent  annual                                                                    
     inflation  factor. The  inflation calculation  does not                                                                    
     include  personal  services  or  investment  management                                                                    
     fees.                                                                                                                      
   · The  Capital  budget  assumes  that  the  Corporation's                                                                    
     earnings will resume to pre-recession levels.                                                                              
   · The  Weatherization  program  assumes  the  State  will                                                                    
     contribute  $100  million   annually  to  maintain  the                                                                    
     current program.                                                                                                           
                                                                                                                                
   Baseline Scenario Assumptions for APFC:                                                                                      
   · The Alaska  Permanent Fund (APF) value  was grown using                                                                    
     median market expectations.                                                                                                
   · External investment manager  fees were calculated using                                                                    
     anticipated  rates applied  to the  projected value  of                                                                    
     the assets under management.                                                                                               
   · Alaska Permanent  Fund Corporation's  (APFC) operations                                                                    
     costs  were  grown  by  2.5  percent  (inflation).  The                                                                    
     inflation   calculation  does   not  include   personal                                                                    
     services or investment management fees.                                                                                    
                                                                                                                                
Mr. Burnett  stated that the remaining  slides addressed the                                                                    
Department  of Revenue's  ten-year  expenditure  plan.   The                                                                    
plan  used   a  2.5   percent  annual  inflation   rate  and                                                                    
calculated  external custody  and management  fees based  on                                                                    
anticipated  rates   applied  to  estimated   future  market                                                                    
values.  The  ten-year plan was not based  on an anticipated                                                                    
number  of  PFD  applications  and did  not  include  future                                                                    
contractual salary increases in any of the departments.                                                                         
                                                                                                                                
Mr.  Burnett  also  indicated  that  the  plan  incorporated                                                                    
market  expectations  for   APFC,  resumed  calculating  the                                                                    
corporation's   earnings   at  pre-recession   levels,   and                                                                    
continued  to  contribute  annually  to  the  weatherization                                                                    
program.                                                                                                                        
                                                                                                                                
1:51:11 PM                                                                                                                    
                                                                                                                                
Mr.  Burnett  discussed  slide   18:  "Ten  Year  Projection                                                                    
Graphs." He  reported a shallow rise  in future projections.                                                                    
He  turned to  slide 19:  "Ten Year  Projection Graphs."  He                                                                    
explained that  over the  last ten  years the  annual budget                                                                    
growth  in  general  funds  only  reflected  a  3.2  percent                                                                    
incline.                                                                                                                        
                                                                                                                                
Mr.  Burnet  looked  at  slide   20:  "Ten  Year  Projection                                                                    
Graphs."   He   specified    that   the   referenced   graph                                                                    
demonstrated a  7.4 percent escalation in  the annual budget                                                                    
for all funds in the same ten year period.                                                                                      
                                                                                                                                
Commissioner Rodell concluded with slide 21: "Wrap-up":                                                                         
                                                                                                                                
   · The Tax Division is actively engaged in improving its                                                                      
     information    system   to    insure   efficient    tax                                                                    
     administration, to more  effectively serve taxpayer and                                                                    
     provide  timely  access  to information  necessary  for                                                                    
     assisting  with tax  policy  decisions contemplated  by                                                                    
     the legislature.                                                                                                           
   · The Department of Revenue is the state's largest                                                                           
     investment  manager.  We  pride  ourselves  in  prudent                                                                    
     investment  practices for  a  variety  of programs  and                                                                    
     needs  while  achieving  and  maintaining  the  highest                                                                    
     credit rating and thus the lowest cost of borrowing.                                                                       
   · Customer service sections in the PFD and Child Support                                                                     
     Services  Divisions  have continuously  improved  their                                                                    
     business  practices  in   order  to  provide  increased                                                                    
     service levels without increasing staff.                                                                                   
   · Our corporations receive national recognition for                                                                          
     their   exemplary   program   management   and   fiscal                                                                    
     solvency.                                                                                                                  
                                                                                                                                
Co-Chair  Austerman  asked  about  slide  4,  regarding  the                                                                    
Permanent Fund  Dividend Division's performance  measures of                                                                    
85 percent and the need to adjust it.                                                                                           
                                                                                                                                
Commissioner Rodell affirmed  that the benchmark measurement                                                                    
should be reevaluated and adjusted depending on findings.                                                                       
                                                                                                                                
1:54:42 PM                                                                                                                    
                                                                                                                                
Co-Chair  Austerman  asked about  slide  6.  He wanted  more                                                                    
information regarding known and unknown tax payers.                                                                             
                                                                                                                                
Commissioner  Rodell responded  that  the  division did  not                                                                    
have  a way  to evaluate  compliance unless  a business  had                                                                    
previously  filed with  the  state. The  state  only has  an                                                                    
opportunity  to investigate  for  fraud  when violators  are                                                                    
caught or  reported. The division works  in conjunction with                                                                    
the   Department  of   Commerce,   Community  and   Economic                                                                    
Development on compliance issues.                                                                                               
                                                                                                                                
1:56:52 PM                                                                                                                    
                                                                                                                                
Representative  Thompson  asked   about  the  potential  for                                                                    
future savings in personnel costs.                                                                                              
                                                                                                                                
Commissioner Rodell responded  that it was too  soon to make                                                                    
a determination  on staffing levels. She  indicated that the                                                                    
state would be  able to evaluate whether or not  it uses its                                                                    
auditors to  maximize tax revenues  and to ensure  tax payer                                                                    
compliance.  The  majority  of   the  state's  tax  division                                                                    
resources  were  appropriated  for   managing  oil  and  gas                                                                    
production tax, the lion's share of the state's revenue.                                                                        
                                                                                                                                
1:58:38 PM                                                                                                                    
                                                                                                                                
Representative  Thompson  asked  about  oil  taxes  and  the                                                                    
auditing process. He inquired what  the costs would be if SB                                                                    
21 was repealed and the  state rolled back to Alaska's Clear                                                                    
and Equitable Share (ACES).                                                                                                     
                                                                                                                                
Commissioner  Rodell  replied  that FY  07  encompassed  two                                                                    
different tax  structures, the  Petroleum Profits  Tax (PPT)                                                                    
and  ACES. She  informed  the committee  that  the tax  year                                                                    
would be finalized on March  31, 2014. She also reported the                                                                    
audits for FY  08 and FY 09 were  currently being conducted.                                                                    
If the  referendum to repeal  SB 21 passed, the  state would                                                                    
again encounter  a split  tax year.  She confirmed  that the                                                                    
tax  revenue management  system was  programmed for  the tax                                                                    
structure associated  with SB 21-More Alaska  Production Act                                                                    
(MAPA).  She did  not have  a cost  estimate reflecting  the                                                                    
effects of a repeal of SB  21 but offered to conduct further                                                                    
research to provide the information.                                                                                            
                                                                                                                                
Co-Chair Austerman  asked if  the FY 06  audit was  the most                                                                    
recently completed tax  audit. Commissioner Rodell responded                                                                    
in the affirmative.                                                                                                             
                                                                                                                                
Co-Chair Austerman asked if the  delays in completing audits                                                                    
were normal.                                                                                                                    
                                                                                                                                
Commissioner  Rodell  answered  that filings  were  made  by                                                                    
March of  the subsequent  year. Also, participating  oil and                                                                    
gas  companies  submitted  monthly   tax  filings  and  made                                                                    
monthly  tax payments.   The  associated  filings were  then                                                                    
reviewed by state auditors to  confirm that the right amount                                                                    
of taxes was being paid.  While the audits were in progress,                                                                    
the division kept the commissioner  abreast of their status.                                                                    
She  expressed her  confidence in  the accuracy  of revenues                                                                    
being collected and that federal  filings were being used as                                                                    
benchmarks to measure their correctness.                                                                                        
                                                                                                                                
Co-Chair Austerman  asked whether the delays  were normal or                                                                    
if the state  is behind in its audits because  of a staffing                                                                    
deficiency within the department.                                                                                               
                                                                                                                                
Commissioner Rodell responded that  a request for an updated                                                                    
revenue   management   system    and   corresponding   staff                                                                    
requirements began with the passage  of ACES. In the case of                                                                    
the revenue  management system, the  funding did  not become                                                                    
available until FY 11.   Since acquiring funds, the division                                                                    
was working  in an effort to  get the system up  and running                                                                    
and to complete the backlog of audits.                                                                                          
                                                                                                                                
2:05:08 PM                                                                                                                    
                                                                                                                                
Co-Chair Austerman asked the  commissioner to anticipate the                                                                    
lead  time  for the  completion  of  an audit.  Commissioner                                                                    
Rodell replied that the department  hoped to cover two years                                                                    
in one audit.                                                                                                                   
                                                                                                                                
Vice-Chair  Neuman   asked  if   the  12.5   percent  Public                                                                    
Employees Retirement System  (PERS) and Teachers' Retirement                                                                    
System  (TRS) fund  returns on  slide  3, were  based on  an                                                                    
average.  Commissioner  Rodell  indicated the  figures  were                                                                    
actual percentages for FY 13.                                                                                                   
                                                                                                                                
Vice-Chair  Neuman asked  the  commissioner  for a  ten-year                                                                    
average  on  the  amount  of  fund  returns  from  long-term                                                                    
investments.                                                                                                                    
                                                                                                                                
Commissioner Rodell  responded that the department  did some                                                                    
historical  evaluations and  found that  the average  return                                                                    
was 7.78  percent over the  life of  the funds or  28 years;                                                                    
the average excluded FY 13 numbers.                                                                                             
                                                                                                                                
                                                                                                                                
2:08:12 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Neuman  expressed  concern that  the  retirement                                                                    
systems relied on an 8 percent return.                                                                                          
                                                                                                                                
Commissioner Rodell  replied that the state  actuary assumed                                                                    
8 percent,  a 6  percent return with  a 2  percent inflation                                                                    
factor  built in.  The department  set  an asset  allocation                                                                    
based  on targeting  an 8  percent return.  Assumptions were                                                                    
adjusted  going forward  and in  FY  13 the  state beat  its                                                                    
target. She  reported that in FY  09 there was a  20 percent                                                                    
loss. The  state invested in such  a way to allow  assets to                                                                    
make the benefit  payments. She stated that she  took all of                                                                    
the  different funds  seriously. She  wanted to  stay within                                                                    
statutory mandates and increase revenues to the state.                                                                          
                                                                                                                                
Vice-Chair  Neuman  commented   on  greater  risk  producing                                                                    
greater returns.                                                                                                                
                                                                                                                                
2:11:14 PM                                                                                                                    
                                                                                                                                
Representative Gara  expressed his  concerns about  the ACES                                                                    
audits. He indicated  that the first audit  had not occurred                                                                    
yet. He  stated that ConocoPhillips earned  approximately $2                                                                    
billion in profits in Alaska.  He suggested that $40 billion                                                                    
to $50  billion dollars of  profits under ACES were  not yet                                                                    
audited.  He wondered  if the  department had  the staff  to                                                                    
fully audit all of the tax returns related to ACES.                                                                             
                                                                                                                                
2:13:37 PM                                                                                                                    
                                                                                                                                
Commissioner  Rodell   replied  that  the   legislature  was                                                                    
helpful in providing the necessary  positions to get the job                                                                    
done. In  2013, two positions  were added: a  master auditor                                                                    
in oil and  gas, and an oil and gas  production auditor.  In                                                                    
reference to  the final  audit for FY  08 the  auditors were                                                                    
presently  collecting data  on  the oil  and gas  companies.                                                                    
Although the  companies were making payments  and completing                                                                    
their  federal  tax  filings, they  had  to  submit  amended                                                                    
returns because  of changes in regulations  related to ACES.                                                                    
She  stated  that  the  department   was  confident  in  the                                                                    
accuracy  of  the  amount  of taxes  paid  and  tax  credits                                                                    
applied. She  expressed confidence  that revenue  staff were                                                                    
diligently working to  finish the audits and to  get the tax                                                                    
revenue  management   system  in  place.  She   assured  the                                                                    
committee that she and her  staff were committed to ensuring                                                                    
the state gets every dollar it is entitled to.                                                                                  
                                                                                                                                
2:17:31 PM                                                                                                                    
                                                                                                                                
Representative  Gara requested  reassurance that  the proper                                                                    
accounting activities were in place  in order to acquire all                                                                    
taxes owed  to the  state. He  emphasized the  importance of                                                                    
audits.                                                                                                                         
                                                                                                                                
Commissioner Rodell  discussed how  the work  of 18  oil and                                                                    
gas production tax auditors was  distributed.  The group was                                                                    
divided  in  half   with  half  of  one   group  focused  on                                                                    
deductions and credits while the  other half concentrated on                                                                    
tax   collection.   She   reported  that   the   regulations                                                                    
associated with SB  21 were completed on time  for the start                                                                    
of the tax year beginning on January 1, 2014.                                                                                   
                                                                                                                                
2:19:22 PM                                                                                                                    
                                                                                                                                
Representative  Guttenberg  asked   the  difference  between                                                                    
monthly and year-end audits and  whether or not it helped to                                                                    
conduct monthly audits.                                                                                                         
                                                                                                                                
Commissioner Rodell  replied that there were  no significant                                                                    
differences between monthly and  year-end audits and that by                                                                    
conducting  monthly audits  the  year-end  audits were  much                                                                    
easier.                                                                                                                         
                                                                                                                                
Representative  Guttenberg asked  for verification  that the                                                                    
master auditors were  on task doing what they  were hired to                                                                    
do.                                                                                                                             
                                                                                                                                
Commissioner  Rodell   confirmed  that  the   auditors  were                                                                    
completing their assigned duties.   They were also assisting                                                                    
programmers  with  the  implementation of  the  tax  revenue                                                                    
management  system  by  making sure  the  system  accurately                                                                    
reflects both regulation and statute.                                                                                           
                                                                                                                                
2:20:27 PM                                                                                                                    
                                                                                                                                
Representative Guttenberg asked about  slide 14. He wondered                                                                    
if cuts  to non-personnel  external expenditures  would show                                                                    
up in small  increments in other places  in the department's                                                                    
budget where the department assumed the responsibilities.                                                                       
                                                                                                                                
Mr. Burnett replied in the negative.                                                                                            
                                                                                                                                
Representative     Guttenberg    asked     about    computer                                                                    
replacements. Mr.  Burnett responded that the  two divisions                                                                    
were  on  a four-year  equipment  cycle.  He emphasized  the                                                                    
importance of having up-to-date  tools to provide the public                                                                    
with optimal feedback.                                                                                                          
                                                                                                                                
2:22:19 PM                                                                                                                    
                                                                                                                                
^FY  15 GOVERNOR'S  BUDGET OVERVIEW:  DEPARTMENT OF  NATURAL                                                                  
RESOURCES                                                                                                                     
                                                                                                                                
JOE  BALASH, COMMISSIONER  DESIGNEE,  DEPARTMENT OF  NATURAL                                                                    
RESOURCES  (DNR),  delivered  the  PowerPoint  presentation:                                                                    
"State of  Alaska Department of Natural  Resources" (copy on                                                                    
file).                                                                                                                          
                                                                                                                                
Commissioner  Balash discussed  slide  4:  "State of  Alaska                                                                    
Department of  Natural Resources." He stated  that there had                                                                    
been  some changes  to the  agency's organizational  charts,                                                                    
mostly  name  changes,  including   Mr.  Balash,  listed  as                                                                    
commissioner,   and   Bob    Swenson,   listed   as   deputy                                                                    
commissioner.   He  indicated that  the chart  also included                                                                    
the  different divisions  that make  up the  agency and  the                                                                    
major   components  of   the   operating   budget  for   the                                                                    
department. He  reported that what  was not included  on the                                                                    
chart were various boards that  function within or alongside                                                                    
some of the divisions.                                                                                                          
                                                                                                                                
Commissioner  Balash turned  to  slide 5:  "State of  Alaska                                                                    
Department of  Natural Resources." He reviewed  the DNR core                                                                    
services:                                                                                                                       
                                                                                                                                
        1. Foster responsible commercial development and use                                                                    
          of state land and natural resources, consistent                                                                       
          with the public interest, for longterm wealth and                                                                     
          employment                                                                                                            
        2. Provide access to state lands for public and                                                                         
          private use, settlement, and recreation                                                                               
        3. Ensure sufficient data acquisition and assessment                                                                    
          of land and resources to foster responsible                                                                           
          resource development                                                                                                  
        4. Mitigate threat to the public from natural                                                                           
          hazards    by    providing   comprehensive    fire                                                                    
          protection   services  on   state,  private,   and                                                                    
          municipal    lands,   and    through   identifying                                                                    
          significant geological hazards                                                                                        
                                                                                                                                
2:26:26 PM                                                                                                                    
                                                                                                                                
Commissioner Balash  directed attention  to slide  6: "State                                                                    
of  Alaska Department  of  Natural  Resources." He  asserted                                                                    
that DNR managed  the State of Alaska's  lands including 100                                                                    
million  acres of  uplands, 60  million acres  of tidelands,                                                                    
shore lands, and  submerged lands, and 40  thousand miles of                                                                    
coastline. He  emphasized the astounding  responsibility DNR                                                                    
had.                                                                                                                            
                                                                                                                                
Commissioner Balash  referred to  slide 7: "State  of Alaska                                                                    
DNR has 7  Divisions." He noted the  Division of Agriculture                                                                    
and the Division Forestry.                                                                                                      
                                                                                                                                
2:28:06 PM                                                                                                                    
                                                                                                                                
Commissioner Balash  revealed slide 8: "State  of Alaska DNR                                                                    
has 7  Divisions." He focused  on two divisions  within DNR.                                                                    
First,  he   referenced  the  Division  of   Geological  and                                                                    
Geophysical  Surveys  acknowledging   Steve  Masterman,  the                                                                    
acting  director  of the  division.  He  reported there  was                                                                    
currently a search  for the next state  geologist to replace                                                                    
Mr.  Swenson. The  department was  going to  be looking  for                                                                    
someone with  a mineral  background rather than  an emphasis                                                                    
on energy.   He then directed his attention  to the Division                                                                    
of  Mining, Land,  and Water  specifying Brent  Goodrum, the                                                                    
division director.   He  noted the  division was  focused on                                                                    
addressing  backlog  as well  as  staying  current with  its                                                                    
review of new authorization applications.                                                                                       
                                                                                                                                
Commissioner Balash  advanced to  slide 9: "State  of Alaska                                                                    
DNR has  7 Divisions."  He highlighted  the Division  of Oil                                                                    
and Gas  and the Division  of Parks and  Outdoor Recreation.                                                                    
He shared that the state had  one of the largest state parks                                                                    
in the  country and  one of the  smallest state  budgets. He                                                                    
stressed the excellent performance  of the director. He also                                                                    
explained  the   role  that  the   Office  of   History  and                                                                    
Archaeology  played in  the permitting  system, specifically                                                                    
evaluating Section 106 compliance.                                                                                              
                                                                                                                                
2:30:57 PM                                                                                                                    
                                                                                                                                
Commissioner Balash moved  on to slide 10:  "State of Alaska                                                                    
DNR has 7  Divisions." He briefly discussed  the Division of                                                                    
Support Services, the seventh division  within DNR.  He then                                                                    
drew attention to  slide 11: "State of  Alaska DNR Offices."                                                                    
He  noted  the Office  of  the  Commissioner and  the  State                                                                    
Pipeline  Coordinator's Office  (SPCO).  He highlighted  the                                                                    
functions of  the SPCO  including landlord,  rent collector,                                                                    
and regulator.                                                                                                                  
                                                                                                                                
2:32:33 PM                                                                                                                    
                                                                                                                                
Commissioner Balash  advanced to slide 12:  "State of Alaska                                                                    
DNR  Offices."  He  reported  that  the  Office  of  Project                                                                    
Management  and  Permitting  operated  on  a  Memorandum  of                                                                    
Understanding (MOU) basis where  applicants financed some of                                                                    
the  services provided.  He also  outlined the  work of  the                                                                    
Alaska  Mental Health  Trust Land  Office.  He informed  the                                                                    
committee  that the  Alaska  Mental  Health Trust  Authority                                                                    
funded  its programs  through the  development  of its  land                                                                    
assets within the state.   The commissioner relayed that DNR                                                                    
had an  agreement with  the trust to  establish and  run the                                                                    
land office.                                                                                                                    
                                                                                                                                
Commissioner  Balash  reviewed  slide 13:  "Key  Performance                                                                    
Measures."  The slide  included a  graph showing  the dollar                                                                    
value  of  MOU  agreements for  large  development  projects                                                                    
permitting   coordination.  He   stated   that  DNR   needed                                                                    
additional personnel in order to  stay ahead of the incoming                                                                    
workload.                                                                                                                       
                                                                                                                                
Commissioner Balash  referred to Slide 14:  "Key Performance                                                                    
Measures."  The slide  included a  graph of  key performance                                                                    
measures  for the  Division of  Mining, Land  and Water.  He                                                                    
discussed that the  division was fully staffed  and had been                                                                    
able  to  decrease  the  permit  backlog.  He  credited  the                                                                    
director  for the  progress that  has been  made within  the                                                                    
division to reduce the bottleneck.                                                                                              
                                                                                                                                
2:36:31 PM                                                                                                                    
                                                                                                                                
Commissioner Balash pointed to slide  15 that included a key                                                                    
performance measurement  chart for the percent  of oil, gas,                                                                    
and geothermal  leases awarded within  nine months  of sale.                                                                    
The  department   undertook  an  evaluation  of   the  lease                                                                    
process. He  was happy to  report that in recent  months all                                                                    
leases were issued  within seven weeks of  sale. He detailed                                                                    
that the division  would apply the seven-week  target to the                                                                    
Cook  Inlet sale  before making  a permanent  change to  the                                                                    
standard. Slide 16  included a chart that  showed a tracking                                                                    
of the  square miles of published  minerals-related airborne                                                                    
geophysical data. The data reflected  an increase in mineral                                                                    
claims  and exploration.  Commissioner  Balash commented  on                                                                    
the  contribution   that  he  felt  mining   made  to  small                                                                    
communities.                                                                                                                    
                                                                                                                                
Commissioner Balash  moved on to  slide 17 that  contained a                                                                    
graph showing  park fee revenues. He  discussed service fees                                                                    
paid by  users. The  chart indicated  an uptick  in park-fee                                                                    
revenue in  FY 13. He  noted that a balance  existed between                                                                    
increasing  fees  and  providing  Alaskans  with  access  to                                                                    
something they owned.                                                                                                           
                                                                                                                                
2:40:50 PM                                                                                                                    
                                                                                                                                
JEANMARIE  DAVIS, DIRECTOR,  DIVISION  OF SUPPORT  SERVICES,                                                                    
DEPARTMENT OF  NATURAL RESOURCES,  moved to  slide 19.   She                                                                    
stated that  DNR employed approximately 1,100  Alaskans. She                                                                    
continued with  slide 20:  "DNR FY  2015 Budget."  She noted                                                                    
that in  FY 06 DNR's  general funds (GF) budget  growth rate                                                                    
was 2.63 percent.  In FY 15 DNR's GF budget  growth rate was                                                                    
estimated at 2 percent, a  slight decrease from the overall.                                                                    
The statewide  annual growth  rate in  the last  eight years                                                                    
for all agencies was 7.2  percent in comparison to DNR's 2.6                                                                    
percent.  She pointed  out  a few  changes  in DNR's  budget                                                                    
including an uptick  between the FY 08 and  FY 09 management                                                                    
plan attributed  to increments given in  recognition for the                                                                    
workload  undertaken in  the  Oil and  Gas  Division and  to                                                                    
increased   aviation   contracts   for   firefighting.   She                                                                    
acknowledged a  budget incline between  FY 11 through  FY 14                                                                    
attributed  primarily to  the Division  of Mining,  Land and                                                                    
Water. Money was  budgeted to fill vacant  positions as well                                                                    
as  to  create and  fill  new  positions  to help  with  the                                                                    
permitting  backlog.    Additional   funding  was  added  to                                                                    
support   navigability   work,   ongoing   litigation,   the                                                                    
Department of  Law, stewardship, and the  state horticulture                                                                    
program.                                                                                                                        
                                                                                                                                
2:43:35 PM                                                                                                                    
                                                                                                                                
Ms.  Davis  directed  attention  to slide  21:  "DNR  FY  15                                                                    
Budget." She reviewed the chart  which showed the percentage                                                                    
of the department's  budget by fund group.   The percentages                                                                    
across  the   years  remained  fairly   consistent.  Federal                                                                    
receipts  made  up  about  13  percent  of  the  budget  and                                                                    
remained the  same from  FY 06  to FY 15.   An  increase was                                                                    
seen in other state  funds, the statutory designated program                                                                    
receipts,   and  in   funds   that   support  the   Pipeline                                                                    
Coordinator's Office  and the Mental Health  Trust Authority                                                                    
Land Office.                                                                                                                    
                                                                                                                                
Ms.  Davis  reviewed  slide  22: "DNR  FY  15  Budget."  She                                                                    
explained  that  the  chart depicted  a  comparison  of  the                                                                    
continued  budget  growth of  2.6  percent  annually to  the                                                                    
department's  ten-year  fiscal  plan  GF only.  All  of  the                                                                    
divisions  contributed to  the ten-year  plan by  evaluating                                                                    
workloads and trends.                                                                                                           
                                                                                                                                
Ms.  Davis  noted that  slide  23  was the  same  comparison                                                                    
represented on slide 22 based on all funds.                                                                                     
                                                                                                                                
2:45:11 PM                                                                                                                    
                                                                                                                                
Ms. Davis  referenced slide 24: "DNR  FY2013/FY2015 Budget."                                                                    
She  asserted  that  because   natural  hazard  threats  are                                                                    
unpredictable   from   year-to-year   budgets   can   differ                                                                    
dramatically.   She   drew   attention  to   the   different                                                                    
percentages of  costs for mitigating natural  hazard threats                                                                    
in  FY 13  versus those  in FY  15.   The state  had a  much                                                                    
heavier fire season in FY 13  than in FY 15 throwing off the                                                                    
comparison.                                                                                                                     
                                                                                                                                
Ms. Davis  presented slide 25: "DNR  FY2013/FY2015 Budgets."                                                                    
She  pointed  out  that  the  fire  activity  component  was                                                                    
removed  in  the comparison  by  fund  type  to get  a  more                                                                    
accurate contrast  between the  two years for  the remaining                                                                    
fund categories.                                                                                                                
                                                                                                                                
Ms.  Davis summarized  slide 26:  "DNR  FY2015 Budget."  She                                                                    
detailed  a  snapshot  of  the  department's  FY  15  budget                                                                    
request  broken out  by  division or  office.   The  largest                                                                    
portion of funds  was allocated to the  Division of Forestry                                                                    
at 27.6  percent of  which 23.7  percent was  designated for                                                                    
fire suppression.                                                                                                               
                                                                                                                                
2:47:22 PM                                                                                                                    
                                                                                                                                
Ms.  Davis turned  to  slide 27:  "DNR  FY2015 Budget."  She                                                                    
explained that the  governor used the FY  14 management plan                                                                    
as a starting place in  calculating the FY 15 adjusted base.                                                                    
Legislative Finance then  identified one time appropriations                                                                    
made in  FY 14  and removed  those from  the FY  15 adjusted                                                                    
base  in order  to make  appropriate comparisons.   The  net                                                                    
reduction to the FY 15  budget was approximately $3 million.                                                                    
Key  changes were  statewide  contractual salary  increases,                                                                    
health  insurance  and   working  reserve  rate  reductions,                                                                    
multiple one-time  item reversals,  and the transfer  of one                                                                    
position from  the Department  of Transportation  and Public                                                                    
Facilities into  DNR's budget.   The bottom  line was  a net                                                                    
zero to the state.                                                                                                              
                                                                                                                                
2:49:09 PM                                                                                                                    
                                                                                                                                
Ms. Davis  advanced to  slide 28:  "DNR FY2015  Budget." She                                                                    
reported that changes from FY 14  to FY 15 were noted in the                                                                    
slide and totaled approximately  $1.6 million in reductions.                                                                    
She referenced two key reductions,  the Gas Pipeline Project                                                                    
Office  and  the  deletion of  long-term  vacant  positions.                                                                    
Additional  key changes  included the  restoration of  items                                                                    
that  were   appropriated  as  one-time  items   in  FY  14,                                                                    
subsequently backed out of the  budget, and then appeared as                                                                    
new requests  for FY 15.   Other key GF  increases requested                                                                    
in FY 15 included funding  for existing and vacant positions                                                                    
for field  operations, park staff,  and staff for  the South                                                                    
Denali  implementation.   The second  request was  for funds                                                                    
for  the  geological  materials   center,  scheduled  to  be                                                                    
occupied in September  2014. The third item  was for another                                                                    
position to support the oil  and gas workload. The remainder                                                                    
of  the changes  was related  to other  funding sources  and                                                                    
technical reductions.                                                                                                           
                                                                                                                                
2:51:05 PM                                                                                                                    
                                                                                                                                
Ms.  Davis directed  attention  to slide  29:  "DNR FY  2015                                                                    
Budget."  She emphasized  that DNR  generated an  average of                                                                    
$2.6 billion in revenue  annually (e.g. unrestricted general                                                                    
fund,  permanent fund,  constitutional budget  reserve fund,                                                                    
and a  mix of  other revenue funds)  in comparison  to DNR's                                                                    
average  annual unrestricted  general fund  budget of  $71.6                                                                    
million.  The annual  average was  based  on averages  taken                                                                    
from FY 06 through FY 13.                                                                                                       
                                                                                                                                
                                                                                                                                
Co-Chair Austerman  asked what  the turnaround time  was for                                                                    
processing a  permit and what  the processing time  would be                                                                    
for the 1,237  permits referred to on slide  14. He recalled                                                                    
that at one  point the department had  estimated a five-year                                                                    
delay.                                                                                                                          
                                                                                                                                
2:53:18 PM                                                                                                                    
                                                                                                                                
Commissioner  Balash replied  that  there were  a number  of                                                                    
factors which  affect processing  time including  the number                                                                    
of incoming  applications. He indicated that  the department                                                                    
was working  on the backlog while  simultaneously addressing                                                                    
new applications.  The type of application  drives the cycle                                                                    
time. The  data graph reflected  all of the  different types                                                                    
of authorizations  that get reviewed.  He reported  that the                                                                    
previous year the department  received over 750 applications                                                                    
for permits  to mine in Alaska.  He stated that in  order to                                                                    
determine a  specific processing time a  particular category                                                                    
of  authorization   would  need   to  be   identified  (e.g.                                                                    
easements,   leases,    temporary   water    leases,   water                                                                    
reservations, and water rights applications).                                                                                   
                                                                                                                                
Co-Chair  Austerman stated  that  in 2011,  DNR quoted  five                                                                    
years to  process a tideland  permit application  to install                                                                    
and connect  a dock to  land.   He asked what  DNR's current                                                                    
quote would be for the same type of permit.                                                                                     
                                                                                                                                
                                                                                                                                
Commissioner  Balash  replied  that  he  would  provide  the                                                                    
information to the co-chair.                                                                                                    
                                                                                                                                
2:55:55 PM                                                                                                                    
                                                                                                                                
Representative Wilson asked about  the amount of money spent                                                                    
on fire suppression referred to on slide 25.                                                                                    
                                                                                                                                
Ms. Davis responded that in FY  13 the cost of fire activity                                                                    
was  $46  million of  which  $22  million was  from  general                                                                    
funds.                                                                                                                          
                                                                                                                                
Representative Wilson  spoke to  the prevalence of  poor air                                                                    
quality in  her region  and the need  for firewood  for home                                                                    
heating. She  wondered about a  forest management  plan that                                                                    
would  reduce forest  fires  and at  the  same time  provide                                                                    
increased timber as a fuel source.                                                                                              
                                                                                                                                
2:57:13 PM                                                                                                                    
                                                                                                                                
Commissioner Balash  replied that  safety programs  could be                                                                    
used to thin forested  areas. However, the authorizations to                                                                    
cut wood were  limited by road access and many  of the fires                                                                    
that eat  up considerable  resources occurred far  away from                                                                    
infrastructure. He suggested  that fire suppression expenses                                                                    
directly  correlated   with  the   proximity  of   fires  to                                                                    
populated areas.                                                                                                                
                                                                                                                                
Representative   Wilson  surmised   that   fires  were   not                                                                    
suppressed until  a community's safety was  threatened.  She                                                                    
suggested  that the  state consider  selling  any wood  that                                                                    
gets  cleared for  fire  safety as  a  means for  generating                                                                    
additional revenues.                                                                                                            
                                                                                                                                
3:00:08 PM                                                                                                                    
                                                                                                                                
Commissioner  Balash explained  that the  ownership of  land                                                                    
played a  part in  the management process.  The state  has a                                                                    
say in  what happens to  its own lands  but does not  in the                                                                    
case of  federally-owned or privately-owned  land. Moreover,                                                                    
fire  is unpredictable  in nature,  making managing  a tree-                                                                    
thinning safety program even more challenging.                                                                                  
                                                                                                                                
Representative Wilson  remarked about opening up  an area to                                                                    
bring dry wood into communities.                                                                                                
                                                                                                                                
Representative   Gara   asked   about   the   prior   year's                                                                    
presentations and  whether or not  they reflected  the costs                                                                    
associated  with canceling  the  state's  contract with  the                                                                    
Alaska Gas Inducement  Act (AGIA). He asked if  there was an                                                                    
amount allocated to pay TransCanada for treble damages.                                                                         
                                                                                                                                
3:02:38 PM                                                                                                                    
                                                                                                                                
Commissioner Balash  stated that  the AGIA  license remained                                                                    
in effect. The parties  have pre-agreed to withdraw mutually                                                                    
from  the  license  depending on  certain  outcomes  of  the                                                                    
session  and  whether  or  not  the  project  is  determined                                                                    
economically  viable.  Since  inception of  the  license  in                                                                    
December 2008 the licensee and  its partners have spent $430                                                                    
million  of which  the  state  has reimbursed  approximately                                                                    
$300  million. The  treble  damages  clause was  potentially                                                                    
payable  to the  licensee if  the state  were to  breach the                                                                    
contract.  Since the  state has  honored the  agreement thus                                                                    
far, there is no need for an appropriation.                                                                                     
                                                                                                                                
Representative  Gara asked  Commissioner  Balash to  clarify                                                                    
the meaning  of "certain things happening  this session." He                                                                    
also  asked  if  any  provisions  existed  in  the  proposed                                                                    
agreements   or  the   related   bill  regarding   potential                                                                    
litigation.                                                                                                                     
                                                                                                                                
3:04:51 PM                                                                                                                    
                                                                                                                                
Commissioner Balash  replied that  the department had  a MOU                                                                    
to mutually agree  to withdraw from the  license if enabling                                                                    
legislation  passed. The  transition  out of  AGIA into  the                                                                    
heads  of  agreement framework  would  be  activated if  the                                                                    
legislation  passed,  leaving  the  license  behind  without                                                                    
further obligation.                                                                                                             
                                                                                                                                
Co-Chair   Austerman   expressed  his   concerns   regarding                                                                    
potential  litigation if  the enabling  legislation did  not                                                                    
pass.                                                                                                                           
                                                                                                                                
Representative  Gara asked  if there  was an  agreement with                                                                    
TransCanada to  use language that  allows them to  walk away                                                                    
from the AGIA license.                                                                                                          
                                                                                                                                
Commissioner  Balash offered  to explain  the MOU  in detail                                                                    
off-line and  to explain  the details  of the  agreement. He                                                                    
stated he was unclear about Representative Gara's question.                                                                     
                                                                                                                                
Representative  Gara   asked  if  the  state   would  be  in                                                                    
violation if  it did  not accept  certain provisions  of the                                                                    
MOU with TransCanada.                                                                                                           
                                                                                                                                
3:07:51 PM                                                                                                                    
                                                                                                                                
Commissioner Balash mentioned one  provision in the MOU that                                                                    
would  be   helpful  in  addressing   Representative  Gara's                                                                    
question but  deferred to Co-Chair Austerman  before reading                                                                    
it.                                                                                                                             
Co-Chair  Austerman allowed  for  a single  provision to  be                                                                    
read from the MOU.                                                                                                              
                                                                                                                                
Commissioner Balash read  article 2.1 part D.   He explained                                                                    
in layman's terms  that the parties would agree on  a set of                                                                    
terms later in the current  year if the enabling legislation                                                                    
passed. The parties might or  might not have an agreement if                                                                    
the legislature changed the legislation.                                                                                        
                                                                                                                                
Representative  Gara   wanted  to  know   specifically  what                                                                    
provisions would  have to stay  intact in order  to maintain                                                                    
an  agreement  with   TransCanada  if  enabling  legislation                                                                    
passed.                                                                                                                         
                                                                                                                                
Co-Chair Austerman  surmised that  the state would  not know                                                                    
if it  had an  agreement until  it knew  whether or  not the                                                                    
correlating  legislation passed.   If  not, the  state would                                                                    
have to start over with legislation.                                                                                            
                                                                                                                                
3:09:41 PM                                                                                                                    
                                                                                                                                
Representative   Thompson   reported    that   the   federal                                                                    
government  was in  the process  of  publishing new  federal                                                                    
maps  of  Alaska  and  that   RS2477  trails  would  not  be                                                                    
included. He asked  the commissioner if the  State of Alaska                                                                    
was planning on  publishing new maps and, if  so, would they                                                                    
contain the RS2477 trails.                                                                                                      
                                                                                                                                
Commissioner  Balash  replied  that  the state  was  in  the                                                                    
process  of  publishing  some  of   the  revised  maps  with                                                                    
overlays  that reflect  the  RS2477 trails  as  well as  17B                                                                    
easements.   The  easements  provided  for crossing  through                                                                    
Alaska Native Claims Settlement Act  lands in order to reach                                                                    
public lands.                                                                                                                   
                                                                                                                                
Representative  Thompson  asked  if  there  was  an  implied                                                                    
message from  the federal government  that it  was resisting                                                                    
public use  of the  RS2477 trails by  not including  them on                                                                    
its maps.                                                                                                                       
                                                                                                                                
Commissioner  Balash  replied  that  he would  get  back  to                                                                    
Representative Thompson with an answer as soon as possible.                                                                     
                                                                                                                                
3:11:41 PM                                                                                                                    
                                                                                                                                
Representative Edgmon asked  if there were any  plans to add                                                                    
tribes,  persons,  or  non-government organizations  to  the                                                                    
list  of  applicants  eligible to  apply  for  water  rights                                                                    
reservations outlined in HB 77.                                                                                                 
                                                                                                                                
Commissioner Balash replied that HB  77 was presently in the                                                                    
Senate Rules Committee. The  Department of Natural Resources                                                                    
held  hearings during  the interim  to gather  public input.                                                                    
The  topic  of  in-stream   flow  reservations  was  one  of                                                                    
community concern.  The department  was attempting  to match                                                                    
up  its   objectives  with  feedback  it   received  at  the                                                                    
hearings.                                                                                                                       
                                                                                                                                
Commissioner  Balash  communicated   that  the  department's                                                                    
chief  concern was  that  while persons  have  been able  to                                                                    
apply  for  in-stream flow  reservations  for  more than  30                                                                    
years,  it has  only been  in  the previous  two years  that                                                                    
individuals   have  applied.   The  first   application  the                                                                    
department  received was  associated with  the Chuitna  coal                                                                    
project  on the  west side  of  Cook Inlet.  A company  with                                                                    
valid mining claims obtained temporary  water use permits in                                                                    
order to  engage in exploration  activities to  complete the                                                                    
National  Environmental Policy  Act  (NEPA)  process.   Area                                                                    
residents  filed  an  application   for  an  in-stream  flow                                                                    
reservation  for 100  percent of  the water  in the  related                                                                    
area.  Following their  submission,  residents attempted  to                                                                    
block temporary water  use by petitioning DNR  in court. The                                                                    
department  was  concerned  that  a  private  entity  or  an                                                                    
individual could  stop temporary water  use for a  period of                                                                    
five years simply by making  an application for an in-stream                                                                    
flow  reservation.   In the  example the  commissioner gave,                                                                    
the judge  ruled in  DNR's favor  contending that  filling a                                                                    
request for a water  reservation did not constitute blocking                                                                    
other uses of water on a temporary basis.                                                                                       
                                                                                                                                
3:16:43 PM                                                                                                                    
                                                                                                                                
Commissioner  Balash indicated  the Superior  Court decision                                                                    
was not binding.  He concluded that clarity  was needed when                                                                    
competing filings  existed which lead to  conversations with                                                                    
the Department of Law.                                                                                                          
                                                                                                                                
Representative Edgmon  stated that  he would  pursue further                                                                    
information outside of the committee discussion.                                                                                
                                                                                                                                
Co-Chair   Austerman  referenced   the  Chuitna   water  use                                                                    
application for 100 percent use  of the water and asked what                                                                    
the department's  response would  be if the  application for                                                                    
100 percent water use was not warranted.                                                                                        
                                                                                                                                
Commissioner Balash  explained that DNR can  grant a partial                                                                    
request  rather  than  a  total  request  depending  on  its                                                                    
findings.                                                                                                                       
                                                                                                                                
3:19:51 PM                                                                                                                    
                                                                                                                                
Co-Chair  Austerman  asked  if   the  Chuitna  Coal  Company                                                                    
applied for and used its first water right.                                                                                     
                                                                                                                                
Commissioner Balash  reported that  the company  had applied                                                                    
for  temporary water  usage. Other  longer-term water  usage                                                                    
would  be  necessary, but  not  before  getting through  the                                                                    
permitting  process.   A temporary  water  use permit  would                                                                    
satisfy  the company's  need to  gather  necessary data  for                                                                    
further processing.                                                                                                             
                                                                                                                                
Co-Chair  Austerman invited  Representative  Edgmon and  DNR                                                                    
representatives to  have a more detailed  discussion outside                                                                    
of the committee.                                                                                                               
                                                                                                                                
3:21:45 PM                                                                                                                    
                                                                                                                                
Representative Munoz asked for an  update on DNR's review of                                                                    
dredge and  fill permitting that the  legislature authorized                                                                    
the previous year.                                                                                                              
                                                                                                                                
Commissioner Balash  explained that through  legislation DNR                                                                    
and  the  Department   of  Environmental  Conservation  were                                                                    
authorized to  jointly consider whether or  not applying for                                                                    
and  obtaining primacy  on 404  permitting activities  was a                                                                    
benefit to  the state. He  knew that along with  costs there                                                                    
would be  associated benefits.  The legislation  allowed for                                                                    
two new  positions in the  Office of Project  Management and                                                                    
Permitting.   DNR  executed an  MOU with  the Army  Corps of                                                                    
Engineers and the Environmental  Protection Agency to assist                                                                    
the state  in gathering information to  evaluate the effects                                                                    
of primacy.                                                                                                                     
                                                                                                                                
Representative  Munoz   asked  the  commissioner   when  the                                                                    
department's    recommendations    would    be    submitted.                                                                    
Commissioner Balash  answered that recommendations  would be                                                                    
available in 2016.                                                                                                              
                                                                                                                                
3:23:36 PM                                                                                                                    
                                                                                                                                
Representative  Gara asked  the  department  to provide  him                                                                    
with  the  number of  fishing  streams  in Alaska  that  are                                                                    
protected through state water reservations.                                                                                     
                                                                                                                                
Commissioner   Balash  replied   that  the   department  has                                                                    
adjudicated a vast  number of fishing streams  in the state,                                                                    
particularly streams  targeting King Salmon. The  ability to                                                                    
allow for  fish in  every stream in  Alaska would  require a                                                                    
great  amount  of state  resources.  He  offered to  provide                                                                    
Representative Gara the  most current numbers.   In 2013 the                                                                    
department  adjudicated and  completed reservations  on more                                                                    
streams than in the past 20 years.                                                                                              
                                                                                                                                
3:25:36 PM                                                                                                                    
                                                                                                                                
Representative Gara  reiterated his  request for  the number                                                                    
of Alaska streams that have  been adjudicated through state-                                                                    
initiated water reservations.                                                                                                   
                                                                                                                                
Commissioner Balash  replied that typically  public agencies                                                                    
such  as  U.S. Fish  and  Wildlife  Service and  the  Alaska                                                                    
Department of  Fish and Game  apply for  water reservations.                                                                    
He emphasized that  it has only been in the  last five years                                                                    
that   individuals  submitted   their   applications.     He                                                                    
specified  that the  department  completed approximately  20                                                                    
requests the prior year.                                                                                                        
                                                                                                                                
Representative Gara  asked the  commissioner to  confirm the                                                                    
total  number  of  water   reservations  in  state  history.                                                                    
Commissioner  Balash responded  that  he  would provide  the                                                                    
figures in writing the following week.                                                                                          
                                                                                                                                
3:27:10 PM                                                                                                                    
                                                                                                                                
Representative Munoz  asked if  the names of  in-stream flow                                                                    
reservation applicants  were available  to the public.   She                                                                    
also  asked for  the names  of the  organizations that  have                                                                    
applied for reservations relating to the Chuitna project.                                                                       
                                                                                                                                
Commissioner Balash  replied in  the affirmative  and agreed                                                                    
to provide a list of names.                                                                                                     
                                                                                                                                
Representative  Edgmon put  on  record that  his region  had                                                                    
concerns with  the related legislation because  so many very                                                                    
sensitive bodies  of water in the  highly productive Bristol                                                                    
Bay water sheds have been  cataloged or measured.  He opined                                                                    
that percentages the commissioner  offered were greater than                                                                    
what the actual  percentage rates would be if  the state was                                                                    
reviewed region by  region. He pointed out  that Bristol Bay                                                                    
had  many active  salmon bearing  streams that  had not  yet                                                                    
been  measured or  reserved which  could  become a  conflict                                                                    
down the road with larger development projects.                                                                                 
                                                                                                                                
Commissioner  Balash  appreciated  the  distinction  between                                                                    
salmon  and  thought  he  had  referenced  the  King  Salmon                                                                    
fishery.  He acknowledged that Bristol Bay's sustainable                                                                        
sockeye salmon fishery extended beyond the region's king                                                                        
salmon fishery.                                                                                                                 
                                                                                                                                
Co-Chair Austerman discussed the schedule for the following                                                                     
day.                                                                                                                            
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
3:29:19 PM                                                                                                                    
                                                                                                                                
The meeting was adjourned at 3:29 p.m.                                                                                          

Document Name Date/Time Subjects
DNR Overview HFIN 1-31-14.pdf HFIN 1/31/2014 1:30:00 PM
DNR HFIN Overview
DOR Budget Overview for HFC 1-31-14.pdf HFIN 1/31/2014 1:30:00 PM
DOR _ HFIN Overview
DNR Overview Responses HFIN .pdf HFIN 1/31/2014 1:30:00 PM
DNR Overview Response