Legislature(2013 - 2014)HOUSE FINANCE 519

02/03/2014 01:30 PM FINANCE

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01:30:16 PM Start
01:30:25 PM HB266 || HB267
01:31:29 PM Fy 15 Governor's Budget Overview: Department of Military and Veterans Affairs
02:31:07 PM Fy 15 Governor's Budget Overview: Department of Environmental Conservation
03:38:37 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ - FY15 Governor's Budget Overviews: TELECONFERENCED
Dept. of Military & Veterans' Affairs
Dept. of Environmental Conservation
+ Bills Previously Heard/Scheduled TELECONFERENCED
                  HOUSE FINANCE COMMITTEE                                                                                       
                     February 3, 2014                                                                                           
                         1:30 p.m.                                                                                              
1:30:16 PM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair  Austerman  called   the  House  Finance  Committee                                                                    
meeting to order at 1:30 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                                                                                                                
ALSO PRESENT                                                                                                                  
Major General Thomas H.  Katkus, Commissioner, Department of                                                                    
Military  and   Veterans  Affairs;  McHugh   Pierre,  Deputy                                                                    
Commissioner, Department  of Military and  Veterans Affairs;                                                                    
John Kramer,  Alaska Aerospace Corporation;  Susan Colligan,                                                                    
Director,  Division of  Administrative Services,  Department                                                                    
of   Military   and    Veterans   Affairs;   Larry   Hartig,                                                                    
Commissioner,  Department   of  Environmental  Conservation;                                                                    
Thomas   Cherian,  Director,   Division  of   Administrative                                                                    
Services,  Department  of Environmental  Conservation;  Lynn                                                                    
Kent,  Deputy  Commissioner,   Department  of  Environmental                                                                    
FY 15 GOVERNOR'S BUDGET OVERVIEWS:                                                                                              
     Department of Military and Veterans Affairs                                                                                
     Department of Environmental Conservation                                                                                   
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."                                                                                      
1:30:25 PM                                                                                                                    
^FY 15 GOVERNOR'S BUDGET OVERVIEW: DEPARTMENT OF MILITARY                                                                     
AND VETERANS AFFAIRS                                                                                                          
1:31:29 PM                                                                                                                    
MAJOR GENERAL THOMAS H. KATKUS, COMMISSIONER, DEPARTMENT OF                                                                     
MILITARY AND VETERANS AFFAIRS, presented the Department of                                                                      
Military and Veterans Affairs year-end review (video).                                                                          
1:42:54 PM                                                                                                                    
Commissioner   Katkus   began  the   presentation,   "Alaska                                                                    
Department   of  Military   and   Veterans  Affairs   FY2015                                                                    
Overview,  February 3,  2014. Commissioner  Katkus spoke  to                                                                    
Slide 1, "Mission":                                                                                                             
     To  provide  military  forces  to  accomplish  military                                                                    
     missions  in the  state or  around  the world;  provide                                                                    
     homeland  security  and  defense;  emergency  response;                                                                    
     veterans  services; and  youth military  style training                                                                    
     and education.                                                                                                             
Commissioner Katkus turned to Slide 2, "Core Services":                                                                         
   · Defend and Protect Alaska and the United States                                                                            
   · Disaster Preparedness/Response and Recovery                                                                                
   · Youth Intervention                                                                                                         
   · Outreach to Veterans and Military Families                                                                                 
Commissioner  Katkus continued  to  Slide  4, "Measures  and                                                                    
Results." The slide identified  two significant measures and                                                                    
results  that  made  an  impact  on  society;  one  was  the                                                                    
graduation rates  of the military  youth academy,  which was                                                                    
comprised of drop-out, at-risk  youth from civilian schools.                                                                    
He shared that the department  had been working to raise the                                                                    
proportion of the  number of people entering  the school, to                                                                    
the number of graduates. In  2014 the graduation rate was 85                                                                    
1:44:13 PM                                                                                                                    
Commissioner  Katkus   discussed  Slide  5,   "Measures  and                                                                    
Results.", which  was a  bar graph  detailing the  number of                                                                    
requests for  assistance by Alaska  veterans and  the number                                                                    
of  request  met by  the  Office  of Veterans  Services.  He                                                                    
pointed  out that  the request  for assistance  in 2012  was                                                                    
over 20,000,  in 2013  it was  up 16  percent to  32,000. He                                                                    
noted  that   the  department  had  increased   outreach  to                                                                    
veterans significantly.                                                                                                         
1:45:24 PM                                                                                                                    
Commissioner  Katkus   discussed  Slide  6,   "General  Fund                                                                    
Budget." He  directed committee attention to  the black line                                                                    
at the bottom  of the chart on the right  side of the slide.                                                                    
He stated that the line was  the DMVA budget relative to all                                                                    
of  the other  departments. The  chart  on the  left of  the                                                                    
slide   illustrated  the   DMVAs  share   of  total   agency                                                                    
operations. He said  that the increase in  numbers from 2012                                                                    
through 2015 accounted for an  increase in aerospace and the                                                                    
monies  brought  in  due  to   the  change  in  the  funding                                                                    
mechanism  for the  youth  academy;  instead if  interagency                                                                    
transfers of funds it is  now general funds. He relayed that                                                                    
the  line would  drop as  funding to  aerospace was  reduced                                                                    
according to the department's plan.                                                                                             
1:46:20 PM                                                                                                                    
Commissioner Katkus  discussed Slide  7, "Budget by  Fund by                                                                    
Group." The  slide depicted three  bar graphs:  DMVA percent                                                                    
of the total department budget  by fund group (left), Alaska                                                                    
Aerospace  Corporation  (ACC)  budget  by  fund  group  (top                                                                    
right), DMVA budget by fund  group without ACC by fund group                                                                    
(bottom  right).  The percentage  of  general  funds in  the                                                                    
department's  budget  was  20  percent in  FY06  and  is  41                                                                    
percent  in  the FY15  Governor's  request.  In FY08,  $22.8                                                                    
million  of  Alaska   Aerospace  Corporation  Receipts  were                                                                    
changed  to  Federal  Receipts to  more  accurately  reflect                                                                    
federal   contracts.   The  Alaska   Aerospace   Corporation                                                                    
received the following general  fund increments for on-going                                                                    
maintenance  and operation:  FY12  -  $4 million  (one-time,                                                                    
FY13  - $8  million  (one-time), FY14  -  $8.1 million  (on-                                                                    
going).  The legislature  removed $26.7  million of  Federal                                                                    
Receipt    authorization   from    the   Alaska    Aerospace                                                                    
Corporation's budget in FY13.                                                                                                   
Commissioner Katkus turned  to Slide 8, "10-year  plan - All                                                                    
Funds." He  noted that the plans  in the distance for  a new                                                                    
armory in the Fairbanks area in the outskirts of W                                                                              
1:47:32 PM                                                                                                                    
Commissioner Katkus  discussed slide  9: "10 year  plan GF."                                                                    
He stated that the 2  significant that would see an increase                                                                    
were facilities,  the first was  the US Property  and Fiscal                                                                    
Office,  second  was  the  Fairbanks  Readiness  Center.  He                                                                    
turned to  Slide 9,  "10-Year Plan-GF.  He relayed  that the                                                                    
priorities  for those  fund would  be  the Alcantra  100-man                                                                    
Barracks and the Fairbanks Readiness Center.                                                                                    
1:47:53 PM                                                                                                                    
Commissioner Katkus discussed slide 10: "Priority Issues":                                                                      
   · Continuing Department of Defense budget and military                                                                       
    force reductions as global was on terror  subsides                                                                          
   · Base Realignment and Closure                                                                                               
   · Fairbanks Cemetery Land                                                                                                    
   · Arctic Disaster Response and Recovery                                                                                      
Commissioner Katkus discussed the priority issues.                                                                              
1:51:52 PM                                                                                                                    
Co-Chair Stoltze  asked what the graduation  rate would have                                                                    
been for the students entering the academy this year.                                                                           
MCHUGH PIERRE,  DEPUTY COMMISSIONER, DEPARTMENT  OF MILITARY                                                                    
AND  VETERANS  AFFAIRS,  replied that  the  graduation  rate                                                                    
would have been  zero as all of the students  of the academy                                                                    
were  drop-outs.  He stressed  that  the  academy was  those                                                                    
students last chance to get  back on track. He furthered the                                                                    
academy  would do  everything it  could  to establish  small                                                                    
successes  and  teach  the  cadets how  to  build  on  those                                                                    
Commissioner Katkus added that  academy was located on Joint                                                                    
Base  Elmendorf-Richardson  (JBER)  which  allowed  for  the                                                                    
support of on-sight mentors.                                                                                                    
Co-Chair Stoltze praised the Challenge Academy.                                                                                 
1:55:50 PM                                                                                                                    
Co-Chair   Stoltze    asked   about   the    food   security                                                                    
appropriation in the capital budget of $3 million.                                                                              
Mr. Pierre  stated that a  year ago the department  went out                                                                    
for an  RFP to  get an  all-inclusive response  to emergency                                                                    
food  and  food  security  in  general.  He  said  that  the                                                                    
department  was  seeking  shelf-stable food  that  would  be                                                                    
reliable for  the next 10 to  20 years. He relayed  that the                                                                    
state  had  a  robust  agricultural  communities  with  many                                                                    
stores  and the  food  purchased for  disasters  it was  not                                                                    
shelf-stable food,  it was perishable food  that communities                                                                    
were used  to eating  so that they  felt like  their regular                                                                    
routine was being  met. He said that part  of the governor's                                                                    
initiative  to be  better prepared  over all  was to  assure                                                                    
that   the  state   had  water   purification  capabilities,                                                                    
electrical  generation  capability  and  an  emergency  food                                                                    
stash, with the goal of feeding  40,000 people for 7 days in                                                                    
the  case of  a dire  emergency. He  said that  the original                                                                    
request had been broken down  into sections. He relayed that                                                                    
the  bid  for  the  contract  closed that  day  and  it  was                                                                    
expected that they  would purchase the first  amount of food                                                                    
within the next few weeks.                                                                                                      
1:58:03 PM                                                                                                                    
Commissioner  Katkus added  that both  the power  generation                                                                    
and water purification resources  had been utilized already.                                                                    
He  stressed  that   the  food  element  was   meant  for  a                                                                    
catastrophic event.                                                                                                             
1:58:50 PM                                                                                                                    
Co-Chair Stoltze  asked if the large  generator purchased by                                                                    
the American  Legion/Lion's Club  in Peter's Creek  could be                                                                    
added to the inventory of emergency service facilities.                                                                         
Commissioner  Katkus  stated  that  he was  unaware  of  the                                                                    
Mr. Pierre  commended the Lion's  Club in Peter's  Creek for                                                                    
being  proactive.  He  explained   that  the  way  emergency                                                                    
response   worked  in   Alaska  was   that  each   community                                                                    
designated  shelters that  were  capable of  taking care  of                                                                    
2:01:38 PM                                                                                                                    
Representative Gara asked if the  department had the ability                                                                    
to expand the youth academy to accommodate more students.                                                                       
Commissioner  Katkus  replied yes.  He  added  that most  of                                                                    
youth program  in different states relied  mainly on federal                                                                    
dollars. In  Alaska more  state dollars were  put in  to the                                                                    
program than  federal dollars. He said  that because federal                                                                    
dollars  were involved  there were  very specific  rules and                                                                    
regulations  that needed  to be  followed. He  stressed that                                                                    
within  the resources  that  the  department received,  they                                                                    
were providing the results that they sought.                                                                                    
2:04:11 PM                                                                                                                    
Mr.  Pierre added  that there  were  several obstacles  that                                                                    
would  need  to be  addressed  that  would require  a  large                                                                    
general  fund investment;  a lack  of barracks  space and  a                                                                    
lack  of dining  hall facility.  He said  that accommodating                                                                    
more kids would take more funding.                                                                                              
Representative  Gara spoke  to the  2000 foster  children in                                                                    
the  state. He  anticipated  that  their graduation  numbers                                                                    
were not great. He said  that foster youth were occasionally                                                                    
referred   to  the   academy,  and   wondered  whether   the                                                                    
department actively reached out  to the Office of Children's                                                                    
Services  (OCS)  in  order  to get  foster  youth  into  the                                                                    
Mr. Pierre replied that the  department actively worked with                                                                    
OCS  and the  Department of  Health and  Social Services  to                                                                    
make sure  that as  many eligible  applicants were  found as                                                                    
was possible.                                                                                                                   
2:06:45 PM                                                                                                                    
Representative   Thompson  understood   that  some   of  the                                                                    
students  at the  academy were  there not  because they  had                                                                    
dropped out, but because of discipline problems at home.                                                                        
Mr.  Pierre responded  that by  law  the student  must be  a                                                                    
drop-  out. He  said that  the  parent had  to register  the                                                                    
student as a drop out before they could join the program.                                                                       
Representative Thompson  queried the accomplishments  of the                                                                    
aerospace program.                                                                                                              
2:07:56 PM                                                                                                                    
Mr.  Pierre  stated that  he  and  Commissioner Katkus  were                                                                    
heavily  involved  with  making sure  that  the  corporation                                                                    
performed  to the  expectations  of the  department and  the                                                                    
2:09:01 PM                                                                                                                    
JOHN KRAMER,  ALASKA AEROSPACE CORPORATION, related  that in                                                                    
2013  the  legislature  had put  some  requirements  on  the                                                                    
corporation, one of which was  to secure a commercial launch                                                                    
contract,  multiple year,  and  prior to  July  1, 2013.  He                                                                    
relayed that failure to do  so would result in the reduction                                                                    
of the general fund allocation.  He shared that an agreement                                                                    
was in place  that was multi-year and that  there were other                                                                    
plans that were moving forward that were confidential.                                                                          
Representative  Thompson asked  whether  the next  scheduled                                                                    
launch as offsetting the aerospace budget.                                                                                      
Mr. Kramer  replied that the  corporation took a  25 percent                                                                    
budget reduction in FY14, which  was directly related to the                                                                    
contracts that they were able to secure.                                                                                        
2:10:55 PM                                                                                                                    
Co-Chair Austerman  asked if the  multi-year began  with the                                                                    
2014  launch. He  recalled  that the  contract  had been  in                                                                    
place for some time.                                                                                                            
Mr. Kramer replied that the  contract had been signed in May                                                                    
2013. He relayed  that the work would be  completed until FY                                                                    
2:11:40 PM                                                                                                                    
Co-Chair Austerman restated his  question. He asked if there                                                                    
were other contracts for additional launches.                                                                                   
Mr. Kramer  responded that there were  negotiations going on                                                                    
for additional launches, but there  were no signed contracts                                                                    
to date.                                                                                                                        
2:12:52 PM                                                                                                                    
Vice-Chair Neuman  spoke of the  Pentagon's decision  to use                                                                    
Alaska as the  site to launch an  alternative fuels program,                                                                    
which AIDEA  was working  on. He asked  how such  a facility                                                                    
could protect from JBER closing.                                                                                                
Commissioner Katkus stated that he  could not talk about the                                                                    
active  duty bases.  He  relayed that  most  of the  current                                                                    
relevancy  from  the  bases  in  the  state  was  driven  by                                                                    
operations their requirements.                                                                                                  
2:14:11 PM                                                                                                                    
Mr. Pierre  added that experimentation  was not the  leap to                                                                    
security. He said  that once the fuel  security was verified                                                                    
then the  fuel security  would be important.  The Department                                                                    
of Defense  would rank the base  based on how well  it could                                                                    
accommodate  its needs.  He asserted  that having  a lot  of                                                                    
fuel was helpful to the  state; however, currently that fuel                                                                    
was not as helpful because it had not been proven.                                                                              
Vice-Chair Neuman stated that all platforms were certified.                                                                     
Vice-Chair  Neuman asked  about  the  federal funded  native                                                                    
hospital in  Wasilla. He believed  that it was  large enough                                                                    
to provide better medical services for veterans.                                                                                
Commissioner Katkus  stated that  the issue  was one  of the                                                                    
initiatives being  worked on. He believed  that the facility                                                                    
was perfect for accommodating veterans.                                                                                         
2:17:27 PM                                                                                                                    
Representative Gara asked about  the contract for the multi-                                                                    
year rocket  launch. He wondered  how many years  were under                                                                    
Mr. Kramer  clarified that he  had a multi-year  contract in                                                                    
place, which  had led  to an  upcoming launch.  He furthered                                                                    
that  within  the  next  few weeks  he  would  have  another                                                                    
contract  for additional  services for  a future  launch. He                                                                    
said that one of the areas  of pursuit, the range safety and                                                                    
telemetry  system,  was unique  and  state  of the  art.  He                                                                    
relayed  that there  were a  number of  entities contracting                                                                    
with  the corporation  for the  use  of the  system, one  of                                                                    
which was SpaceX.                                                                                                               
Representative  Gara wondered  was  the next  year that  the                                                                    
corporation had a launch contracted for.                                                                                        
Mr.  Kramer replied  that  he did  not  have another  launch                                                                    
contract in place.                                                                                                              
2:19:26 PM                                                                                                                    
Representative Gara  understood that  the corporation  had a                                                                    
multi-year contract  that had one definite  launch. He asked                                                                    
how  much  money the  corporation  received  in capital  and                                                                    
operating monies  in FY14,  versus income;  additionally, in                                                                    
FY15 what  the proposed  capital and operating  budgets were                                                                    
as well as the anticipated income.                                                                                              
Mr.  Kramer  replied  that   the  projected  FY15  operating                                                                    
request was $6 million; FY16,  $4 million; FY17, $2 million.                                                                    
He said  that the  capital needs for  FY15 was  $1.8 million                                                                    
and he  believed that  the number would  decline in  the out                                                                    
2:20:48 PM                                                                                                                    
Representative Gara understood that  for the coming year the                                                                    
corporation had  $7.8 million. He requested  the anticipated                                                                    
income that would off-set the $7.8 million.                                                                                     
Mr. Kramer estimated $2.5 million.                                                                                              
Representative  Gara surmised  that there  was a  roughly $5                                                                    
million  loss in  2014. He  queried  the difference  between                                                                    
capital  and operating  grants versus  what  was off-set  by                                                                    
income in 2013.                                                                                                                 
Mr. Kramer asked for the question to be clarified.                                                                              
Representative  Gara  said  that   we  wanted  to  know  the                                                                    
difference between income  and what the state  had given the                                                                    
corporation in operating and capital dollars.                                                                                   
Mr.  Kramer  explained  that  state  monies  were  used  for                                                                    
operations and sustainment for  the corporation. In addition                                                                    
to the  money given by the  state, all of the  contract work                                                                    
done by the corporation off-set  what it would normally cost                                                                    
to operate  and maintain launch  activities. He said  if the                                                                    
budget were  to be  reduced by letting  staff go  they would                                                                    
not be  able to meet  the need  of their customers.  He said                                                                    
that  the  corporation  saw approximately  $2.5  million  in                                                                    
income  in  2013,  $8.1  million   in  operating  funds  and                                                                    
$500,000 in capital funds.                                                                                                      
Commissioner Katkus  pointed out to the  committee that some                                                                    
of  the   sustainment  costs  were  borne   by  the  federal                                                                    
government on  some of  the launch  complexes. He  said that                                                                    
currently the  aerospace directors  had worked to  level the                                                                    
costs. He stated  that most of the contracts had  a basis of                                                                    
support by  a larger  entity. He asserted  that a  black and                                                                    
white explanation  of gains  and losses  could be  used, but                                                                    
was not wholly accurate.                                                                                                        
2:24:34 PM                                                                                                                    
Representative  Thompson  wondered whether  the  corporation                                                                    
had  a public  relations department  that communicated  with                                                                    
the  City  of Kodiak  in  order  to  assure that  there  was                                                                    
positive economic impact to their  being there. He expressed                                                                    
that the people of  Kodiak had characterized the corporation                                                                    
as less than friendly.                                                                                                          
Mr. Kramer  replied that  the operation was  lean as  far as                                                                    
employees were  concerned. He admitted  that there  was more                                                                    
that the  corporation could  do in  the Kodiak  community to                                                                    
show  what was  contributed through  employment efforts.  He                                                                    
said that  Kodiak would see  an influx  200 to 300  people a                                                                    
month or  so prior to  the launch  date. He added  that more                                                                    
people would  be brought prior  to that for set  up, roughly                                                                    
75 to 100.  He noted that all of the  people coming in would                                                                    
spend money in the community.                                                                                                   
Representative   Thompson    asked   if    the   corporation                                                                    
prioritized buying and hiring local.                                                                                            
Mr. Kramer  replied that they corporation  purchased locally                                                                    
as much as they could.                                                                                                          
2:27:10 PM                                                                                                                    
Co-Chair Austerman  said that Chena Hot  Springs had decided                                                                    
to  build a  housing facility  in the  area. He  whether the                                                                    
corporation had paid a retainer  for the private contractors                                                                    
to be available for the launch. Mr. Kramer replied yes.                                                                         
Co-Chair  Austerman  asked how  much  the  retainer was  per                                                                    
month.  Mr. Kramer said it averaged $120,000 per year.                                                                          
Co-Chair Austerman  asked whether  the corporation  had been                                                                    
in discussions with the owner  purchasing the facility.  Mr.                                                                    
Kramer said that the contract  had just been opened and that                                                                    
it was currently being renegotiated.                                                                                            
Co-Chair  Austerman  asked  whether   the  contract  was  to                                                                    
continue  to rent  or to  purchase. Mr.  Kramer replied  the                                                                    
contract was to rent.                                                                                                           
Co-Chair   Austerman   understood    that   there   was   no                                                                    
negotiations underway for the  purchase of the facility. Mr.                                                                    
Kramer replied no.                                                                                                              
2:28:26 PM                                                                                                                    
Representative  Guttenberg  queried   the  history  of  past                                                                    
Mr. Kramer  replied that there  had been launch  three years                                                                    
ago. He  added that the  complex had launched  16 successful                                                                    
Co-Chair Austerman  stated that  the corporation  planned to                                                                    
get contacts for a long  term facility or to faze themselves                                                                    
out. He hoped  that there was a business  plan that involved                                                                    
launches  3 to  5  times  per year  that  made the  facility                                                                    
viable, but  that at  the rate things  were going  it seemed                                                                    
doubtful.  He said  that the  corporation was  on notice  to                                                                    
make it work or get state money out of the business.                                                                            
2:29:54 PM                                                                                                                    
SUSAN   COLLIGAN,  DIRECTOR,   DIVISION  OF   ADMINISTRATIVE                                                                    
SERVICES, DEPARTMENT OF MILITARY AND VETERANS AFFAIRS,                                                                          
^FY   15   GOVERNOR'S   BUDGET   OVERVIEW:   DEPARTMENT   OF                                                                  
ENVIRONMENTAL CONSERVATION                                                                                                    
2:31:07 PM                                                                                                                    
LARRY  HARTIG,  COMMISSIONER,  DEPARTMENT  OF  ENVIRONMENTAL                                                                    
CONSERVATION, introduced  department staff. He  provided the                                                                    
PowerPoint   presentation,   "Department  of   Environmental                                                                    
Conservation:  House Finance  Overview" (copy  on file).  He                                                                    
spoke to Slide 2, "DEC's Mission":                                                                                              
        · Protect human health and the environment.                                                                             
Commissioner Hartig  shared that the increasing  lifespan of                                                                    
humans  can be  attributed  to clean  water,  safe food  and                                                                    
sanitation. He  pointed to  Slide 3,  "Environmental Quality                                                                    
and Public Health":                                                                                                             
     Water and Sanitation  is one of the  primary drivers of                                                                    
     public health.  I often  refer to  it as  "Health 101",                                                                    
     which means  that once  we can  secure access  to clean                                                                    
     water  and to  adequate sanitation  facilities for  all                                                                    
     people, irrespective of the  difference in their living                                                                    
     conditions,  a   huge  battle  against  all   kinds  of                                                                    
     diseases will be won.                                                                                                      
          Dr. Lee Jong-wook,                                                                                                    
          Director-General, World Health Organization                                                                           
          November 2004                                                                                                         
Commissioner Hartig  turned to  Slide 4, "What  Alaskans Get                                                                    
for Their Money":                                                                                                               
     According  to  calculations   by  Legislative  Finance,                                                                    
     DEC's FY2015 general  fund budget is equal  to $153 per                                                                    
     year per  resident worker:  that's just  42¢ a  day for                                                                    
     clean air to  breathe, clean water to  drink, safe food                                                                    
     to eat, responsible  resource development, and pristine                                                                    
     land and waters.                                                                                                           
2:34:31 PM                                                                                                                    
Commissioner Hartig continued to Slide 5, "Responsibilities                                                                     
& Functions":                                                                                                                   
        · Develop standards                                                                                                     
        · Issue permits                                                                                                         
       · Provide compliance and financial assistance                                                                            
        · Safeguard the quality of food and seafood                                                                             
       · Operate the State Environmental Health Lab                                                                             
       · House the Office of the State Veterinarian                                                                             
        · Respond to spills of oil and other hazardous                                                                          
        · Regulate pesticides and certain types of use                                                                          
        · Educate and assist the public                                                                                         
        · Interact with our federal agency counterparts                                                                         
        · Investigate violations and enforce state law                                                                          
2:36:48 PM                                                                                                                    
Commissioner Hartig spoke to Slide 6, "Divisions":                                                                              
        · Administration                                                                                                        
        · Air Quality                                                                                                           
        · Environmental Health                                                                                                  
        · Spill Prevention and Response                                                                                         
        · Water                                                                                                                 
Commissioner Hartig turned to Slide 7, "Division of                                                                             
     Commissioner: Larry Hartig                                                                                                 
     Deputy: Lynn Kent                                                                                                          
     Director: Tom Cherian                                                                                                      
        · Commissioner's Office                                                                                                 
        · Administrative Services                                                                                               
        · Information Services                                                                                                  
        · Financial Services                                                                                                    
        · Budget Services                                                                                                       
        · Procurement & Building Management                                                                                     
        · Environmental Crimes Unit                                                                                             
        · State Support Services                                                                                                
        · Lease & Contracts                                                                                                     
     Challenges & Opportunities:                                                                                              
        · Unfunded Administrative Cost Increases                                                                                
        · Succession Planning and Workforce Development                                                                         
       · Technological Advancements and Efficiencies                                                                            
Commissioner Hartig explained  that the Environmental Crimes                                                                    
Units  consisted of  two  people who  had  gone through  the                                                                    
trooper  academy and  who worked  closely with  the Attorney                                                                    
General's office on investigations.  He said that there were                                                                    
sharp  distinctions between  constitutional  rights and  the                                                                    
procedures that existed under criminal  and civil law, which                                                                    
made it important  that the people in  the criminal division                                                                    
be  specially trained.  He  highlighted  that the  operating                                                                    
budget  request  proposed  by the  governor  was  completely                                                                    
2:40:33 PM                                                                                                                    
Commissioner  Hartig turned  to  Slide 8,  "Division of  Air                                                                    
     Alice Edwards                                                                                                              
        · Director's Office                                                                                                     
        · Air Quality                                                                                                           
        · State Implementation Plan                                                                                             
        · Permitting                                                                                                            
        · Monitoring                                                                                                            
     Challenges &                                                                                                             
        · Fairbanks Air Quality                                                                                                 
        · Change to Federal Funding Formula                                                                                     
        · New Federal Standards                                                                                                 
Commissioner   Hartig  discussed   the   variety  of   areas                                                                    
monitored  by the  department. He  said that  the department                                                                    
was working  on controlling air quality  in Fairbanks, while                                                                    
still  recognizing that  people  needed  affordable ways  to                                                                    
heat their  homes. He  spoke to the  proposed change  in the                                                                    
federal funding  formula. He said  that the money  was going                                                                    
to   be  reallocated   among  the   states   and  that   the                                                                    
northwestern  states  would be  hit  especially  hard; a  42                                                                    
percent decrease, spread out by  5 percent per year. He said                                                                    
that that the department  was constantly struggling with new                                                                    
environmental standards set  by the Environmental Protection                                                                    
2:44:47 PM                                                                                                                    
Commissioner   Hartig  discussed   Slide  9,   "Division  of                                                                    
Environmental Health":                                                                                                          
     Elaine Busse Floyd                                                                                                         
        · Director's Office                                                                                                     
        · Food Safety & Sanitation                                                                                              
        · Laboratory Services                                                                                                   
        · Drinking Water Oversight                                                                                              
        · Solid Waste Management                                                                                                
        · Building Maintenance & Operations -                                                                                   
        · Environmental Health Lab                                                                                              
     Challenges &                                                                                                             
       · Complex EPA Rules & Reduced Federal Funding                                                                            
        · High Risk Food Safety Inspections                                                                                     
        · Unique Laboratory Technology & Equipment Needs                                                                        
Commissioner Hartig  spoke to the challenges  of food safety                                                                    
and sanitation as it related to seafood.                                                                                        
2:48:29 PM                                                                                                                    
Commissioner  Hartig continued  to  Slide  10, "Division  of                                                                    
Spill Prevention and Response":                                                                                                 
     Kristin Ryan                                                                                                               
        · Director's Office                                                                                                     
       · Industry Preparedness & Pipeline Operations                                                                            
        · Prevention & Emergency Response                                                                                       
        · Contaminated Sites Program                                                                                            
        · Response Fund Administration                                                                                          
     Challenges &                                                                                                             
        · Declining Prevention Account Balance                                                                                  
        · Increasing Workload Associated with Natural                                                                           
          Resource Development                                                                                                  
        · Increasing Arctic Activity                                                                                            
Commissioner  Hartig shared  that companies  had to  provide                                                                    
proof  of  a financially  backed,  spill  response plan.  He                                                                    
relayed that  spill drill were  conducted several  times per                                                                    
year. He related that under  federal and state law the party                                                                    
responsible  for  spills  wad  the  owner  operator  of  the                                                                    
facility from  where the spill  occurred; the  state oversaw                                                                    
the response  to assure timely containment  and clean-up. He                                                                    
noted   that  if   the  responsible   party  was   doing  an                                                                    
unacceptable job,  or was  financially incapable,  the state                                                                    
would step in and assist in the response.                                                                                       
2:52:28 PM                                                                                                                    
Commissioner  Hartig   discussed  Slide  11,   "Division  of                                                                    
     Michelle Hale                                                                                                              
        · Water Quality                                                                                                         
        · Facility Construction                                                                                                 
        · Village Safe Water Program                                                                                            
        · Municipal Grants & Loan Program                                                                                       
     Challenges &                                                                                                             
        · 404 Dredge & Fill Permitting Evaluation Pace                                                                          
        · Declining Federal Funding in the Village Safe                                                                         
          Water Program                                                                                                         
Commissioner  Hartig relayed  that  water quality  standards                                                                    
were set  through a public process  and that the 3  areas of                                                                    
focus at  the moment  were: mixing  zones, anti-degradation,                                                                    
and fish  consumption values. He discussed  ongoing research                                                                    
with  the Department  of  Natural  Resources concerning  the                                                                    
pros and cons of state taking  over the section 404 Dredge &                                                                    
Fill Permitting program.                                                                                                        
2:54:17 PM                                                                                                                    
Commissioner  Hartig   spoke  to  the  Village   Safe  Water                                                                    
program.  He  relayed  that  the   program  was  75  percent                                                                    
federally funded  and 25 percent  state match  and municipal                                                                    
2:54:54 PM                                                                                                                    
Commissioner  Hartig  discussed  slide  12,  "FY2015  Budget                                                                    
Request." He reiterated that the  request for FY15 reflected                                                                    
zero percent growth, zero percent  general fund increase and                                                                    
no  new PCNs.  The operating  request was  $88,587.5 million                                                                    
and the capital  request was $69, 347.7  million, the lowest                                                                    
capital request since FY06.                                                                                                     
Commissioner  Hartig discussed  Slide 13,  "FY2015 Operating                                                                    
Budget  by Fund  Source." The  slide contained  a pie  chart                                                                    
that  features  a  breakdown  in  funding  percentages:  DGF                                                                    
Oil/Hazardous   Release   Prevention   and   Response   Fund                                                                    
(Representative  Foster),   18  percent;   Federal  Receipts                                                                    
(FED), 28 percent; UGF (General  Fund & General Fund Match),                                                                    
27  percent;   DGF  (GFPR,  OR  Fees,   CPVF),  13  percent.                                                                    
Additionally,  the slide  provided  a bar  chart that  broke                                                                    
those percentages  down into the  divisions; Administration,                                                                    
Environmental  Health,  Air   Quality,  Spill  Prevention  &                                                                    
Response, and Water Quality.                                                                                                    
2:57:39 PM                                                                                                                    
Commissioner  Hartig  turned  to  Slide  14,  "Concerns  and                                                                    
   · Significant Concerns                                                                                                     
        o Prevention Account Sustainability                                                                                     
        o Village Safe Water                                                                                                    
             ƒFederal Funding Decline                                                                                          
             ƒAlaska Challenge Project                                                                                         
   · Updates                                                                                                                  
        o Tsunami Debris Cleanup                                                                                                
        o Federal Sequestration & Future Outlook                                                                                
2:57:56 PM                                                                                                                    
Commissioner  Hartig   continued  to  Slide  15,   "How  the                                                                    
Response Fund Works":                                                                                                           
   · "It is the intent of the Legislature and declared to                                                                       
     be the public policy of the State that funds for the                                                                       
     abatement of a release of oil or a hazardous substance                                                                     
     will always be available." (A.S. 46.08.030)                                                                                
   · Response Account                                                                                                         
        o Funded by 1¢ surcharge on each barrel of oil.                                                                         
        o Surcharge suspended when fund exceeds $50                                                                             
        o Pays for emergency response activities.                                                                               
        o Department   recovers    costs   from   identified                                                                    
          responsible parties.                                                                                                  
   · Prevention Account                                                                                                       
        o Funded by a 4¢ surcharge on each barrel of oil.                                                                       
        o Pays   for   operational   costs   and   readiness                                                                    
          activities within the Spill Prevention & Response                                                                     
2:58:30 PM                                                                                                                    
Commissioner  Hartig  discussed  Slide 16,  "Status  of  the                                                                    
Prevention  Account",  which  contained  a  bar  graph  that                                                                    
illustrated Prevention  Account revenues,  expenditures, and                                                                    
balance projection. He relayed that  the light green was the                                                                    
balance in  the fund;  at one  point it  had been  above $20                                                                    
million. The  purple bar in  FY14 represented  cost recovery                                                                    
against  British Petroleum  on  an  arbitration for  several                                                                    
spills  in 2006.  He said  that the  red line  that traveled                                                                    
across all of the bars  was the total annual expenses, which                                                                    
was  level  in  FY10  through FY13,  dropped  in  FY14,  and                                                                    
leveled out again. He said that  the green bars went to zero                                                                    
in FY16 and were replaced  by blue bars representing general                                                                    
fund increments.  He explained  that as oil  production went                                                                    
down the response  fund balance went down  because there was                                                                    
not enough  to cover the $17  million per year of  the spill                                                                    
prevention operating budget.                                                                                                    
3:00:53 PM                                                                                                                    
Commissioner  Hartig shared  that Slide  17, "Status  of the                                                                    
Prevention Account"  provided the  figures for  the previous                                                                    
slide. He  noted that  going into  the out-years  the inputs                                                                    
into  the  response fund,  line  items  3 thorough  5,  were                                                                    
projections based on variable that were subject to change.                                                                      
3:01:46 PM                                                                                                                    
Commissioner Hartig turned to  Slide 18, "Prevention Account                                                                    
and  Inflation." He  hoped that  the  graph dispelled  myths                                                                    
that the fund was down  because of overspending. He asserted                                                                    
that the rate of inflation  from FY05 through FY15 had risen                                                                    
more  than the  operating  budget for  spill prevention  and                                                                    
response. He relayed  that the surcharge on a  barrel of oil                                                                    
had not changed with the per barrel price.                                                                                      
3:03:28 PM                                                                                                                    
Commissioner Hartig discussed Slide  19, "Rural Alaska Water                                                                    
and Sewer." The graph included  2 types of needs: First time                                                                    
service  for  homes  without  piped   or  covered  haul  and                                                                    
Upgrades  or  replacement   to  address  significant  health                                                                    
threats.  He stated  that the  bars showed  the federal  and                                                                    
state funding for the program  and that the decline over the                                                                    
last nine  years was  66 percent or  $61 million.  He stated                                                                    
there were  harder to  serve communities  in the  state that                                                                    
still  did  not have  first-time  service  and some  of  the                                                                    
projects  were decades  old. He  recalled  that the  capital                                                                    
budget proposal  for FY15 was  approximately 60  percent new                                                                    
projects and 40 percent existing facilities.                                                                                    
Commissioner  Hartig  discussed   Slide  20,  "Village  Safe                                                                    
Water: The Alaska Challenge":                                                                                                   
   · $667 Million = Current Cost of unfunded significant                                                                        
     health related water and sewer needs in rural Alaska.                                                                      
   · State/Federal funding insufficient to construct new                                                                        
     systems or ensure continued functionality of aging                                                                         
   · Alaska Challenge Project                                                                                                   
        o Innovative and new approaches are needed in                                                                           
          Alaska villages in order to cut capital and                                                                           
          operating costs of providing running water and                                                                        
        o Issues a challenge to the private sector.                                                                             
        o Three-Phased Approach:                                                                                                
             ƒPhase 1: Request For Proposals (RFP) and                                                                         
               selection for funding.                                                                                           
             ƒPhase 2: Demonstration of projects, research                                                                     
               and development.                                                                                                 
             ƒPhase   3:   Initial    pilot   testing   and                                                                    
              refinement for implementation.                                                                                    
        o The Legislature funded Phase 1 in FY2013, and the                                                                     
          Department is working with stakeholders to try to                                                                     
          secure funding for Phases 2 & 3                                                                                       
3:07:23 PM                                                                                                                    
Co-Chair Austerman  stated that  additional issues  could be                                                                    
brought up during subcommittee work.                                                                                            
Vice-Chair  Neuman  asked  about   Slide  25,  which  listed                                                                    
appropriations  within the  department.  He  noted that  the                                                                    
administration  cost had  increased by  $2 million  over the                                                                    
last  4 years.  He  asked how  much of  the  increase was  a                                                                    
charge back  from the Department of  Administration for data                                                                    
storage and other services.                                                                                                     
THOMAS   CHERIAN,  DIRECTOR,   DIVISION  OF   ADMINISTRATIVE                                                                    
SERVICES, DEPARTMENT OF  ENVIRONMENTAL CONSERVATION, replied                                                                    
that he would provide the  information to the committee at a                                                                    
later date.                                                                                                                     
3:09:11 PM                                                                                                                    
Co-Chair Stoltze  asked about Slide 10.  He wondered whether                                                                    
increasing the tax or using general funds was a priority.                                                                       
Commissioner Hartig replied that a  large could occur at the                                                                    
end of FY  15. He said that there were  cost recoveries that                                                                    
might extend the programs for  another year. He offered that                                                                    
the option was  finding another revenue source.  He had laid                                                                    
out options for  the cutting that had been looked  at in the                                                                    
past.  He  noted  that the  potential  options  were  listed                                                                    
starting on page 4 of  the January 21st, 2014 response (copy                                                                    
on file). He said that many options were being explored.                                                                        
3:12:46 PM                                                                                                                    
Commissioner  Hartig said  that one  of the  thing that  the                                                                    
department had  done to extend the  life of the fund  was to                                                                    
stop using  money out  of the provision  account to  pay for                                                                    
the clean-up  of state owned  or state  managed contaminated                                                                    
sites. This began  several years ago and  the department had                                                                    
begun putting in capital requests  of $3 million per year to                                                                    
clean up the list of $50  million worth of clean-up on state                                                                    
owned sites. He  related that $17 million had  been spent on                                                                    
state  owned  sites   and  one  option  would   be  for  the                                                                    
legislature  to replace  those funds.  He said  that general                                                                    
fund appropriations  had been  the most  recent way  to fund                                                                    
the gap.                                                                                                                        
3:14:54 PM                                                                                                                    
Co-Chair Stoltze contended  that the fund had  risen to what                                                                    
was  far  from  the  agreed  upon  number  sold  during  the                                                                    
legislative process at the fund's inception.                                                                                    
Commissioner Hartig  replied that  this year would  be tight                                                                    
and without  a change in  the formula, the  department would                                                                    
be back to the legislature next year for an appropriation.                                                                      
3:17:00 PM                                                                                                                    
Representative  Wilson  asked   about  grant  authority  for                                                                    
programs dealing with air quality.                                                                                              
Commissioner  Hartig replied  that the  grant authority  for                                                                    
the Air Division  had sunsetted. He said that  grants had to                                                                    
be  found  through  other  state  agencies,  or  were  given                                                                    
directly to communities.                                                                                                        
Representative  Wilson asked  about federal  or EPA  grants.                                                                    
She wondered about bush Alaska was missing out on funds.                                                                        
Commissioner  Hartig did  not believe  that the  state would                                                                    
miss out on federal money.  He thought it might be difficult                                                                    
for  communities to  realize the  grants for  themselves and                                                                    
that the department could provide guidance.                                                                                     
3:19:56 PM                                                                                                                    
Representative  Holmes asked  about Slide  16 and  the $5-$7                                                                    
million  general  fund  request   for  FY16.  She  expressed                                                                    
concern that there  would not be funds in the  future to pay                                                                    
for  oil  spill and  prevention  given  the state's  current                                                                    
economic climate.                                                                                                               
Commissioner Hartig  echoed the same concern.  He added that                                                                    
the issue  should be  of no surprise  to the  legislature or                                                                    
the department.                                                                                                                 
3:22:23 PM                                                                                                                    
Representative Gara opined that the  state had the choice of                                                                    
$7 million per  year more out of the general  fund or adding                                                                    
4 cents of  a surcharge on oil selling for  $105 per barrel.                                                                    
He  asked  whether the  4  cents  could  have an  impact  on                                                                    
investment or production.                                                                                                       
3:23:19 PM                                                                                                                    
Commissioner Hartig  replied that he  had no opinion  on the                                                                    
Representative  Gara  asked if  the  oil  industry had  been                                                                    
asked  whether   it  would  make   a  difference   in  their                                                                    
Commissioner  Hartig   said  that   the  concept   had  been                                                                    
3:24:38 PM                                                                                                                    
Co-Chair Austerman  said that a  refined products  tax would                                                                    
need  to be  imposed to  take  care of  cleaning up  refined                                                                    
product. He wondered what would need  to be done in order to                                                                    
get the department back into a positive cash flow.                                                                              
Commissioner  Hartig replied  no.  He felt  that there  were                                                                    
different ways  to approach the  problem. He said  that with                                                                    
declining  oil production  the gap  would increase  over the                                                                    
years,  which   left  two  options:  adjust   the  surcharge                                                                    
accordingly, or take  a 10 year outlook. He  shared that the                                                                    
surcharge  on crude  oil could  be projected  10 years,  but                                                                    
refined products would prove more difficult.                                                                                    
Co-Chair  Austerman  commented  that   for  most  cases  the                                                                    
current  administration  had   been  anti-tax.  He  wondered                                                                    
whether the refined products tax would pass the veto.                                                                           
3:28:04 PM                                                                                                                    
Representative  Guttenberg asked  about reimbursable  in the                                                                    
clean-up account.  He wondered why responsible  parties were                                                                    
not charged in spill cases.                                                                                                     
Commissioner  Hartig  replied   that  after  the  department                                                                    
responded to a  spill, cost recovery was  sought against the                                                                    
responsible  party.   He  said  that  the   money  that  was                                                                    
recovered   went  into   a   separate   account  which   was                                                                    
appropriated  by  the  legislature back  into  the  response                                                                    
Representative Guttenberg  spoke to Slide 17.  He asked what                                                                    
the $17 million in FY12 represented.                                                                                            
Commissioner Hartig  stated that the $17  million related to                                                                    
state   managed  sites.   He  noted   that  the   department                                                                    
maintained  that the  clean-up was  prioritized in  terms of                                                                    
human health risk.  He said that the  sites represented were                                                                    
all sites where the state  had the responsibility for clean-                                                                    
3:31:29 PM                                                                                                                    
Co-Chair  Stoltze   asked  what   industry  had   been  most                                                                    
responsible for the top 10 spills in the last 5 years.                                                                          
Commissioner Hartig responded that  the primary product that                                                                    
had been spilled was diesel.  He stated that the spill could                                                                    
occur  from  multiple  sources.  He  said  that  there  were                                                                    
approximately 2000 spills per year  and the number of spills                                                                    
from  regulated facilities  was  declining.  He shared  that                                                                    
2013  saw  more spills  of  processed  water from  a  mining                                                                    
operation.  He   thought  that  more  money   was  spent  on                                                                    
preventing  oil industry  spills.  He offered  to provide  a                                                                    
breakdown of product and industry to the committee.                                                                             
Co-Chair   Stoltze   looked   forward   to   receiving   the                                                                    
3:34:44 PM                                                                                                                    
Co-Chair Austerman asked about  404 permitting. He asked how                                                                    
much money had been put in in 2013 to state the process.                                                                        
Commissioner Hartig replied approximately $300 thousand.                                                                        
Mr. Cherian  added that $1.4  million had  been appropriated                                                                    
for FY14, and had been  divided among the Department of Law,                                                                    
the  Department of  Natural Resource  and the  Department of                                                                    
Environmental Conservation.                                                                                                     
Co-Chair Austerman ask  whether there was a  request for 404                                                                    
funds this year.                                                                                                                
Commissioner Hartig replied no.                                                                                                 
Co-Chair  Austerman  asked whether  it  would  bring back  a                                                                    
Commissioner Hartig  responded that the department  would be                                                                    
able to progress on the  recommendation. He said that if the                                                                    
department did  not come back  for additional  increments in                                                                    
line with the  fiscal note the department would not  be in a                                                                    
position to implement the program quickly.                                                                                      
3:36:44 PM                                                                                                                    
Representative Munoz said that she  would report back to the                                                                    
committee on DEC sub-committee activities.                                                                                      
Representative Edgmon  requested more  information regarding                                                                    
the Village Safe Water Act and the Alaska Challenge.                                                                            
3:37:28 PM                                                                                                                    
Representative Gara  asked whether  money paid to  the state                                                                    
for spills went into the 470 fund.                                                                                              
Commissioner Hartig replied that  the response account would                                                                    
see 1 cent and the prevention  account would see 4 cents. He                                                                    
said  that  that  oversight included  more  than  crude  oil                                                                    
facilities  and  that  oversight  of  crude  oil  facilities                                                                    
benefitted  the downstream  users. He  reiterated that  cost                                                                    
recover was only on the 1 cent.                                                                                                 
Co-Chair Austerman discussed housekeeping.                                                                                      
3:38:37 PM                                                                                                                    
The meeting was adjourned at 3:39 p.m.                                                                                          

Document Name Date/Time Subjects
DMVA FY2015 Department Overview Feb 3 2014.pdf HFIN 2/3/2014 1:30:00 PM
DMVA Overview HFC
DEC Presentation for HFC Overview 2015 1.31.2014 (reduced size).pdf HFIN 2/3/2014 1:30:00 PM
DEC Budget OVerview HFIN