Legislature(2015 - 2016)HOUSE FINANCE 519

03/22/2016 01:30 PM FINANCE

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Audio Topic
01:31:27 PM Start
01:32:31 PM SB74
04:04:49 PM Preliminary Spring 2016 Revenue Forecast, Department of Revenue
04:47:22 PM HB143
05:26:30 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= SB 74 MEDICAID REFORM;TELEMEDICINE;DRUG DATABAS TELECONFERENCED
Heard & Held
Fraud, False Claims, Penalties
After Hearing SB74, Will Recess Until 4:00 pm:
Preliminary Spring Revenue Forecast, Dept. of
Revenue
+ Bills Previously Heard/Scheduled TELECONFERENCED
+= HB 143 AIDEA BONDS, LOANS, FUND; AEA LOAN TELECONFERENCED
Moved CSHB 143(FIN) Out of Committee
-- Public Testimony --
                  HOUSE FINANCE COMMITTEE                                                                                       
                      March 22, 2016                                                                                            
                         1:31 p.m.                                                                                              
                                                                                                                                
                                                                                                                                
1:31:27 PM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair  Thompson   called  the  House   Finance  Committee                                                                    
meeting to order at 1:31 p.m.                                                                                                   
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Mark Neuman, Co-Chair                                                                                            
Representative Steve Thompson, Co-Chair                                                                                         
Representative Dan Saddler, Vice-Chair                                                                                          
Representative Bryce Edgmon                                                                                                     
Representative Les Gara                                                                                                         
Representative Lynn Gattis                                                                                                      
Representative David Guttenberg                                                                                                 
Representative Scott Kawasaki                                                                                                   
Representative Cathy Munoz                                                                                                      
Representative Lance Pruitt                                                                                                     
Representative Tammie Wilson                                                                                                    
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
None                                                                                                                            
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Stacie  Kraly,  Assistant  Attorney General,  Department  of                                                                    
Law;  Andrew  Peterson,  Attorney,  Medicaid  Fraud  Control                                                                    
Unit,  Department  of  Law; Doug  Jones,  Manager,  Medicaid                                                                    
Program Integrity  Section, Department of Health  and Social                                                                    
Services;  Lynne   Keilman-Cruz,  Health   Program  Manager,                                                                    
Department  of Health  and Social  Services; Jerry  Burnett,                                                                    
Deputy  Commissioner,   Treasury  Division,   Department  of                                                                    
Revenue;  Dan   Stickel,  Assistant  Chief   Economist,  Tax                                                                    
Division,  Department  of   Revenue;  Jane  Pierson,  Staff,                                                                    
Representative Steve  Thompson; Representative  Cathy Munoz,                                                                    
Sponsor; Keith  Comstock, CEO, Juneau Hydropower  Inc.; Mary                                                                    
Becker, Mayor,  Juneau; Rodney  Hesson, IBEW,  Juneau; Wayne                                                                    
Zigarlick, General Manager, Coeur Alaska, Kensington Mine.                                                                      
                                                                                                                                
PRESENT VIA TELECONFERENCE                                                                                                    
                                                                                                                                
John  Springsteen,  Executive  Director,  Alaska  Industrial                                                                    
Development   and  Export   Authority;  Sarah   Fisher-Goad,                                                                    
Executive Director,  Alaska Energy Authority,  Department of                                                                    
Commerce, Community and Economic Development.                                                                                   
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
SB 74     MEDICAID REFORM; TELEMEDICINE; DRUG DATABASE                                                                          
                                                                                                                                
          SB 74 was HEARD and HELD in committee for further                                                                     
          consideration.                                                                                                        
                                                                                                                                
HB 143    AIDEA BONDS, LOANS, FUND; AEA LOAN                                                                                    
                                                                                                                                
          CSHB 143(FIN)  was REPORTED out of  committee with                                                                    
          a   "do   pass"   recommendation  and   with   one                                                                    
          forthcoming zero  fiscal note from  the Department                                                                    
          of Commerce, Community and Economic Development.                                                                      
                                                                                                                                
PRELIMINARY SPRING 2016 REVENUE FORECAST, DEPARTMENT OF                                                                         
REVENUE                                                                                                                         
                                                                                                                                
Co-Chair Thompson relayed that the topics being covered for                                                                     
SB 74 included fraud, false claims, and penalties.                                                                              
                                                                                                                                
1:32:31 PM                                                                                                                    
                                                                                                                                
CS FOR SENATE BILL NO. 74(FIN) am                                                                                             
                                                                                                                                
     "An   Act  relating   to   diagnosis,  treatment,   and                                                                    
     prescription  of drugs  without a  physical examination                                                                    
     by a  physician; relating to  the delivery  of services                                                                    
     by  a  licensed  professional counselor,  marriage  and                                                                    
     family    therapist,     psychologist,    psychological                                                                    
     associate, and  social worker by audio,  video, or data                                                                    
     communications;  relating to  the duties  of the  State                                                                    
     Medical  Board;  relating  to limitations  of  actions;                                                                    
     establishing the Alaska  Medical Assistance False Claim                                                                    
     and  Reporting  Act;  relating  to  medical  assistance                                                                    
     programs administered  by the Department of  Health and                                                                    
     Social Services;  relating to the  controlled substance                                                                    
     prescription database;  relating to  the duties  of the                                                                    
     Board  of  Pharmacy;  relating to  the  duties  of  the                                                                    
     Department   of  Commerce,   Community,  and   Economic                                                                    
     Development;   relating  to   accounting  for   program                                                                    
     receipts; relating  to public record status  of records                                                                    
     related to  the Alaska  Medical Assistance  False Claim                                                                    
     and   Reporting   Act;  establishing   a   telemedicine                                                                    
     business registry; relating  to competitive bidding for                                                                    
     medical assistance  products and services;  relating to                                                                    
     verification  of  eligibility   for  public  assistance                                                                    
     programs administered  by the Department of  Health and                                                                    
     Social  Services; relating  to annual  audits of  state                                                                    
     medical  assistance  providers; relating  to  reporting                                                                    
     overpayments    of    medical   assistance    payments;                                                                    
     establishing  authority to  assess civil  penalties for                                                                    
     violations of medical  assistance program requirements;                                                                    
     relating  to seizure  and  forfeiture  of property  for                                                                    
     medical  assistance fraud;  relating to  the duties  of                                                                    
     the   Department  of   Health   and  Social   Services;                                                                    
     establishing    medical     assistance    demonstration                                                                    
     projects;  relating  to   Alaska  Pioneers'  Homes  and                                                                    
     Alaska Veterans'  Homes; relating to the  duties of the                                                                    
     Department  of Administration;  relating to  the Alaska                                                                    
     Mental Health Trust  Authority; relating to feasibility                                                                    
     studies for the provision  of specified state services;                                                                    
     amending Rules  4, 5, 7,  12, 24,  26, 27, 41,  77, 79,                                                                    
     82, and 89,  Alaska Rules of Civil  Procedure, and Rule                                                                    
     37, Alaska  Rules of Criminal Procedure;  and providing                                                                    
     for an effective date."                                                                                                    
                                                                                                                                
1:32:31 PM                                                                                                                    
                                                                                                                                
STACIE  KRALY,  ASSISTANT  ATTORNEY GENERAL,  DEPARTMENT  OF                                                                    
LAW, would  be reviewing the  provisions in SB 74  having to                                                                    
do   with  false   claims,  overpayments,   and  fraud   and                                                                    
penalties.  She  explained  that  SB 74  addressed  3  major                                                                    
themes outside  of the important  reforms that  Ms. Shaddock                                                                    
had testified  to in the  previous day. The  themes included                                                                    
the   false  claims   act,  overpayments,   and  fraud   and                                                                    
penalties. She  stressed the importance of  these provisions                                                                    
to  the  overall  administration  of  the  Medicaid  Program                                                                    
Integrity  (MPI)  system  for   the  Medicaid  program.  The                                                                    
proposal in  SB 74  was designed to  give the  Department of                                                                    
Health and Social Services and  the Department of Law a more                                                                    
complete  range  of  options   when  dealing  with  provider                                                                    
compliance.  The  tools   allowed  for  the  differentiation                                                                    
between fraud and false claims  and it also allowed for both                                                                    
criminal  and civil  enforcement of  providers who  violated                                                                    
program rules.                                                                                                                  
                                                                                                                                
Ms. Kraly  relayed that she  would be walking  the committee                                                                    
through a  more detailed overview  of the False  Claims Act.                                                                    
The False  Claims Act  could be  found in  Section 4  of the                                                                    
bill. The  bill contained  a number of  different amendments                                                                    
to  the  Alaska  Administrative  Code  that  identified  the                                                                    
additional civil action she had  discussed the previous day.                                                                    
The  first  section  talked  about   false  claims  and  the                                                                    
associated civil penalties. In  reviewing the bill penalties                                                                    
for false claims  they could not be less than  $5500 and not                                                                    
more  than $11,000  or  3  times the  amount  of the  actual                                                                    
damages.  The  provision also  allowed  for  the payment  of                                                                    
reasonable costs  and fees  for a  prevailing party  under a                                                                    
false claim act.  The Attorney General was  an integral part                                                                    
of  the  false  claims  provisions  in  the  bill  primarily                                                                    
relating to  the process of  an individual bringing  a claim                                                                    
forward  and  the  attorney  general  being  served  with  a                                                                    
complaint.  The  attorney   general  would  investigate  the                                                                    
claim. The statute contemplated  giving the Attorney General                                                                    
Subpoena authority  and providing other  investigative tools                                                                    
to  evaluate  the  merits of  the  underlying  case  brought                                                                    
forward.                                                                                                                        
                                                                                                                                
Ms. Kraly continued with her  testimony. Upon the completion                                                                    
of their  investigation, the attorney general  would have to                                                                    
take one of  three actions: They would have  to intervene in                                                                    
the matter, notify the court  that they were not intervening                                                                    
in the  matter but  were allowing  the private  plaintiff to                                                                    
continue with  the lawsuit,  or they  would move  to dismiss                                                                    
the case.  Some of the additionally  important provisions of                                                                    
the bill included identifying  the incentive for individuals                                                                    
to  come  forward  in  identifying   false  claims.  If  the                                                                    
attorney general  intervened in  a case  the realtor  or the                                                                    
private plaintiff would  be awarded 15 to 25  percent of the                                                                    
overall recovery.  If the attorney general  deferred and did                                                                    
not go forward the individual would  be entitled to 25 to 30                                                                    
percent of  the total award  but there was also  a provision                                                                    
in the  bill that  stated that if  the individual  that came                                                                    
forward was somewhat complicit in  the false claim there was                                                                    
a  provision that  allowed reducing  the  recovery for  that                                                                    
complicit  individual.   It  also   provided  that   if  the                                                                    
individual was  ultimately convicted of Medicaid  fraud they                                                                    
would not be entitled to any recovery.                                                                                          
                                                                                                                                
Ms. Kraly reported that there  were certain actions that did                                                                    
not  constitute  false   claims  including  matters  already                                                                    
familiar  to  the Department  of  Law  or  to the  DHSS  and                                                                    
actively  being  investigated  for an  ongoing  fraud  case.                                                                    
Other matters were listed within  the statute that would not                                                                    
be considered  false claims.  The statute  contemplated that                                                                    
the state would not be  liable for attorney's fees and other                                                                    
expenses in a  situation where a false claim  was brought by                                                                    
a  private plaintiff.  The plaintiff  would  be entitled  to                                                                    
their fees and costs and the  state would be entitled to its                                                                    
fees and costs. The two did not mix.                                                                                            
                                                                                                                                
Co-Chair Thompson  acknowledged Representative Munoz  at the                                                                    
table and Commissioner Davidson in the audience.                                                                                
                                                                                                                                
1:37:41 PM                                                                                                                    
                                                                                                                                
Representative Gara  mentioned that to save  money the state                                                                    
encouraged  a  private  party to  hire  a  private  attorney                                                                    
rather  than the  attorney general's  office handling  anti-                                                                    
trust, consumer protection, and  other public interest cases                                                                    
If  the  private party  prevailed  they  would receive  full                                                                    
attorney fees,  an incentive of  sorts. He  wondered whether                                                                    
full attorney's fees  would be paid to  a private individual                                                                    
that hired a private attorney and prevailed under SB 74.                                                                        
                                                                                                                                
Ms. Kraly responded in the  negative. The fees awarded under                                                                    
the provision  were those  provided under  Civil Rule  82, a                                                                    
percentage based upon the type  of litigation that occurred.                                                                    
If  litigation  was  settled  a   person  would  receive  20                                                                    
percent. If a  case went to trial a person  would receive 30                                                                    
percent. There  were enhancements. For example,  there could                                                                    
be a  provision where a person  could get higher fees  if it                                                                    
was not tied to the public interest litigate statute.                                                                           
                                                                                                                                
Representative Gara  suggested that  there were a  number of                                                                    
areas  where  private  individuals  were  entitled  to  full                                                                    
attorney's  fees including  consumer  protection and  unfair                                                                    
trade  practices. It  was  called  privatizing the  attorney                                                                    
general  and  saved  the  state money.  He  asked  that  she                                                                    
consider the  practice and  wondered why it  was not  in the                                                                    
legislation. He thought it would save money for the state.                                                                      
                                                                                                                                
Ms.  Kraly  would  look  at  his  suggestion.  However,  she                                                                    
thought  Civil Rule  82 was  sufficient  to incentivize  the                                                                    
services because  of the enhanced recoveries  the plaintiffs                                                                    
stood to receive. Trouble damages  and penalty provisions in                                                                    
the recovery  portion were already included.  The Department                                                                    
of Law advocated  that full fees were  needed to incentivize                                                                    
private   plaintiffs.  In   addition,  another   reason  the                                                                    
department did  not think it  was necessary was  because the                                                                    
attorney  general  had  the  ability  to  take,  differ,  or                                                                    
dismiss a case.  In many cases the tool would  be used as an                                                                    
enforcement mechanism. She did not  feel there was a lack of                                                                    
incentive  for  bringing  these  cases  forward  because  of                                                                    
damages. However, the department would  look at the full fee                                                                    
section.                                                                                                                        
                                                                                                                                
Co-Chair  Thompson relayed  that  Representative Pruitt  had                                                                    
joined the meeting.                                                                                                             
                                                                                                                                
1:41:25 PM                                                                                                                    
                                                                                                                                
Co-Chair Neuman asked about the  source of funding to pay an                                                                    
individual  a percentage  of  the total  amount  of a  false                                                                    
claim recovery. He  wondered if the payment  was issued from                                                                    
state or federal funds or both.                                                                                                 
                                                                                                                                
Ms. Kraly indicated that each  state handled it differently.                                                                    
Some states  took the  recovery off the  top and  then split                                                                    
the  difference.  Other  states  took  the  share  from  the                                                                    
percentages.  The Department  of Law  would need  to discuss                                                                    
the  issue  with  the  Office   of  Inspector  General.  She                                                                    
indicated  that  what  was being  considered  was  that  the                                                                    
recovery would  come off  the top and  then the  split would                                                                    
come from the remaining amount.                                                                                                 
                                                                                                                                
Co-Chair Neuman assumed that it would split equally.                                                                            
                                                                                                                                
Ms. Kraly  corrected Co-Chair Neuman.  She relayed  that the                                                                    
split  was  not equal  between  the  state and  the  federal                                                                    
government. If  this provision in  the bill was  adopted and                                                                    
approved by the  Office of Inspector General  at the federal                                                                    
level then  the state  would receive  an enhanced  match for                                                                    
the  recoveries. There  was a  10 point  swing instead  of a                                                                    
50/50 match.  In other words, it  would be a 45/55  match in                                                                    
the federal rules governing the  false claims act. Regarding                                                                    
a  private plaintiff,  the recovery  was  split between  the                                                                    
state  and  federal  government.  It  was  outlined  in  the                                                                    
provisions of  the bill because  the department felt  it was                                                                    
part  of the  ultimate  judgement that  would  occur at  the                                                                    
trial level. She  confirmed there was an  enhanced match for                                                                    
the  state and  the state  would receive  more money  if the                                                                    
legislation  passed   and  was   approved  by   the  federal                                                                    
government.                                                                                                                     
                                                                                                                                
Co-Chair  Neuman reiterated  her  answer  that the  recovery                                                                    
came off  the top and  was split 45/55.  He did not  see the                                                                    
information reflected  in the bill.  He wondered why  it was                                                                    
not  expressly identified.  He asked  if it  was already  in                                                                    
state statute.                                                                                                                  
                                                                                                                                
Ms. Kraly  relayed that the  split was set forth  in federal                                                                    
law.  Once approval  came through  the  Office of  Inspector                                                                    
General it  would be  in federal  law. As  far as  the other                                                                    
adjustment, she could look into  identifying it and it could                                                                    
be added to the legislation as an amendment.                                                                                    
                                                                                                                                
1:44:54 PM                                                                                                                    
                                                                                                                                
Representative  Gara  suggested that  there  was  a rule  in                                                                    
public  interest cases,  such as  fraud, that  if the  state                                                                    
prevailed it  would receive full attorney's  fees and costs.                                                                    
He wondered  if there was  a reimbursement for the  state in                                                                    
the statute if the state prevailed in a fraud case.                                                                             
                                                                                                                                
Ms. Kraly responded  in the negative. She  informed him that                                                                    
the rules for attorney's fees  were governed under the civil                                                                    
rules under  Rule 82. It  would be something  the Department                                                                    
of Law  would have  to look  at if  it was  the will  of the                                                                    
committee.                                                                                                                      
                                                                                                                                
Representative Gara thought that  without the two provisions                                                                    
it would cost the state a significant amount of money.                                                                          
                                                                                                                                
Representative Wilson wondered about  how difficult it would                                                                    
be to reverse the legislation in the future.                                                                                    
                                                                                                                                
Ms.  Kraly responded  that the  state did  not need  federal                                                                    
approval  to  pass the  legislation.  The  state would  need                                                                    
federal approval  of the framework  of the False  Claims Act                                                                    
within the  provision. If  it was  approved the  state would                                                                    
get  the enhanced  match of  a 45/55  split. If  the federal                                                                    
government  did not  approve  it the  split  would remain  a                                                                    
50/50 split. If, in 2 to  3 years when the private plaintiff                                                                    
provisions were  sun-setting and  the false  claim provision                                                                    
was not  doing what it was  intended to do, the  state could                                                                    
repeal  the provisions  without a  penalty from  the federal                                                                    
government for not having them. They were not required.                                                                         
                                                                                                                                
1:46:55 PM                                                                                                                    
                                                                                                                                
Vice-Chair Saddler asked about  the potential benefit to the                                                                    
state for  allowing private plaintiffs  to proceed  with the                                                                    
100  percent  reimbursement. He  noted  that  Ms. Kraly  had                                                                    
mentioned  that  other  states did  things  differently.  He                                                                    
wondered if  the DOL  had done review  of states  that might                                                                    
have moved entirely to the  privatization of the prosecution                                                                    
of Medicaid fraud.                                                                                                              
                                                                                                                                
Ms.  Kraly  explained  that the  state,  under  the  federal                                                                    
Medicaid  act the  state  was required  to  have a  Medicaid                                                                    
Fraud  Control   Unit  (MFCU),   a  separate   and  distinct                                                                    
enforcement arm  from the  DHSS. The  way it  was set  up in                                                                    
Alaska,  as well  as most  other states,  it was  within the                                                                    
DOL.  Mr.  Peterson's  office  was  through  the  Office  of                                                                    
Special  Prosecutions   and  Appeals.  He  had   a  team  of                                                                    
individuals  that   worked  on  Medicaid  fraud   unit.  The                                                                    
department  decided  to  place  the  false  claim  provision                                                                    
within  the  MFCU  for  a   couple  of  reasons  should  the                                                                    
legislation pass.  The first reason  was that as  a Medicaid                                                                    
fraud  unit  they  would  receive   an  enhanced  match  for                                                                    
administrative costs.  For every  dollar the state  paid for                                                                    
Medicaid  fraud,   the  federal  government  would   pay  75                                                                    
percent.  The  state would  have  to  come  up with  the  25                                                                    
percent match.  There were  other ways  to use  the recovery                                                                    
funds through dedicated  receipts to use the  money the unit                                                                    
was recovering  to backfill the  state match.  She concluded                                                                    
that it  was almost a zero  sum game for the  provision. She                                                                    
had  worked closely  with Mr.  Peterson  had worked  closely                                                                    
over the course  of the previous 6 months  on the provisions                                                                    
and he had  looked at many other states and  talked to other                                                                    
Medicaid  fraud  units doing  the  same  work. Mr.  Peterson                                                                    
would be able to provide additional detail.                                                                                     
                                                                                                                                
Ms. Kraly told  of a final provision which  was the employee                                                                    
protection  against retaliation.  There were  very stringent                                                                    
whistleblower  protections within  the act  that allowed  an                                                                    
individual working for an enrolled  provider to come forward                                                                    
and to  identify and report  fraud without  being ostracized                                                                    
by  their current  employer or  with other  employers. There                                                                    
was an  incentive and a  whistleblower protection  in place,                                                                    
critical  components  of  any  false  claim  provisions.  In                                                                    
summary,  the  provisions  she discussed  were  critical  to                                                                    
enhance and  provide additional  tools and  a means  for the                                                                    
DOL and the  DHSS to have a robust  program integrity system                                                                    
to  ensure  provider  compliance  with  program  rules.  She                                                                    
thought it would  be helpful for the committee  to hear from                                                                    
certain individuals  including Andrew Peterson,  Doug Jones,                                                                    
and  Lynne   Keilman-Cruz.  They  would  walk   through  the                                                                    
spreadsheets and explain how the  system currently worked as                                                                    
a fraud case, an overpayment  case, or a sanctioned case and                                                                    
how the provisions would help them to make a better system.                                                                     
                                                                                                                                
1:50:32 PM                                                                                                                    
                                                                                                                                
Co-Chair Neuman asked about  the whistleblower provision and                                                                    
thought  there would  be  a plethora  of  complaints by  the                                                                    
public. He wondered  if the department had  the personnel to                                                                    
handle the complaints  or if additional staff  would have to                                                                    
be hired.                                                                                                                       
                                                                                                                                
Ms. Kraly indicated that what  constituted a false claim for                                                                    
purposes of  the False  Claims Act  were very  well defined.                                                                    
The   provisions  in   the  bill   allowed   the  state   to                                                                    
differentiate between a false  claim and a fraudulent claim.                                                                    
Fraudulent  claims   were  already  being   prosecuted.  The                                                                    
importance  of  the  provisions  of  the  bill  allowed  for                                                                    
reports to  come in  and for  the DOL and  the DHSS  to make                                                                    
appropriate  referrals  administratively through  the  DHSS,                                                                    
criminally  through the  MFCU, or  through the  False Claims                                                                    
Act. Some  resources were requested  by the DOL as  a result                                                                    
of the provisions.  The Department of Law and  the DHSS were                                                                    
not  asking for  a significant  amount of  resources because                                                                    
each department felt  it had the resources  needed to absorb                                                                    
the related work.  The departments saw the  legislation as a                                                                    
set  of  additional  tools  to  get to  a  more  robust  and                                                                    
complete compliance  package. She  thought it was  a missing                                                                    
part of the system currently in place.                                                                                          
                                                                                                                                
Co-Chair Thompson invited other testifiers to the table.                                                                        
                                                                                                                                
1:53:14 PM                                                                                                                    
                                                                                                                                
ANDREW  PETERSON,  ATTORNEY,  MEDICAID FRAUD  CONTROL  UNIT,                                                                    
DEPARTMENT   OF    LAW,   relayed   that   the    MFCU   was                                                                    
congressionally mandated  and funded  at 75  percent federal                                                                    
funds  with a  25 percent  state match.  The unit  currently                                                                    
consisted  of Mr.  Peterson  and  another prosecutor.  There                                                                    
were 6  criminal investigators that  were partially  sworn -                                                                    
meaning  they  had  the authority  to  receive  and  execute                                                                    
search warrants but did not  have the authority to arrest or                                                                    
carry firearms. The unit also  had a forensic accountant and                                                                    
an office administrator.  He had two answers  to the earlier                                                                    
question   about   sufficient   staffing  to   support   the                                                                    
activities of the unit. The  Medicaid Fraud Control Unit had                                                                    
over the  previous 3  years formed  a significant  number of                                                                    
partnerships  with the  various state  and federal  entities                                                                    
that had an interest in  the Medicaid program. The committee                                                                    
would  hear from  Doug  Jones, the  MPI  manager, and  Lynne                                                                    
Keilman-Cruz,  the  quality   assurance  manager.  The  unit                                                                    
coordinated  with everyone  with an  interest in  preventing                                                                    
Medicaid fraud  and relied on everybody's  limited resources                                                                    
to expand on the  unit's abilities. The coordination efforts                                                                    
with  respect  to  criminal  prosecutions  had  resulted  in                                                                    
charging  130 criminal  cases, secured  criminal convictions                                                                    
in 96  of those cases,  and resolved an additional  10 civil                                                                    
cases.  The courts  had ordered  just over  $4.6 million  in                                                                    
restitution and the unit had  secured fines in the amount of                                                                    
$505,000. This  was all based  on the 25 percent  match from                                                                    
the state equal  to about $225,000 to $300,000  per year for                                                                    
the previous 3 years.                                                                                                           
                                                                                                                                
Mr. Peterson cited that the  focus the MFCU had was somewhat                                                                    
limited.  The  unit  prosecuted  medical  assistance  fraud,                                                                    
allegations of abuse or  neglect, and financial exploitation                                                                    
or  misappropriation of  patient  assets  in residents  that                                                                    
were  funded  by  Medicaid.  The  unit's  focus  was  almost                                                                    
entirely  criminal. It  had a  mandate to  prosecute medical                                                                    
assistance fraud  or Medicaid fraud. However,  when the unit                                                                    
initiated  or conducted  an investigation  and found  in the                                                                    
course of  the investigation  that the act  did not  rise to                                                                    
the level of fraud that  the unit would prosecute criminally                                                                    
or  found  there was  something  about  the case  that  gave                                                                    
pause, the  unit had limited  options. Such a case  would be                                                                    
referred back to  MPI to do a civil  recovery. That recovery                                                                    
consisted only  of asking the  provider who might  have been                                                                    
involved in wasteful or abusive  conduct but not necessarily                                                                    
fraudulent  conduct   to  give   back  the  money.   It  was                                                                    
essentially a mulligan  or a do-over. The  only other option                                                                    
was  for  MPI  or  the  agency  within  the  DHSS  that  had                                                                    
authorized an  entity to provide  Medicaid services  to dis-                                                                    
enroll  them or  bar them  from being  part of  the Medicaid                                                                    
program.  The unit  did  not  have any  other  tools at  its                                                                    
disposal.  A large  part of  what  the unit  was asking  for                                                                    
through legislation was to provide  the unit with additional                                                                    
tools  in its  tool chest  to  address waste  and fraud.  It                                                                    
would  also help  the unit  to get  recoveries back  for the                                                                    
state in the  form of Medicaid money that was  paid out that                                                                    
should not have been. There  would be interest and penalties                                                                    
associated to  restore the state  to the  financial position                                                                    
it would have been in had  the abuse or wasteful billing not                                                                    
occurred. It  would also incentivize others  in the industry                                                                    
to refrain  from committing  the same  offences. One  of the                                                                    
most important provisions  was that the tool  would give the                                                                    
state  the  ability  to  address  waste  and  fraud  without                                                                    
putting the provider  out of business. It  would benefit the                                                                    
providers  within   the  industry  and  would   benefit  the                                                                    
recipients  of Medicaid  services who  rely on  many of  the                                                                    
crucial  and essential  services. In  dealing with  the DHSS                                                                    
over  the prior  3 years  the unit  had identified  numerous                                                                    
issues with  cases where  there had  been alternate  ways of                                                                    
handling them outside of criminal  prosecution or asking for                                                                    
the money  back. The False Claims  Act was one of  the tools                                                                    
that would greatly  benefit the state along  with the option                                                                    
for  MPI  to implement  civil  penalties  for providers  who                                                                    
continued  to  ignore  the  rules  and  regulations  of  the                                                                    
Medicaid program.                                                                                                               
                                                                                                                                
1:59:54 PM                                                                                                                    
                                                                                                                                
Vice-Chair Saddler appreciated  the detailed information. He                                                                    
asked about  the $4.6 in restitution  and $500,000 collected                                                                    
in fines. He wondered how  much money the state had foregone                                                                    
in Medicaid fraud.                                                                                                              
                                                                                                                                
Mr. Peterson could provide  some examples regarding personal                                                                    
care  attendant  services.  At one  point  the  program  was                                                                    
costing the  state about $60 million  per year. It was  on a                                                                    
skyrocket  trajectory  going up  and  reached  the point  of                                                                    
costing the state  about $130 million per  year within about                                                                    
a 5 year period. A significant  number of the cases the unit                                                                    
prosecuted  over the  previous 3  years dealt  with personal                                                                    
care attendant  services. The unit convicted  57 individuals                                                                    
within a single corporation.  His understanding was that the                                                                    
cost of the  personal care attendant services  for the State                                                                    
of Alaska  was declining by  about $20 million.  He believed                                                                    
it was  a direct  result of two  factors. First,  Senior and                                                                    
Disabilities Services had  revised regulations pertaining to                                                                    
personal  care attendant  services  which  tightened up  the                                                                    
regulations, limited waste  and fraud, and had  made his job                                                                    
easier to  prosecute fraudulent  conduct. He  explained that                                                                    
the  regulations were  clear as  to what  services were  and                                                                    
were  not allowed  to be  billed. He  considered it  a joint                                                                    
effort  by  the  DHSS  in  tightening  regulations  and  the                                                                    
attorney  general's  office  in making  the  prosecution  of                                                                    
Medicaid  fraud  a priority  for  the  current and  previous                                                                    
administrations.                                                                                                                
                                                                                                                                
Vice-Chair Saddler asked about the  reach and effect of MFCU                                                                    
on the entire universe of Medicaid fraud.                                                                                       
                                                                                                                                
Mr. Peterson  relayed that the deterrent  effect of Medicaid                                                                    
fraud  prosecution  was  called   general  deterrence  or  a                                                                    
sentinel effect. He wanted to  be able to provide a specific                                                                    
dollar  amount  of  avoided costs  to  the  state.  Medicaid                                                                    
Program Integrity  over the first couple  of years estimated                                                                    
that  the prosecutions  and the  Medicaid fraud  arena saved                                                                    
the State  of Alaska  approximately $30 million,  well above                                                                    
and  beyond  what  had  been   recovered.  However,  it  was                                                                    
difficult to provide  a precise number. In  the packet given                                                                    
to committee  members there was  a "Stop the  Scam" pamphlet                                                                    
that  stated  that somewhere  between  5  to 25  percent  of                                                                    
welfare  spending had  been wasteful  or fraudulent.  He did                                                                    
not know the entity's  meaning of "wasteful." The statistics                                                                    
he  relied  on  were  provided  by  the  Federal  Bureau  of                                                                    
Investigation  (FBI). Their  estimation  was that  somewhere                                                                    
between 3  to 10  percent of all  healthcare billing  in the                                                                    
United States  was fraudulent. If  the number  was accurate,                                                                    
even on the low end, there  would be a significant amount of                                                                    
additional funds to be recovered by the State of Alaska.                                                                        
                                                                                                                                
2:04:20 PM                                                                                                                    
                                                                                                                                
Vice-Chair Saddler  asked who had  estimated that  the state                                                                    
had saved  $30 million  over what  time frame.  Mr. Peterson                                                                    
answered that  it was  MPI. Doug Jones  was the  manager for                                                                    
the MPI.                                                                                                                        
                                                                                                                                
Vice-Chair  Saddler  asked  what  the time  period  was  for                                                                    
saving the state $300 million.  Mr. Peterson believed it was                                                                    
over the first 2 years  in which he was prosecuting Medicaid                                                                    
fraud cases. He thought it was in FY 13 and FY 14.                                                                              
                                                                                                                                
Co-Chair  Thompson  noted  that   Mr.  Peterson  had  quoted                                                                    
several recovery  dollars and penalty  fees. He  asked about                                                                    
the collection percentages associated with those dollars.                                                                       
                                                                                                                                
Mr. Peterson responded that  the collection percentages were                                                                    
difficult to  pin down due  to the  fact that when  the unit                                                                    
prosecuted a  Medicaid case the  provider was, by  effect of                                                                    
the prosecution,  barred from billing Medicaid.  It depended                                                                    
on the amount of  money to be paid back. He  did not have an                                                                    
exact  number  but offered  to  reach  out to  the  attorney                                                                    
general's collection  unit to obtain  a more  precise number                                                                    
for the committee. He reported  having been surprised at the                                                                    
number of  cases in which  the unit had fully  recovered the                                                                    
money with  respect to  fines or  restitution that  had been                                                                    
imposed. One  of the things the  unit had done in  the prior                                                                    
1.5  years  was  to  require  partial  or  full  payment  of                                                                    
restitution  upfront  in any  plea  agreement.  He had  been                                                                    
surprised at  the number of  cases in which  the individuals                                                                    
had been  able to come  up with the  money. He would  try to                                                                    
get the precise number for committee members.                                                                                   
                                                                                                                                
2:06:50 PM                                                                                                                    
                                                                                                                                
Representative Gara asked if Mr.  Peterson was familiar with                                                                    
parts of  the law  where the  attorney general's  office was                                                                    
allowed to recover full attorney's  fees and costs for their                                                                    
case.                                                                                                                           
                                                                                                                                
Mr.  Peterson was  familiar with  the related  provisions of                                                                    
the law. It  was not something that he would  be opposed to.                                                                    
He thought it  was a balancing act between  wanting to deter                                                                    
waste, fraud, and abuse. However,  unlike most typical civil                                                                    
cases, it  came with penalties  and interest. The  more that                                                                    
was tacked on to the  providers the more burdensome it could                                                                    
be. He thought that the way  it was currently designed was a                                                                    
compromise to recognize that waste,  fraud, and abuse needed                                                                    
to  be addressed.  He  also  wanted to  make  sure that  the                                                                    
providers, even  if they made  a mistake but were  not being                                                                    
prosecuted  criminally,   could  continue  working   in  the                                                                    
industry and providing a service  to Medicaid recipients. He                                                                    
thought it would  come down to a judgement call  of the best                                                                    
way  to implement  the False  Claims  Act. He  was happy  to                                                                    
bring a recommendation to the committee for consideration.                                                                      
                                                                                                                                
Representative Gara relayed that his  focus was on the worst                                                                    
conduct,  fraud.  He felt  that  fraud  was intentional  and                                                                    
deceptive. It  was the  kind of conduct  that he  wanted Mr.                                                                    
Peterson  to look  at as  far as  reimbursing the  state for                                                                    
reasonable attorney's fees and costs.                                                                                           
                                                                                                                                
Mr.   Peterson   explained   that    the   reason   he   was                                                                    
distinguishing between the  two was that if  the conduct was                                                                    
fraudulent the  state would generally  address fraud  with a                                                                    
criminal  prosecution. While  there  were  some states  that                                                                    
allowed for  attorney's fees  provisions in  criminal cases,                                                                    
Alaska was not one of those  states. If the state went after                                                                    
a provider  for fraudulent  conduct with a  criminal charge,                                                                    
upon the filing  of the charge or the finding  of a credible                                                                    
allegation,  the  provider  would  be  barred  from  filling                                                                    
Medicaid  even during  the pendency  of  the criminal  case.                                                                    
There  were  significant   additional  penalties  that  were                                                                    
automatically imposed once the fraud  unit decided to take a                                                                    
case  criminally. He  was  making  that distinction  between                                                                    
waste and abuse which were less egregious.                                                                                      
                                                                                                                                
Representative  Gara  commented  that if  there  was  fraud,                                                                    
there would be  the option to prosecute  both criminally and                                                                    
civilly. Mr. Peterson responded, "That is correct."                                                                             
                                                                                                                                
Representative Gara  stated that if  it was fraud,  it would                                                                    
be  dishonest conduct  in which  the state  would be  paying                                                                    
money. He  added that it  seemed like  in the case  of fraud                                                                    
the  traditional role  of  full  reasonable attorney's  fees                                                                    
should apply.  He did not see  any reason to do  a favor for                                                                    
anyone that had committed fraud against the state.                                                                              
                                                                                                                                
Representative  Wilson asked  if  anyone kept  track of  the                                                                    
payments of fines and penalties.                                                                                                
                                                                                                                                
Mr.   Peterson  responded   that   the  attorney   general's                                                                    
collection unit tracked the payment  of fines and penalties.                                                                    
He did  not have the  collections totals but would  get them                                                                    
to the committee.                                                                                                               
                                                                                                                                
Representative   Wilson  thanked   Mr.   Peterson  for   the                                                                    
clarification.                                                                                                                  
                                                                                                                                
2:11:57 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Saddler  asked  Mr.  Peterson  to  differentiate                                                                    
between a false claim and a fraudulent claim.                                                                                   
                                                                                                                                
Mr.  Peterson responded  with  some  examples of  fraudulent                                                                    
claims  that   would  be  prosecuted   criminally.  Examples                                                                    
included  submitting a  bill to  Medicaid  knowing that  the                                                                    
person was not entitled to  the money, billing for a service                                                                    
that  was  not provided,  up-coding  (billing  for a  higher                                                                    
level  of  service  than  was  authorized  to  provide),  or                                                                    
billing for a  service in a manner that a  provider knew was                                                                    
wrong (a provider  was warned by MPI that  a certain service                                                                    
was  not  allowed  to  be  billed but  continued  to  do  so                                                                    
anyway). Examples  of waste or  abuse might  include billing                                                                    
for a service not allowed  by regulations but providers were                                                                    
unaware of or it was  unintentional, things that were caught                                                                    
in a  lot of  audits. It  could also  be something  that was                                                                    
slightly  more grievous  but did  not rise  to the  level of                                                                    
criminal prosecution or  a case that could  be proven beyond                                                                    
a reasonable  doubt. The distinction between  a false claims                                                                    
act  and a  criminal case  was that  in a  criminal case  he                                                                    
would  have to  prove the  case beyond  a reasonable  doubt.                                                                    
Whereas,  in  a false  claims  act,  since  it was  a  civil                                                                    
matter, it was a preponderance.                                                                                                 
                                                                                                                                
Vice-Chair Saddler  clarified that fraudulent  was knowingly                                                                    
doing something wrong and trying  to obtain a benefit that a                                                                    
person knew they  were not entitled to. A false  claim was a                                                                    
claim that was submitted in good faith but was incorrect.                                                                       
                                                                                                                                
Mr.  Peterson thought  Vice-Chair  Saddler's assessment  was                                                                    
fair.  He asked  that Doug  Jones further  comment since  he                                                                    
dealt with audits in the MPI unit for DHSS.                                                                                     
                                                                                                                                
Co-Chair Thompson asked for Mr. Peterson to continue.                                                                           
                                                                                                                                
Mr.  Peterson relayed  that there  had been  a question  the                                                                    
previous   day  regarding   forfeiture.   He  informed   the                                                                    
committee that SB 74  contained forfeiture provisions within                                                                    
Section  28.  There  was  a  question  about  bank  accounts                                                                    
providing clear evidence of proceeds  of Medicaid fraud. The                                                                    
forfeiture  provision would  allow for  forfeiture of  other                                                                    
assets  because  in  some  of   the  cases  the  individuals                                                                    
committing Medicaid  fraud were  taking money that  they got                                                                    
from  fraudulently  billing  the  State of  Alaska  and  the                                                                    
federal government  and converting  it to other  assets such                                                                    
as homes,  cars, and other  tangible items. Once  a criminal                                                                    
case  started  there was  nothing  to  recover. One  of  the                                                                    
reasons for  the provision was  to give the State  of Alaska                                                                    
the  opportunity to  ask a  court  to freeze  the assets  or                                                                    
limit the transfer of certain  assets pending the outcome of                                                                    
the   criminal  case.   If  the   court   agreed  with   the                                                                    
prosecutor's  assessment on  the  case that  the items  were                                                                    
purchased as a result of  proceeds of fraud, the state would                                                                    
have the  opportunity to have  those items forfeited  to the                                                                    
state as  a means of  debt repayment.  It had happened  in a                                                                    
number of  historical cases where  there was not  an account                                                                    
in which the  company could pay the State of  Alaska back if                                                                    
a  criminal case  was successful.  He reemphasized  that the                                                                    
provisions of the  forfeiture statue were that it  had to be                                                                    
shown  to  the court  that  the  items were  purchased  with                                                                    
fraudulent  proceeds.  Any forfeiture  would  be  up to  the                                                                    
courts to  decide following the  conclusion of  the criminal                                                                    
case.                                                                                                                           
                                                                                                                                
Vice-Chair Saddler asked if he  had the appropriate level of                                                                    
staffing and  resources for Mr.  Peterson to  accomplish his                                                                    
job. He wondered if he  could recover more in Medicaid fraud                                                                    
money for the state if he had more resources.                                                                                   
                                                                                                                                
Mr.  Peterson  answered that  it  was  a difficult  question                                                                    
about the  proper level of  staff. The  legislature expanded                                                                    
the unit's  number of  investigators from 3  to 6  about 3.5                                                                    
years  prior.  The  unit  had  done  a  substantial  job  of                                                                    
utilizing the resources that the  legislature had given them                                                                    
in the previous  3 years. The bill authorized  the hiring of                                                                    
2  additional individuals.  His intent  was to  move forward                                                                    
with  the number  of  people  already on  staff  and as  the                                                                    
demand  became  evident  they   would  bring  on  additional                                                                    
personnel. He wanted to make  sure that there was sufficient                                                                    
work for everyone in the unit.                                                                                                  
                                                                                                                                
2:18:32 PM                                                                                                                    
                                                                                                                                
Representative  Kawasaki  referred  to the  second  part  of                                                                    
Section  28  dealing with  seizure  and  forfeiture of  real                                                                    
property.  He asked  if the  language in  the sentence  that                                                                    
included "proper  cause" was commonly  used for  civil asset                                                                    
forfeitures and Medicaid fraud cases for other MFCUs.                                                                           
                                                                                                                                
Mr. Peterson  did not know  what the standard was  for other                                                                    
units.  He  would  be  happy  to reach  out  to  other  unit                                                                    
directors to  pose the  question as  to their  standards. He                                                                    
relayed that  the language  was standard  in other  areas of                                                                    
the law within  the State of Alaska, such  as the Department                                                                    
of  Fish and  Game when  looking at  crimes that  might have                                                                    
been committed  such as using  an airplane. If a  unit could                                                                    
establish  probable  cause  that  an airplane  was  used  to                                                                    
commit a  crime, the  state would be  entitled to  seize the                                                                    
aircraft, with a  proper court order granted by  a judge. In                                                                    
Alaska Fish  and Game cases  as well as with  Medicaid cases                                                                    
the individual  would be entitled  to come before  the court                                                                    
to  ask for  an  immediate  court order  to  have the  items                                                                    
returned  to them  if they  believed  the state  had made  a                                                                    
mistake. The decision would rest with the court.                                                                                
                                                                                                                                
Representative  Kawasaki   mentioned  that  a   civil  asset                                                                    
forfeiture was  used in  the case of  a hunting  and fishing                                                                    
violation  when  the  use  of an  airplane  was  the  object                                                                    
committing the  crime. Another example  was using a  boat to                                                                    
transfer drugs  from point A to  point B. He was  aware that                                                                    
civil  asset forfeiture  was  used and  wondered  if it  was                                                                    
possible to  get more information  on how often  civil asset                                                                    
forfeiture  was used  specifically  for  white collar  crime                                                                    
such  as Medicaid  in the  future.  He also  had a  question                                                                    
regarding item E of the same  question having to do with the                                                                    
property seized  under the chapter including  bank accounts,                                                                    
automobiles,  boats,  planes,  and   stocks  and  bonds.  He                                                                    
appreciated  the  information regarding  liquidating  assets                                                                    
and putting  them into other tangible  property. He referred                                                                    
to the  last section  that said  "Real or  personal property                                                                    
owned and  used to  conduct the Medical  Assistance Prover's                                                                    
business." He thought the language  was limiting. He thought                                                                    
the word "and" could be replaced with "or."                                                                                     
                                                                                                                                
Co-Chair Thompson did not understand the question.                                                                              
                                                                                                                                
Representative  Kawasaki elaborated  that in  Item E  of the                                                                    
section it talked  about property that could  be seized, and                                                                    
it talked  about real or  personal property. It  stated that                                                                    
"real or  personal property  owned and  used to  conduct the                                                                    
medical  assistance providers  business."  He thought  "and"                                                                    
limited it to the persons' business.                                                                                            
                                                                                                                                
Mr.  Peterson  was  aware   of  the  section  Representative                                                                    
Kawasaki  was  referring  to.  He   indicated  he  would  be                                                                    
speaking  with Ms.  Kraly following  the hearing  to discuss                                                                    
the   provision.  He   saw  how   the  provision   could  be                                                                    
interpreted  to limit  what  the state  could  go after.  He                                                                    
spoke  to  Representative  Kawasaki's  first  question  with                                                                    
respect  to  Medicaid  fraud  cases the  state  had  used  a                                                                    
seizure of proceeds within a  bank account, the accounts for                                                                    
which Medicaid  was paying  funds into  the account  for the                                                                    
provider.  There  was  one case  against  a  physician  that                                                                    
resulted in a  successful conviction and one  against a home                                                                    
healthcare  agency  which  also  resulted  in  a  successful                                                                    
conviction.  In both  cases the  proceeds were  forfeited to                                                                    
the State  of Alaska  to go  towards paying  the restitution                                                                    
due to the state.                                                                                                               
                                                                                                                                
2:23:26 PM                                                                                                                    
                                                                                                                                
Representative Munoz asked  if most of the  cases were aimed                                                                    
at providers or consumers of Medicaid.                                                                                          
                                                                                                                                
Mr. Peterson  responded that  by and  large the  fraud comes                                                                    
from  the provider  rather than  the  recipient. The  unit's                                                                    
mandate  was  to prosecute  fraud  by  providers within  the                                                                    
Medicaid  program.   However,  the   unit  was   allowed  to                                                                    
prosecute recipients  when the recipient was  colluding with                                                                    
the provider  to commit a  fraud. The unit had  prosecuted a                                                                    
few  recipients  in  the  previous  3  years.  If  the  unit                                                                    
discovered through  its investigation  that a  recipient was                                                                    
committing  Medicaid fraud  then  the unit  would refer  the                                                                    
case  to the  Office  of Special  Prosecutions  which had  a                                                                    
public assistance prosecutor.                                                                                                   
                                                                                                                                
Representative Munoz asked if it  would remain the case with                                                                    
the new legislation.                                                                                                            
                                                                                                                                
Mr.  Peterson   was  uncertain  of   Representative  Munoz's                                                                    
question.                                                                                                                       
                                                                                                                                
Ms.   Kraly  responded   that  it   would  not   change  the                                                                    
prosecution dynamic.  Individuals would still  be prosecuted                                                                    
by the  public assistance prosecutor and  providers would be                                                                    
prosecuted by the MFCU.                                                                                                         
                                                                                                                                
Representative  Edgmon asked  how  Medicaid expansion  would                                                                    
affect the work of the MFCU.                                                                                                    
                                                                                                                                
Mr. Peterson  answered that  he did  not see  any noticeable                                                                    
change in  work load  due to the  expansion of  Medicaid. He                                                                    
thought the  reason for  that was because  the focus  of the                                                                    
unit was primarily  on provider fraud. There had  not been a                                                                    
large expansion or  explosion of the number  of providers in                                                                    
the industry. One  of the ways in which  the unit prosecuted                                                                    
white collar fraud cases was that  it would find out about a                                                                    
fraud  scheme or  some  type  of conduct  that  would be  in                                                                    
violation of  state law. In  working with the  Department of                                                                    
Health and  Social Services the unit  analyzed billing data.                                                                    
However,  whether analyzing  billing data  for 200,  300, or                                                                    
400 recipients  there had not  been a significant  change in                                                                    
his workload.                                                                                                                   
                                                                                                                                
Co-Chair  Thompson  relayed  that  there were  a  number  of                                                                    
questions  for  Doug  Jones. He  invited  him  to  introduce                                                                    
himself.                                                                                                                        
                                                                                                                                
2:27:27 PM                                                                                                                    
                                                                                                                                
DOUG  JONES, MANAGER,  MEDICAID  PROGRAM INTEGRITY  SECTION,                                                                    
DEPARTMENT  OF   HEALTH  AND  SOCIAL   SERVICES,  introduced                                                                    
himself  and  relayed that  his  section  managed the  audit                                                                    
contract  under  AS.47.05.200.  His section  worked  closely                                                                    
with the  federal government on  some of its  audit programs                                                                    
including the Program Error  Rate Measurement (PERM) program                                                                    
and the  Medicaid Integrity  Contractor Program.  His office                                                                    
also worked closely with the  MFCU and the Medicaid division                                                                    
in cases of  suspected Medicaid fraud. He  reviewed slide 3:                                                                    
"Overview  of Medicaid  Provider  Audit/  Over Payment."  He                                                                    
relayed that the slide covered  the procedural aspects of an                                                                    
audit and of  an overpayment and notice  scenario. He wanted                                                                    
to  review some  of  the  benefits of  the  bill that  would                                                                    
broaden the  section's tool chest  in order to  maintain and                                                                    
preserve the integrity of the  Medicaid program. He referred                                                                    
to  a  question  from  the previous  day  about  Section  25                                                                    
regarding the number  of audits. It was changed  in the bill                                                                    
requiring  the department's  contract  for no  less than  50                                                                    
audits annually  of medical  assistance providers,  a change                                                                    
from the  current language  of 75.  Ms. Kraly  had indicated                                                                    
correctly  that  there  had  been  a  large  change  in  the                                                                    
landscape of provider audits since  the original statute was                                                                    
enacted.  Large changes  had  included  the Affordable  Care                                                                    
Act, which  rolled out recovery  audit contractors  from the                                                                    
Medicare  program to  the Medicaid  program. Another  change                                                                    
was the implementation  of the PERM program  which seemed to                                                                    
grow  significantly.  Another  area  of  change,  for  those                                                                    
providers  that participated  in electronic  health records,                                                                    
were incentive payment audits  and audits conducted directly                                                                    
on state Medicaid providers by  the Centers for Medicare and                                                                    
Medicaid services.                                                                                                              
                                                                                                                                
2:30:49 PM                                                                                                                    
                                                                                                                                
Mr. Jones continued to speak  about the influx in the number                                                                    
and types  of audits being conducted  on Medicaid providers.                                                                    
He was very comfortable with  the reduction in the number of                                                                    
audits in AS.47.05.200.  Section 26 of the  bill allowed for                                                                    
the assessment of interest on  overpayments. He relayed that                                                                    
with the allowability for interest  on overpayments over the                                                                    
last couple  of years the  section had identified  about $20                                                                    
million in  overpayments through the  administrative conduct                                                                    
of audits  and reviews  on medical assistance  providers. In                                                                    
the  same  timeframe  the section  had  collected  about  $6                                                                    
million which  underscored a couple of  points. First, there                                                                    
was  no incentive  for  a  provider who  was  faced with  an                                                                    
overpayment   to  resolve   the   matter   quickly  and   no                                                                    
disincentive for them  not to appeal the  case. Secondly, he                                                                    
referred  to the  realm  between administrative  overpayment                                                                    
and a  criminal Medicaid fraud case.  The difference between                                                                    
false claims  and Medicaid fraud  was difficult  because the                                                                    
MFCU  had to  prove that  the  provider intended  to seek  a                                                                    
benefit that was not theirs.  A false claims act allowed for                                                                    
the  ability   to  identify  a   middle  ground.   When  the                                                                    
department sought  recovery on an overpayment  there was due                                                                    
process  rights   for  Alaska  providers.  In   some  cases,                                                                    
providers  took  the  due process  to  an  unhealthy  level,                                                                    
pushing  poor positions  to Superior  Court where  they most                                                                    
likely did not  belong tying up resources in  staff time for                                                                    
various offices. It ultimately  could eat up Superior Court.                                                                    
The false claims  act and civil penalties  provided an extra                                                                    
incentive  for providers  to  come  into compliance  without                                                                    
having to  be shut down.  There were measures that  could be                                                                    
taken but if  it was difficult to prove  Medicaid fraud, the                                                                    
False Claims Act gave the  department a boost in encouraging                                                                    
compliance with Medicaid rules and regulations.                                                                                 
                                                                                                                                
Mr. Jones  explained that  Section 27  of the  bill provided                                                                    
another tool in encouraging  providers to identify and repay                                                                    
a self-identified overpayment. The  provision worked well in                                                                    
conjunction  with  the false  claim  and  reporting act.  It                                                                    
would encourage  providers to initiate  compliance programs.                                                                    
For  those providers  with  compliance  programs already  in                                                                    
effect it  would incentivize  them to  look for  cases where                                                                    
they  might have  inadvertently overbilled  the program  and                                                                    
return the funds. He was available for questions.                                                                               
                                                                                                                                
2:36:37 PM                                                                                                                    
                                                                                                                                
Co-Chair Thompson had heard Mr.  Jones report that there was                                                                    
overpayments in  excess of $20 million.  However, only about                                                                    
$6 million had  been recovered. He wondered if  he had heard                                                                    
him correctly.                                                                                                                  
                                                                                                                                
Mr.  Jones replied  in the  affirmative.  He explained  that                                                                    
whenever he talked  about a matrix in the  fraud, waste, and                                                                    
abuse realm  he thought  of them  in three  different areas.                                                                    
The first was  what had been identified as  an overpayment -                                                                    
in  cases where  the  department issued  a  final audit  and                                                                    
informed  the  provider.  Secondly,  collections  were  hard                                                                    
dollar recoveries,  money which  actually came in  the door.                                                                    
He reminded members that his  numbers were separate from the                                                                    
numbers  Mr.  Peterson  had  discussed   which  was  on  the                                                                    
criminal restitution  side. The third  piece had to  do with                                                                    
the idea  of cost  avoidance or how  much was  saved through                                                                    
the sentinel  effect. The  number for  the previous  2 years                                                                    
was  about $30  million,  a calculation  that  was not  very                                                                    
scientific. Every  state struggled  in trying to  support or                                                                    
prove  up the  effectiveness and  efficiency of  any program                                                                    
integrity, fraud, and  abuse program. A question  to ask was                                                                    
how much  money was saved  by prosecuting cases to  put some                                                                    
bad guys in  jail. The number was  calculated by identifying                                                                    
the  prosecuted and  looking at  their annual  billings. The                                                                    
annual billing  amount for  1 year was  calculated out  as a                                                                    
cost  avoidance  amount  which was  where  the  $30  million                                                                    
figure came from. The cost  avoidance or the sentinel effect                                                                    
amount  was difficult  to assign  a scientific  and rational                                                                    
calculation.                                                                                                                    
                                                                                                                                
Representative  Gattis could  not help  but think  about the                                                                    
state  having  a glitch  in  its  own software  system.  She                                                                    
wondered if  that factored into the  $30 million overpayment                                                                    
figure.                                                                                                                         
                                                                                                                                
Mr. Jones responded  in the negative. He  suggested that the                                                                    
$30 million only had to do  with a cost avoidance number due                                                                    
to the sentinel  effect. Any issues with  the payment system                                                                    
would not affect the number.                                                                                                    
                                                                                                                                
2:40:54 PM                                                                                                                    
                                                                                                                                
Representative  Gattis stated  that the  state had  problems                                                                    
with its  system. She wondered  if it was possible  that the                                                                    
state  overpaid  or  underpaid.   Assuming  that  the  state                                                                    
overpaid, she  wondered if  it was  possible that  the state                                                                    
overpaid  and was  unable  to collect.  She  wondered it  if                                                                    
would be categorized as fraud.                                                                                                  
                                                                                                                                
Mr.  Jones  reported  not  having  focused  its  reviews  on                                                                    
payments associated with the new  system. He relayed that he                                                                    
had not  studied the full  impact of the  system. Currently,                                                                    
audits being  conducted were from calendar  year 2012. There                                                                    
was   only  limited   focused   reviews   on  more   current                                                                    
timeframes. The  primary audit  program under  AS. 47.05.200                                                                    
was still  looking at years  prior to the  implementation of                                                                    
the new system.  The potential impact of  the payment system                                                                    
had not been reviewed.                                                                                                          
                                                                                                                                
Representative  Gara asked  about  the  potential of  losing                                                                    
money by pursuing a fraud case.                                                                                                 
                                                                                                                                
Mr.  Jones responded  that he  would  have to  defer to  Mr.                                                                    
Peterson regarding fraud cases.  He could see Representative                                                                    
Gara's  point  about  a  relatively  small  overpayment  and                                                                    
whether it was worth appealing.                                                                                                 
                                                                                                                                
Representative  Gara asked  whether  the civil  side of  the                                                                    
unit  had the  right to  pursue someone  that had  committed                                                                    
fraud against the state.                                                                                                        
                                                                                                                                
Mr. Jones  responded in the  affirmative. He  clarified that                                                                    
they would  be pursuing the overpayment  associated with the                                                                    
fraud.                                                                                                                          
                                                                                                                                
Representative  Gara  understood   that  the  process  began                                                                    
administratively  but  wondered if  it  ended  in court.  He                                                                    
assumed if  the state won,  the losing party would  have the                                                                    
right to appeal.                                                                                                                
                                                                                                                                
Mr. Jones  relayed the Representative Gara  was accurate. He                                                                    
stated  that he  worked closely  with Mr.  Peterson on  such                                                                    
cases. On  the administrative side  he would be  looking for                                                                    
the   administrative   overpayment  through   administrative                                                                    
remedies. A  party had due  process rights and  could appeal                                                                    
the overpayment findings through Superior Court.                                                                                
                                                                                                                                
Co-Chair  Thompson  noted  that   Mr.  Jones  had  mentioned                                                                    
looking  at cases  from 2012  and  wondered if  there was  a                                                                    
statute of limitations that would apply.                                                                                        
                                                                                                                                
Mr. Jones confirmed that there was a limit of 7 years.                                                                          
                                                                                                                                
Co-Chair  Thompson remarked  that they  were at  year 5  and                                                                    
encouraged Mr. Jones to keep going.                                                                                             
                                                                                                                                
Representative Gara  asked about the number  of attorneys in                                                                    
Mr. Jones' fraud unit.                                                                                                          
                                                                                                                                
Mr. Jones responded that the  unit worked with one assistant                                                                    
attorney general and  often times Ms. Kraly  was involved in                                                                    
some  of the  cases. On  the administrative  side he  worked                                                                    
primarily with  one assistant attorney  general and  in part                                                                    
with Ms. Kraly.                                                                                                                 
                                                                                                                                
2:46:35 PM                                                                                                                    
                                                                                                                                
LYNNE  KEILMAN-CRUZ, HEALTH  PROGRAM MANAGER,  DEPARTMENT OF                                                                    
HEALTH  AND  SOCIAL  SERVICES, relayed  that  she  would  be                                                                    
discussing how  each of the  divisions worked  together with                                                                    
MPI and  the MFCU  to fight Medicaid  fraud. The  Senior and                                                                    
Disabilities   Services    Division   had   3    full   time                                                                    
investigators,  one of  whom was  a non-permanent  position.                                                                    
The quality  assurance unit within the  division had donated                                                                    
some of  its resources cross-training individuals  to assist                                                                    
with  identifying   cases  and  receiving   complaints  from                                                                    
providers  and recipients  of  services.  She explained  her                                                                    
division had  a centralized  intake for  complaints (several                                                                    
complaints had been received).  The division streamlined and                                                                    
reviewed reports  and did some  of the  investigating. Often                                                                    
times   the  division   provided  technical   assistance  to                                                                    
providers to  ensure their compliance  with state  rules and                                                                    
regulations.  She also  oversaw  the Provider  Certification                                                                    
and  Compliance Unit.  She had  compliance reviewers  within                                                                    
that  unit  that  went  out  into the  field  to  check  for                                                                    
compliance with different providers.  Many of the complaints                                                                    
that  rose to  the level  of  fraud, waste,  and abuse  came                                                                    
through the complaint system  or through provider compliance                                                                    
checks. Many  complaints that were investigated  turned into                                                                    
provider  fraud cases,  some  of  which involved  recipients                                                                    
colluding with  providers. Many  related cases  involved the                                                                    
personal  care assistance  program. The  division had  taken                                                                    
some  cases  against  waiver  providers   as  well  as  with                                                                    
personal  care  assistance  programs.  She  highlighted  the                                                                    
importance  of   the  three  units  working   together.  Her                                                                    
division  was the  programmatic  piece  of the  three-legged                                                                    
stool  which  also  included  the MFCU  and  the  MPI  unit.                                                                    
Sometimes her unit was able  to identify schemes or problems                                                                    
with   state  regulations   that   perhaps  Medicaid   fraud                                                                    
investigators could  not. The  division investigated  on the                                                                    
civil  side and  often  times noticed  providers to  correct                                                                    
their   behavior.  Her   unit   acted  through   progressive                                                                    
discipline.  The   unit  tried  to  start   with  the  least                                                                    
restrictive  level of  discipline and  work its  way up.  If                                                                    
something came  to the unit's  attention that  was egregious                                                                    
it would immediately  become a fraud case. Much  of the time                                                                    
the unit  provided technical assistance to  a provider, they                                                                    
failed  to correct  their  way of  doing  business, and  the                                                                    
issue resulted in a sanction.                                                                                                   
                                                                                                                                
2:51:38 PM                                                                                                                    
                                                                                                                                
Ms. Keilman-Cruz  turned to slide  2: "Overview  of Medicaid                                                                    
Sanction Process."  She indicated that what  the unit looked                                                                    
for  under   the  Alaska   Medicaid  Coverage   and  Payment                                                                    
Regulation 7AAC  105.400 were  grounds for  sanctions. After                                                                    
the  unit provided  technical assistance  to  a provider  or                                                                    
explained  to  them  that  they   needed  to  discontinue  a                                                                    
practice, the  unit would  move to  impose a  sanction. Many                                                                    
factors  were  considered  in sanctioning  a  provider.  She                                                                    
indicated that there were times  in which providers could be                                                                    
suspended if there  was a credible allegation  of fraud. The                                                                    
divisions  needed  to  work   together  because  there  were                                                                    
recipients  at the  other end  of a  suspension. It  was the                                                                    
division's responsibility to ensure  that recipients did not                                                                    
go without services.                                                                                                            
                                                                                                                                
Vice-Chair Saddler  asked Ms.  Keilman-Cruz to  explain what                                                                    
her section did versus the other sections.                                                                                      
                                                                                                                                
Ms.  Keilman-Cruz explained  that  her  section oversaw  the                                                                    
personal  care assistance  and Medicaid  waiver program  and                                                                    
within  that  the quality  assurance  unit,  the Senior  and                                                                    
Disabilities  Services  Division,  was responsible  for  the                                                                    
quality oversight of the program.  She furthered that within                                                                    
the quality  assurance unit there were  compliance folks and                                                                    
quality assurance folks that actually  performed some of the                                                                    
investigation  of complaints  that  came  in. She  explained                                                                    
that her unit did the  initial investigation and did some of                                                                    
the tidying  up of  a case.  The unit  then made  a referral                                                                    
through MPI,  responsible for tracking  and triaging  all of                                                                    
the  reports  that went  to  the  MFCU. The  Medicaid  Fraud                                                                    
Control Unit  oversaw the audit and  the payment suspensions                                                                    
(anything  to do  with payments  to  the provider  involving                                                                    
fraud, waste, or abuse. The  investigators for the MFCU only                                                                    
investigated actual fraud cases  that came directly to them.                                                                    
Her  unit  investigators  did  some  of  the  smaller,  more                                                                    
technical assistance  civil kind of sanctions  for oversight                                                                    
of the  program that did  not rise to  the level of  a fraud                                                                    
investigation.  Sometimes  her team  worked  collaboratively                                                                    
with  the  fraud  investigators because  there  was  program                                                                    
expertise in the  areas of fraud that  were occurring within                                                                    
the states programs.                                                                                                            
                                                                                                                                
Vice-Chair Saddler wanted to clarify  that her division took                                                                    
up  low  level  complaints,  gathered  up  information,  and                                                                    
passed them  on to MPI,  and if justified,  complaints would                                                                    
be passed to the MFCU.                                                                                                          
                                                                                                                                
Ms. Keilman-Cruz agreed with his summary.                                                                                       
                                                                                                                                
2:56:05 PM                                                                                                                    
                                                                                                                                
Representative Edgmon wanted to  better understand waste. He                                                                    
thought that there  would likely always be a  small level of                                                                    
incompliance or  inadvertent waste. He wondered  if it would                                                                    
be ongoing.                                                                                                                     
                                                                                                                                
Ms. Keilman-Cruz  thought there would  always be a  level of                                                                    
waste. It  was difficult  to anticipate  all areas  of waste                                                                    
but she  thought her  unit had  done a  good job  of working                                                                    
together  with the  MPI and  the  MFCU. In  focusing on  the                                                                    
areas  where  the unit  saw  significant  abuse and  working                                                                    
actively  with  the  other  two units  she  thought  it  was                                                                    
possible   to  reduce   or  eliminate   waste  by   changing                                                                    
regulations.  She believed  there  would always  be a  small                                                                    
amount of  waste but having  resources in  quality assurance                                                                    
would  lead  to  continuous   quality  improvement  and  the                                                                    
elimination of waste, fraud, and abuse.                                                                                         
                                                                                                                                
Representative  Edgmon asked  about  the  timeframe and  the                                                                    
audits being behind.                                                                                                            
                                                                                                                                
Ms. Keilman-Cruz responded that the  audits went back as far                                                                    
as 2012. However, investigations  were current. She reported                                                                    
an  example  in  which  the  unit took  a  civil  action  to                                                                    
terminate a provider due to  program abuses. The unit had to                                                                    
carefully vet whether  it looked at system  glitches and how                                                                    
people  were  paid  and  whether it  was  factored  into  an                                                                    
overpayment. The division had  to examine it line-by-line to                                                                    
make sure  the state was able  to get back the  resources it                                                                    
deserved.                                                                                                                       
                                                                                                                                
2:59:38 PM                                                                                                                    
                                                                                                                                
Representative Wilson  was confused.  She wondered  what was                                                                    
currently  being done  versus what  the bill  would do.  She                                                                    
asked for a  short summary of what the bill  would allow the                                                                    
unit to do that it could not do currently.                                                                                      
                                                                                                                                
Ms. Kraly would  respond in writing. Briefly,  the bill gave                                                                    
the unit  the authority  to impose  civil fines.  It allowed                                                                    
the  unit  to  impose  interest on  overpayments,  and  also                                                                    
provided the False  Claims Act (a civil cause  of action for                                                                    
false or fraudulent  claims that the unit did  not have). It                                                                    
was a specific action related  to Medicaid. It gave the unit                                                                    
the ability to achieve the  seizure and forfeiture of assets                                                                    
to offset  the cost  of recovery  for Medicaid  fraud claims                                                                    
brought  by Mr.  Peterson's unit.  In looking  at the  broad                                                                    
scheme of  things, the  unit had very  good tools.  The unit                                                                    
actively  investigated and  pursued  fraud  abuse and  waste                                                                    
when  it   was  presented  to  them.   However,  there  were                                                                    
additional smaller efforts that would  help to round out the                                                                    
tools  the  unit needed.  She  relayed  she would  supply  a                                                                    
response in writing.                                                                                                            
                                                                                                                                
3:01:40 PM                                                                                                                    
                                                                                                                                
Representative Wilson  asked that she provide  an example of                                                                    
what the  unit might  have been  able to do  for the  past 2                                                                    
years had the legislation been  in place. She wanted to have                                                                    
an idea  of the  impact from historical  data rather  than a                                                                    
hypothetical example. Ms. Kraly responded, "Absolutely."                                                                        
                                                                                                                                
Co-Chair  Neuman asked  why  the unit  wanted  the tools  at                                                                    
present.  He wondered  if something  had changed  that would                                                                    
cause the need for the additional tools.                                                                                        
                                                                                                                                
Ms.  Kraly  responded that  there  were  two separate  units                                                                    
within the Department  of Law and then  there was Department                                                                    
of Health  and Social  Services. The Medicaid  Fraud Control                                                                    
Unit was a statutorily required  unit set up through federal                                                                    
authorization.  They  prosecuted and  investigated  criminal                                                                    
fraud and  abuse. The civil  side of the Department  of Law,                                                                    
the side  she was involved  in, operated under  the auspices                                                                    
of  the  regulatory  authority that  already  existed  under                                                                    
Title  7  of  the  Alaska Administrative  Code.  There  were                                                                    
certain things her unit wanted  to have legislative approval                                                                    
of before  she took  action such  as achieving  interest and                                                                    
penalties.  They  were  things  that had  not  come  to  her                                                                    
attention until  after the  unit engaged  in the  audits and                                                                    
after 3 to 5 years of  failure to repay in a timely fashion.                                                                    
It became evident that the  unit needed the additional tools                                                                    
laid out  in the legislation.  Some of the tools  were items                                                                    
that  came to  the unit's  attention. The  unit had  thought                                                                    
about  and wanted  to  preserve the  ability  to have  civil                                                                    
fines for many years and felt  that the bill was the vehicle                                                                    
to  do  so.  She  reiterated  that  the  unit  felt  it  was                                                                    
important  to have  legislative approval  prior to  imposing                                                                    
fines on Medicaid providers  for violating regulations under                                                                    
the  Medicaid act.  The items  being asked  for in  the bill                                                                    
were tools designed to help  with the civil division and the                                                                    
civil causes  of action  rather than  what Mr.  Peterson did                                                                    
when prosecuting fraud cases.                                                                                                   
                                                                                                                                
3:04:40 PM                                                                                                                    
                                                                                                                                
Co-Chair  Neuman  relayed  concerns  about  the  legislation                                                                    
propagating significantly more regulations.  He asked if the                                                                    
issues  had  ever  been  brought to  the  attention  of  the                                                                    
legislature previously.                                                                                                         
                                                                                                                                
Ms. Kraly  responded that  in her tenor  she did  not recall                                                                    
the  issues being  presented to  the legislature.  She added                                                                    
that  the  legislative  changes would  not  create  a  large                                                                    
regulatory  framework.   The  fines   would  lead   to  some                                                                    
regulations  but otherwise  the changes  would not  create a                                                                    
large  regulatory  influx  to administer  these  tools.  The                                                                    
interest  and penalties  under the  audits  would happen  by                                                                    
operation of  law. Some regulatory  input would  be required                                                                    
to identify  the range  of fines  that were  being requested                                                                    
and  how  they  would  apply  to  the  sanctions  that  were                                                                    
authorized under the Medicaid act.                                                                                              
                                                                                                                                
Co-Chair Neuman thought that Ms. Karly made his point.                                                                          
                                                                                                                                
Representative  Wilson  asked  about a  lower  threshold  of                                                                    
proof  for  civil versus  criminal  cases.  She wondered  if                                                                    
there  would be  a different  type of  prosecution due  to a                                                                    
different threshold.                                                                                                            
                                                                                                                                
Ms.  Kraly  responded  that there  was  a  lower  threshold.                                                                    
Criminal cases had to be  proven beyond a reasonable doubt -                                                                    
a preponderance of the evidence.  However, she noted that in                                                                    
every  one of  the instances  individuals or  providers that                                                                    
were fined  or who had  actions or audits were  provided due                                                                    
process compliant  notice and the  ability to  challenge the                                                                    
findings  in  an administrative  hearing  and  to pursue  an                                                                    
appeal to  the Superior  Court. It was  a lower  standard of                                                                    
proof.                                                                                                                          
                                                                                                                                
Representative Wilson asked  if the cases that  could not be                                                                    
prosecuted  criminally could  be  prosecuted  civilly as  an                                                                    
alternative.                                                                                                                    
                                                                                                                                
Ms. Kraly stated  that the civil penalty  provision that she                                                                    
was  identifying   would  not  apply  to   the  circumstance                                                                    
Representative  Wilson  was  talking about.  She  emphasized                                                                    
that  what her  unit was  looking for  was the  authority to                                                                    
impose  a fine  on a  provider  who had  been identified  as                                                                    
violating program rules and was  being sanctioned. There was                                                                    
a specific regulation 7AAC 120.400  which included a list of                                                                    
over 30  sanctionable offenses. For each  sanction there was                                                                    
an enforcement rule. The sanction  stated that if a provider                                                                    
had violated  one of the  rules they could be  terminated or                                                                    
suspended  or they  could be  sent to  provider education  -                                                                    
that  was the  range of  penalties currently  in place.  The                                                                    
division was looking  for ways to impose a fine  of $250 per                                                                    
occurrence.  If  Mr.  Peterson  decided  not  to  criminally                                                                    
prosecute a case her unit  already had the ability to pursue                                                                    
the issue through an administrative  method. She was looking                                                                    
at  the fines  from  a sanction  perspective  which was  the                                                                    
intent of the legislation.                                                                                                      
                                                                                                                                
3:10:05 PM                                                                                                                    
                                                                                                                                
Representative  Wilson stated  that  it was  similar to  the                                                                    
Board of Game or the Board  of Fish. She was concerned about                                                                    
adding  more things  at  a lower  threshold  that the  state                                                                    
could do to  providers when a higher threshold  could not be                                                                    
proven. She was concerned with the legislation.                                                                                 
                                                                                                                                
Vice-Chair  Saddler  was   confused.  He  wanted  additional                                                                    
clarification about the three divisions.                                                                                        
                                                                                                                                
Ms. Kraly responded that the  Medicaid divisions within DHSS                                                                    
had  a  quality  assurance  program  directly  tied  to  the                                                                    
administration  of their  individual Medicaid  programs such                                                                    
as Senior  and Disabilities  Services or  Behavioral Health.                                                                    
They worked directly  with providers, enrolling, certifying,                                                                    
and approving  them. The also provided  technical assistance                                                                    
and dealt with program  compliance. That was the foundation.                                                                    
Medicaid Program  Integrity was a more  global entity within                                                                    
the  DHSS that  dealt more  with the  overpayment and  audit                                                                    
side of things. However,  when the quality assurance program                                                                    
was  working with  a provider,  could  identify a  financial                                                                    
issue and refer it to MPI  or could identify fraud and refer                                                                    
it through MPI to the MFCU. It was a linear structure.                                                                          
                                                                                                                                
Vice-Chair Saddler asked where  quality assurance fit in the                                                                    
structure. Ms. Kraly relayed that  quality assurance was the                                                                    
basic  block.   Each  division   had  a   quality  assurance                                                                    
position.                                                                                                                       
                                                                                                                                
Vice-Chair Saddler repeated what  Ms. Kraly stated that each                                                                    
of  the  two  Medicaid divisions,  Senior  and  Disabilities                                                                    
Services and Behavioral Health had  a program compliance. He                                                                    
asked if  program compliance was  the same thing  as quality                                                                    
assurance. Ms.  Kraly responded  that she  had meant  to say                                                                    
quality  assurance.  Quality  assurance dealt  with  program                                                                    
compliance and the direct interface with the providers.                                                                         
                                                                                                                                
Vice-Chair Saddler asked where  quality assurance was in the                                                                    
structure.  He wondered  if it  was a  separate office.  Ms.                                                                    
Kraly explained  that there were quality  assurance programs                                                                    
in each one of the Medicaid divisions.                                                                                          
                                                                                                                                
Vice-Chair  Saddler thought  she  had said  that there  were                                                                    
program  compliance  offices  in each  division.  Mr.  Kraly                                                                    
clarified that each dealt with program compliance.                                                                              
                                                                                                                                
Co-Chair  Thompson  asked  Vice-Chair   Saddler  if  he  had                                                                    
further questions.                                                                                                              
                                                                                                                                
Vice-Chair Saddler responded in the negative.                                                                                   
                                                                                                                                
Ms.  Kraly agreed  that it  was confusing.  One of  the most                                                                    
important  points   was  that  each  of   the  units  worked                                                                    
independently in identifying fraud  abuse and waste, but all                                                                    
worked collectively  as a team. She  represented the quality                                                                    
assurance  units   and  program  integrity  units   in  each                                                                    
division. Her  office also  worked collaboratively  with the                                                                    
MFCU  to identify  cases that  did  not rise  to a  criminal                                                                    
prosecution. In  looking at the original  spreadsheet (slide                                                                    
3)  a  fraud  case  would either  come  in  through  quality                                                                    
assurance,  program integrity,  or a  third party  and would                                                                    
then  go to  the  MFCU where  it would  be  evaluated and  a                                                                    
determination  would be  made whether  to pursue  a criminal                                                                    
case or a civil case.                                                                                                           
                                                                                                                                
Vice-Chair Saddler asked for consistent terminology.                                                                            
                                                                                                                                
Co-Chair Thompson thanked Mr. Kraly for her testimony.                                                                          
                                                                                                                                
3:15:28 PM                                                                                                                    
                                                                                                                                
Representative Wilson  suggested that  presentations clearly                                                                    
indicate current  practices versus  what was  being proposed                                                                    
in legislation.                                                                                                                 
                                                                                                                                
Ms.   Kraly   wanted  to   answer   a   question  asked   by                                                                    
Representative  Munoz in  the previous  day.  She had  asked                                                                    
about whether  the State of  Alaska could be charged  with a                                                                    
false claim.  Generally, the answer  would be no.  The focus                                                                    
of investigating a false claim  was provider compliance. The                                                                    
Department  of Health  and Social  Services  outside of  the                                                                    
Pioneer Home was not an  enrolled provider. The Pioneer Home                                                                    
could potentially  have a problem. However,  since the false                                                                    
claim   was  designed   towards  achieving   compliance  and                                                                    
remedying  overpayments  or  cost outlies,  once  they  were                                                                    
identified   they   would   be  remedied   and   immediately                                                                    
internally through the Commissioner's  Office. A false claim                                                                    
would  not necessarily  achieve the  same goal  as what  her                                                                    
office  was   trying  to  do   with  other   providers.  The                                                                    
department  and its  individual divisions  were not  subject                                                                    
because they were  not enrolled providers.         Since the                                                                    
idea was  for provider  compliance her office  would rectify                                                                    
issues concerning billing  and documentation internally upon                                                                    
discovery of those issues.                                                                                                      
                                                                                                                                
Co-Chair Neuman explained that  the committee was frustrated                                                                    
with  her   complicated  answers.   She  shared  a   lot  of                                                                    
information.                                                                                                                    
                                                                                                                                
Representative Edgmon stated  that for presentation purposes                                                                    
it  would be  helpful to  have visual  terms brought  to the                                                                    
committee in  a simple  form where  building blocks  such as                                                                    
quality assurance, integrity, and control could be layered.                                                                     
                                                                                                                                
Co-Chair Thompson recessed the meeting until 4:00 PM.                                                                           
                                                                                                                                
SB  74  was   HEARD  and  HELD  in   committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                
3:20:25 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
4:03:35 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Co-Chair  Thompson reported  that Representative  Guttenberg                                                                    
left the meeting for the day.                                                                                                   
                                                                                                                                
4:04:49 PM                                                                                                                    
                                                                                                                                
^PRELIMINARY  SPRING 2016  REVENUE  FORECAST, DEPARTMENT  OF                                                                  
REVENUE                                                                                                                       
                                                                                                                                
4:04:49 PM                                                                                                                    
                                                                                                                                
JERRY  BURNETT,  DEPUTY   COMMISSIONER,  TREASURY  DIVISION,                                                                    
DEPARTMENT  OF REVENUE,  pointed to  a one  page information                                                                    
spreadsheet  titled:  "Summary  of preliminary  Spring  2016                                                                    
forecast data."                                                                                                                 
                                                                                                                                
4:05:51 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
4:08:48 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Mr.  Burnett indicated  that the  spreadsheet  was a  simple                                                                    
summary  of   changes  between  the  spring   and  the  fall                                                                    
forecast.  He referred  to the  shaded  bar in  the top  box                                                                    
showing  the total  general fund  (GF) unrestricted  revenue                                                                    
for FY  16 to FY  26. The spring  FY 16 forecast  was $1.316                                                                    
million.  The  fall forecast  was  $1.593  in  FY 15  for  a                                                                    
difference of  $277 million.  In FY 17  looking at  the same                                                                    
bar the  top box  listed $1.232 billion.  In the  center box                                                                    
the fall FY  17 forecast was $1796 for a  difference of $564                                                                    
million.  The  state  was  looking at  a  lower  price  with                                                                    
production  being  similar  in  the  earlier  years  of  the                                                                    
forecast and trailing off in the later years.                                                                                   
                                                                                                                                
Co-Chair  Thompson   asked  about   the  price   per  barrel                                                                    
estimate.                                                                                                                       
                                                                                                                                
Mr. Burnett  replied that the  forecast was based  on $39.52                                                                    
per barrel in FY 16 and  $38.89 per barrel in FY 17 compared                                                                    
to $49.58 and $56.24 in the fall [FY 15] forecast.                                                                              
                                                                                                                                
Representative Gara asked why tax  credits went down in 2019                                                                    
to  $250 million  per year  and remained  flat. Mr.  Burnett                                                                    
deferred to Mr. Stickel.                                                                                                        
                                                                                                                                
Representative Gara clarified that  he was talking about the                                                                    
line  labeled, "Tax  credits for  refund." It  was an  exact                                                                    
$250 million per year starting in 2020.                                                                                         
                                                                                                                                
4:11:16 PM                                                                                                                    
                                                                                                                                
DAN  STICKEL,  ASSISTANT   CHIEF  ECONOMIST,  TAX  DIVISION,                                                                    
DEPARTMENT  OF REVENUE,  explained that  the department  did                                                                    
not  have  much certainty  regarding  the  tax credits  that                                                                    
would be claimed for years  beyond 2020. The department held                                                                    
the credits constant  at the $250 million per  year for 2020                                                                    
and beyond. It was basically  about the amount that he would                                                                    
expect in the 2019 to 2020.                                                                                                     
                                                                                                                                
Representative  Gara suggested  they  had been  going up  to                                                                    
$825 million.  He wondered  why they  were going  down after                                                                    
2017.                                                                                                                           
                                                                                                                                
Mr.  Stickle  responded that  there  were  some tax  credits                                                                    
going off of the books  and the underlying forecast was that                                                                    
capital expenditures  would start to decrease  over the time                                                                    
horizon  of   the  forecast.  He  noted   that  with  prices                                                                    
recovering, the  state would have  lower net  operating loss                                                                    
carry forwards. All of the  things combined helped to reduce                                                                    
some of the tax credit liability in the out years.                                                                              
                                                                                                                                
Representative  Gara referred  to  the  production taxes  in                                                                    
2017  in  the amount  of  $54  million  but paying  out  tax                                                                    
credits of $825 million. He  spoke of Mr. Alper's report but                                                                    
the tax credits were for fields  that on average did not pay                                                                    
any production tax  up to $73 per barrel. He  wondered if he                                                                    
was accurate. He  was referring to the GVR  fields that paid                                                                    
the post 2002 fields. He wondered if he was accurate.                                                                           
                                                                                                                                
Mr. Stickle  did not have the  dollar amount off the  top of                                                                    
his head.  He relayed that  the tax credits for  refund were                                                                    
going to be for the companies  that did not have enough of a                                                                    
tax liability to apply the  tax credits against a liability.                                                                    
It  would  include   explorers,  developers,  and  companies                                                                    
operating GVR eligible fields.                                                                                                  
                                                                                                                                
Representative Gara  asked if he  knew for up to  what price                                                                    
those fields paid  and no production taxes.  Mr. Stickle did                                                                    
not have that information with him.                                                                                             
                                                                                                                                
4:14:07 PM                                                                                                                    
                                                                                                                                
Vice-Chair Saddler referred to the  forecast for FY 2017. He                                                                    
wanted to know about what  revenue sources were included. He                                                                    
wondered if  it presumed passage  of any legislation  in the                                                                    
current session that would affect FY 17.                                                                                        
                                                                                                                                
Mr.  Burnett responded  that it  assumed the  current status                                                                    
quo tax structure entirely. He  relayed that the crux of the                                                                    
presentation  was to  review the  base  figures. There  were                                                                    
some interesting things to note.  The prices in the forecast                                                                    
for years  2019, 2020, and  2021 where low because  of carry                                                                    
forward loss  credits. Producers that were  currently paying                                                                    
production taxes  would be carrying  forward losses  and not                                                                    
paying  production  taxes. They  would  be  paying only  the                                                                    
nickel per  barrel tax (the  spill response tax  and another                                                                    
small  tax) which  was why  the tax  liability was  only $19                                                                    
million and $20 million.                                                                                                        
                                                                                                                                
Mr. Stickle reported  that in those years  from 2018 through                                                                    
2020  the primary  production tax  revenues were  the nickel                                                                    
per barrel  plus a 5 percent  tax on the private  land owner                                                                    
royalties' interest.                                                                                                            
                                                                                                                                
Co-Chair Neuman asked if the  spring 2016 total general fund                                                                    
unrestricted  revenues  (GFUR) for  2016  in  the amount  of                                                                    
$1.316 billion was a net figure or gross figure.                                                                                
                                                                                                                                
Mr. Burnette responded  that it reflected the  net taxes and                                                                    
royalties paid to the State of Alaska.                                                                                          
                                                                                                                                
Representative Gara  provided a hypothetical  scenario going                                                                    
out to  2020 when  the state was  projected to  receive only                                                                    
$20 million in  production taxes with an  estimated price of                                                                    
$54 per  barrel. At that  price all the state  would receive                                                                    
was the  4 percent  gross minimum  tax. He  asked if  he was                                                                    
correct.                                                                                                                        
                                                                                                                                
Mr. Burnett responded that with  the prices in the forecast,                                                                    
below  $67 per  barrel,  the state  would  be receiving  the                                                                    
minimum tax for the entire period of the forecast.                                                                              
                                                                                                                                
4:17:09 PM                                                                                                                    
                                                                                                                                
Representative  Gara did  not believe  the  state would  get                                                                    
past  the 4  percent  minimum under  current  law until  the                                                                    
price of oil per barrel reached  $76. He wondered why at $39                                                                    
per  barrel in  the previous  year the  state received  $142                                                                    
million in  production taxes  but by 2020  at a  much higher                                                                    
oil price the state's revenue  would go from $142 million to                                                                    
just $20 million.                                                                                                               
                                                                                                                                
Mr. Burnett  answered that  in 2016  the oil  companies, for                                                                    
the purposes of the production  tax had a net operating loss                                                                    
which  could be  carried  forward as  a  net operating  loss                                                                    
credit into the future  years through approximately 2022. In                                                                    
2023 producers would  be paying a minimum tax  but not using                                                                    
much of  a net operating  loss credit. The credit  was being                                                                    
reduced by the net operating loss in future years.                                                                              
                                                                                                                                
Representative  Gara  asked  that when  people  stated  that                                                                    
Alaska  did not  have a  firm  minimum tax  floor they  were                                                                    
talking about the state getting  less than 4 percent because                                                                    
of the  net operating loss.  He wanted  to make sure  he was                                                                    
understanding correctly.                                                                                                        
                                                                                                                                
Mr.   Burnett   replied   that   Representative   Gara   was                                                                    
essentially correct.  Producers could  not reduce  their tax                                                                    
liability  below  zero with  a  net  operating loss  on  the                                                                    
production tax but  could reduce it to zero  with prior year                                                                    
net operating losses.                                                                                                           
                                                                                                                                
Representative Gara  asked about  the bill the  governor had                                                                    
proposed.  He wondered  if  it  established a  firm  4 or  5                                                                    
percent minimum so that the  net operating loss could not go                                                                    
below the minimum tax.                                                                                                          
                                                                                                                                
Mr.  Burnett replied  in  the affirmative  as  the bill  was                                                                    
initially introduced.                                                                                                           
                                                                                                                                
Representative  Wilson asked  that  of the  tax credits  for                                                                    
refund what the state was required to pay.                                                                                      
                                                                                                                                
Mr.  Burnett  responded  that refundable  tax  credits  were                                                                    
subject to  appropriation. The credits deducted  against tax                                                                    
liability were  obviously not subject to  appropriation. The                                                                    
statute had  a 10 percent  or 15 percent floor  depending on                                                                    
oil price as to what was  intended to be placed into the tax                                                                    
credit fund.  He believed the  amount was  approximately $73                                                                    
million in  the governor's budget  in the current  year. The                                                                    
question  was whether  the  state was  required  to pay  the                                                                    
money  or if  it  needed to  pay  it in  order  to keep  the                                                                    
industry  meeting   expectations.  All  of   the  refundable                                                                    
credits were technically subject to appropriation.                                                                              
                                                                                                                                
Representative  Wilson  asked  Mr. Burnett  to  clarify  the                                                                    
difference  between the  total petroleum  royalties and  the                                                                    
petroleum royalties in two lines  appearing in the first box                                                                    
on the spreadsheet.                                                                                                             
                                                                                                                                
Mr.  Burnett  explained  that  there  were  two  lines  that                                                                    
referred  to  petroleum  royalties including  the  Permanent                                                                    
Fund  share was  $728 million.  The general  fund share  was                                                                    
$504. The difference between the  two numbers was the amount                                                                    
going into the corpus of the  Permanent Fund - 25 percent of                                                                    
all  royalties under  the constitution  plus  50 percent  of                                                                    
certain fields.                                                                                                                 
                                                                                                                                
4:21:35 PM                                                                                                                    
                                                                                                                                
Representative  Wilson asked  how many  barrels of  oil were                                                                    
projected.                                                                                                                      
                                                                                                                                
Mr.  Burnett pointed  to the  second line  in the  first box                                                                    
where it showed ANS production  517 thousand barrels per day                                                                    
in 2016 and 507 thousand in 2017.                                                                                               
                                                                                                                                
Representative Wilson assumed that  no additional barrels of                                                                    
oil  were  being  produced  based  on  the  numbers  in  the                                                                    
forecast.                                                                                                                       
                                                                                                                                
Mr. Burnett  responded that  interestingly the  forecast for                                                                    
production  was higher  than two  years prior.  He confirmed                                                                    
that it showed  the effects of earlier prices  and of things                                                                    
that were done. The Department  of Revenue used a risk-based                                                                    
model and only  include production that was  certain. It was                                                                    
more  likely that  the state  forecast was  low rather  than                                                                    
high.                                                                                                                           
                                                                                                                                
Co-Chair  Neuman  asked  about the  production  tax  minimum                                                                    
floor of 4 percent. He  suggested that because the state had                                                                    
a net system  rather than a gross  taxation system producers                                                                    
were  allowed to  deduct the  standard allowable  deductions                                                                    
from the  4 percent net.  He wondered if producers  could go                                                                    
below   4   percent   when   taking   deductions   such   as                                                                    
transportation costs and upstream costs.                                                                                        
                                                                                                                                
Mr.  Burnett  stated  that the  4  percent  floor  prevented                                                                    
producers from  deducting costs  in the  year in  which they                                                                    
were incurred.  However, it allowed producers  to deduct net                                                                    
operating losses  from previous years.  It was a  floor that                                                                    
worked  well  in  a  1-year   low  price  environment.  When                                                                    
circumstances  were  such  that producers  had  ongoing  net                                                                    
operating losses over a period  of time the amount could get                                                                    
down to zero.                                                                                                                   
                                                                                                                                
Co-Chair  Neuman was  trying  to  clarify whether  producers                                                                    
could go below  the minimum tax because  of their deductions                                                                    
and because the State of Alaska had a net system.                                                                               
                                                                                                                                
4:24:39 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Saddler took  some cold  comfort in  seeing that                                                                    
the  production forecasts  were larger  currently than  they                                                                    
were 2  years prior. He  wondered about the forecast  out to                                                                    
2026 assuming  a 277 thousand  barrels per day.  He wondered                                                                    
if  it  presumed that  there  was  no change  or  additional                                                                    
significant  investment in  the Trans  Alaska Pipeline  that                                                                    
would allow  them to  function at  277 thousand  barrels per                                                                    
day.                                                                                                                            
                                                                                                                                
Mr. Burnett was  unsure of the correct  answer to Vice-Chair                                                                    
Saddler's question.                                                                                                             
                                                                                                                                
Vice-Chair  Saddler  was curious  about  the  status of  the                                                                    
audits on past year tax returns.                                                                                                
                                                                                                                                
Mr. Burnett  indicated the topic  had been discussed  in the                                                                    
subcommittee meetings earlier in  the year. However, the tax                                                                    
returns  were audited  through  2009.  The intent  following                                                                    
would  be to  do 2  years  at a  time.  His hope  was to  be                                                                    
completed  and  perhaps  ahead in  the  following  year.  He                                                                    
relayed  that there  had been  challenges with  having mixed                                                                    
years of different tax regimes  in place at different times.                                                                    
The process  was fairly complicated  and there  were several                                                                    
changes  to regulations  and to  tax  filings that  occurred                                                                    
after the  fact. He noted  that he did not  necessarily want                                                                    
to  finish  the  audits  too  soon because  of  all  of  the                                                                    
changes.                                                                                                                        
                                                                                                                                
Representative  Gattis  had   questions  regarding  the  tax                                                                    
credits. She wondered  what the balance was for  the oil and                                                                    
gas tax credits fund at present.                                                                                                
                                                                                                                                
Mr.  Burnett thought  it was  in the  $40 million  range. He                                                                    
added that he had information  in the packet for the meeting                                                                    
that  detailed the  expected refunded  credits for  2017. He                                                                    
thought the information  about what was in  the pipeline and                                                                    
what was expected was helpful.                                                                                                  
                                                                                                                                
Representative Gattis  disclosed that she had  talked to Mr.                                                                    
Burnett about getting the information  and commended him for                                                                    
doing a great job of putting it together for her.                                                                               
                                                                                                                                
4:28:12 PM                                                                                                                    
                                                                                                                                
Representative  Gara asked  about  the 4  percent tax  floor                                                                    
projection out to  2026. He specified that it was  not a net                                                                    
tax. It  was 4 percent of  the gross value of  oil with some                                                                    
very limited deductions for transportation.  There was a net                                                                    
operating  loss  problem. It  was  not  a  net tax  where  a                                                                    
company could  deduct all of  its costs. A company  would be                                                                    
allowed  its full  deductions as  if it  were a  profits tax                                                                    
when  it reached  above a  4 percent  minimum and  the price                                                                    
reached above  $76 per  barrel of  oil. He  asked if  he had                                                                    
presented a fair summation.                                                                                                     
                                                                                                                                
Mr.   Burnett    responded   that    Representative   Gara's                                                                    
interpretation was a fair one.                                                                                                  
                                                                                                                                
Representative Gara  mentioned that  the statute on  the tax                                                                    
credits  that the  state  paid out,  $825  million in  2017,                                                                    
provided that the  legislature was authorized to  only pay a                                                                    
portion  based  upon  available  state  revenues  calculated                                                                    
using  a formula.  He wondered  if in  FY 17  the state  was                                                                    
obligated to pay roughly $72 million.                                                                                           
                                                                                                                                
Mr.  Burnett reported  that the  formula that  was used  was                                                                    
instated with  ACES. He thought  that at $65 per  barrel and                                                                    
above it  was 10 percent  of revenues. Below $65  per barrel                                                                    
it was  15 percent  of revenues.  The governor's  budget was                                                                    
based on  these numbers. He could  not speak to the  type of                                                                    
obligation relative to other obligations.                                                                                       
                                                                                                                                
Vice-Chair  Saddler   stated  that   when  looking   at  the                                                                    
projections  for the  North  Slope  lease expenditures,  the                                                                    
spring forecast was slightly higher  than the fall forecast.                                                                    
By 2026  it was higher in  most years. He wondered  if there                                                                    
were any conclusions or assumptions  that could be gained in                                                                    
looking  at  the chart  from  the  investment in  the  North                                                                    
Slope.                                                                                                                          
                                                                                                                                
Mr. Burnett deferred to Mr. Stickle.                                                                                            
                                                                                                                                
Mr.  Stickle reported  that in  putting together  the spring                                                                    
forecast one of  the things the DOR had heard  from a number                                                                    
of companies was that the  producers were making adjustments                                                                    
to their  spending for the  following couple of  years. They                                                                    
were waiting  until the following  fall to  make adjustments                                                                    
to  the  out  years.  He  relayed  that  there  would  be  a                                                                    
significant reduction  in lease expenditures in  2016, 2017,                                                                    
and  2018.  The forecast  reflected  that  there was  not  a                                                                    
significant  reduction in  the later  years. The  department                                                                    
had added  a few  projects seen on  the horizon  but largely                                                                    
left them untouched until the fall forecast.                                                                                    
                                                                                                                                
4:31:53 PM                                                                                                                    
                                                                                                                                
Vice-Chair   Saddler  asked   about  what   information  the                                                                    
producers  were   waiting  for   in  order  to   make  their                                                                    
investment decisions.                                                                                                           
                                                                                                                                
Mr.  Stickle  had   heard  that  it  was   about  oil  price                                                                    
uncertainty  and about  how the  state addressed  its fiscal                                                                    
challenge.                                                                                                                      
                                                                                                                                
Vice-Chair Saddler asked if the  prospect of an oil taxation                                                                    
adjustment would have a role.                                                                                                   
                                                                                                                                
Mr. Stickle was sure it would.                                                                                                  
                                                                                                                                
Vice-Chair Saddler asked if he had heard.                                                                                       
                                                                                                                                
Mr. Stickle heard companies making  reference to the broader                                                                    
discussion  of the  fact  that  the state  was  facing a  $4                                                                    
billion  plus  deficit and  questions  arose  about how  the                                                                    
state would handle it.                                                                                                          
                                                                                                                                
Mr. Burnett  reiterated that the forecast  was a preliminary                                                                    
forecast and that the final  production tax returns were not                                                                    
due until  the end of  the month. The final  spring forecast                                                                    
would be completed approximately  one week following receipt                                                                    
of the  tax return.  There could be  some slight  changes in                                                                    
the amounts.  He did not  anticipate the changes to  be more                                                                    
than a few million dollars.                                                                                                     
                                                                                                                                
Co-Chair Thompson  appreciated the  administration providing                                                                    
the preliminary forecast.                                                                                                       
                                                                                                                                
Representative Gara wanted to  better understand how the net                                                                    
operating loss worked. He commented  that even though it was                                                                    
low, the  state had  a positive  amount of  production taxes                                                                    
($20 million  to $54 million  over the next few  years). For                                                                    
particular  companies  they  could   not  deduct  their  net                                                                    
operating  loss  unless  they  were at  the  point  where  a                                                                    
company's deductions were  so high it would lose  money in a                                                                    
year.  He used  Point Thomson  as an  example. He  suggested                                                                    
that maybe  Exon Mobile's investments would  be large enough                                                                    
that their investments would bring  them below a minimum. If                                                                    
an  individual company  made a  small amount  of money  they                                                                    
would  not get  to use  their net  operating losses,  it was                                                                    
only  if the  company lost  money based  on investments  and                                                                    
income.  He wondered  if  he  was accurate.  He  asked if  a                                                                    
producer could  deduct its net  operating loss  credits from                                                                    
the 4 percent floor if the company was revenue positive.                                                                        
                                                                                                                                
Mr. Burnett  believed that a  company could deduct it  up to                                                                    
the point of  the net operating loss  against tax liability.                                                                    
The  carry  forward loss  credit  earned  in previous  years                                                                    
could be spread  out over several years. It  could reduce it                                                                    
somewhere between zero and the 4 percent.                                                                                       
                                                                                                                                
Representative  Gara spoke  of the  governor's firm  minimum                                                                    
tax  floor. He  asked  if production  tax  revenue would  be                                                                    
closer to  the FY 16 amount  than the numbers seen  in FY 17                                                                    
and beyond in the spreadsheet.                                                                                                  
                                                                                                                                
Mr. Burnett responded  in the affirmative. He  added that if                                                                    
oil prices  went up significantly  producers would  still be                                                                    
earning net loss  carry forward credits that  could be taken                                                                    
against future  revenues. There  would not be  as much  of a                                                                    
bump  from future  oil price  spikes  as there  would be  if                                                                    
there  was not  a net  operating loss  or if  producers were                                                                    
able  to take  the credits  during the  current period.  The                                                                    
state would be deferring revenues farther out.                                                                                  
                                                                                                                                
Representative Gara  asked that if  the 4 percent  floor was                                                                    
firm, oil jumped  above $76 per barrel, and there  was a net                                                                    
profits tax  greater than the  minimum floor, then  in those                                                                    
years producers  could begin to  deduct their  net operating                                                                    
losses. He asked if he was correct.                                                                                             
                                                                                                                                
Mr.  Burnett responded  positively.  It would  push out  the                                                                    
taking of the credits.                                                                                                          
                                                                                                                                
4:36:37 PM                                                                                                                    
                                                                                                                                
Representative Gara  suggested that  the way the  system was                                                                    
currently  crafted the  state would  never get  above the  4                                                                    
percent minimum  floor and  the price  would not  reach high                                                                    
enough to  go beyond the  4 percent minimum  floor according                                                                    
the DOR's predictions out to 2026.                                                                                              
                                                                                                                                
Mr. Burnett  responded that  it was  likely the  case unless                                                                    
producers stopped spending money.                                                                                               
                                                                                                                                
Vice-Chair  Saddler  referred to  page  2  of the  executive                                                                    
summary  which made  reference  to the  middle  column to  a                                                                    
meaningful increase  of 17,500 barrels  of oil per  day from                                                                    
the fall forecast.  He asked if it was fair  to attribute it                                                                    
in part  or in total  to the tax  credits or to  the changed                                                                    
tax structure of SB 21.                                                                                                         
                                                                                                                                
Mr. Stickle  explained that the  increase was  primarily due                                                                    
to  CD5 coming  online  slightly earlier  than expected  and                                                                    
producing better than expected.                                                                                                 
                                                                                                                                
Vice-Chair Saddler asked if his answer was yes or no.                                                                           
                                                                                                                                
Mr. Burnett  responded that  it was  a complex  question. He                                                                    
explained  that when  CD5 started  prices  were much  higher                                                                    
than in the present day. He  thought it was started prior to                                                                    
the passage  of SB 21.  It was  likely an effect  of several                                                                    
things.                                                                                                                         
                                                                                                                                
Representative Gara had a list  of the fields that the state                                                                    
was investing  in prior to  the change  in the tax  law. CD5                                                                    
announced they were  going forward before SB  21 passed. The                                                                    
big delay was the refusal of  the Army Corps of Engineers to                                                                    
give them a bridge permit. He asked if he was correct.                                                                          
                                                                                                                                
Mr. Burnett responded in the affirmative.                                                                                       
                                                                                                                                
Co-Chair Thompson asked Representative  Gara if his question                                                                    
had anything to do with the revenue forecast.                                                                                   
                                                                                                                                
Representative Gara  thought the  answer to his  question as                                                                    
to whether SB 21 had anything to do with CD5 was no.                                                                            
                                                                                                                                
Co-Chair Thompson  thanked Mr.  Burnett and Mr.  Stickle for                                                                    
their presentation.                                                                                                             
                                                                                                                                
4:39:38 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
4:42:09 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Co-Chair Thompson  indicated the committee would  be hearing                                                                    
about HB 143.                                                                                                                   
                                                                                                                                
HOUSE BILL NO. 143                                                                                                            
                                                                                                                                
     "An Act  authorizing the Alaska  Industrial Development                                                                    
     and  Export Authority  to issue  bonds  to finance  the                                                                    
     infrastructure   and   construction    costs   of   the                                                                    
     Sweetheart Lake hydroelectric  project; and relating to                                                                    
     legislative approval for a loan  from the power project                                                                    
     fund to the Lynn Canal Transmission Corporation."                                                                          
                                                                                                                                
Co-Chair  Neuman  MOVED  to  ADOPT  the  proposed  committee                                                                    
substitute for HB 143, Work Draft (29-LS0599\S).                                                                                
                                                                                                                                
There being NO OBJECTION, it was so ordered.                                                                                    
                                                                                                                                
JANE   PIERSON,   STAFF,  REPRESENTATIVE   STEVE   THOMPSON,                                                                    
explained  the  changes between  the  S  version and  the  H                                                                    
version.  The first  change  was the  title.  The title  was                                                                    
shortened to  address what  was currently  in the  bill. The                                                                    
loan  from  the  Power  Project   Fund  to  the  Lynn  Canal                                                                    
Transportation  Corporation  had  been removed  and  was  no                                                                    
longer addressed in the bill or  in the title. Section 1 had                                                                    
been  amended  to  remove  financing  through  AS.44.88.172.                                                                    
Under  version  S  financing  would be  what  was  known  as                                                                    
conduit funding  paid through the  revenue derived  from the                                                                    
project.  The  revenue  bonds and  interest  due  would  not                                                                    
constitute  a  general  obligation   to  the  state  or  the                                                                    
authority.   Bonds  would   not  be   applied  against   the                                                                    
authority's  12 month  bonding limitation  in AS.44.88.095A.                                                                    
As previously stated  Section 2 of the bill  was removed. It                                                                    
would  have been  a  loan for  the  Lynn Canal  Transmission                                                                    
Corporation.  The repealer  date  was changed  in Section  2                                                                    
from June 30, 2019 to June 30, 2020.                                                                                            
                                                                                                                                
Co-Chair Neuman assumed that  the legislation allowed Alaska                                                                    
Industrial Development and Export  Authority (AIDEA) to work                                                                    
as a  conduit to help the  project move forward but  did not                                                                    
obligate AIDEA to the financial packet.                                                                                         
                                                                                                                                
Ms. Pierson replied that he was correct.                                                                                        
                                                                                                                                
Representative  Gara asked  why  the reference  to the  Lynn                                                                    
Canal Transportation Corporation was removed.                                                                                   
                                                                                                                                
Ms. Pierson  answered that it  was in working with  the bill                                                                    
sponsor.  It  was   a  fund  that  would  have   had  to  be                                                                    
recapitalized for  $22 million. In the  state's fiscal times                                                                    
it  was  not looking  to  recapitalize  or  to cap  out  its                                                                    
bonding.                                                                                                                        
                                                                                                                                
Representative Gara  noted that he would  have questions for                                                                    
AIDEA.                                                                                                                          
                                                                                                                                
REPRESENTATIVE  CATHY  MUNOZ,  SPONSOR, explained  that  the                                                                    
committee substitute  for HB 143  would allow  financing for                                                                    
the construction of a hydroelectric  facility dam located 43                                                                    
miles South  of Juneau. The proposed  project would generate                                                                    
19.8 megawatts of power and  would allow the Kensington Mine                                                                    
to come off  of diesel generation and  move to hydroelectric                                                                    
power. The  project would increase  hydro capacity  by about                                                                    
20 percent and would result  in many jobs for the community.                                                                    
The  initial   application  to  Federal   Energy  Regulatory                                                                    
Commission (FERC)  occurred in 2009. The  final FERC permit,                                                                    
the final  environmental impact study  (EIS), and  the final                                                                    
404 permit were expected in the summer of 2016.                                                                                 
                                                                                                                                
4:47:22 PM                                                                                                                    
                                                                                                                                
Representative  Pruitt  asked if  there  was  a power  sales                                                                    
agreement between  Kensington Mine and the  developer of the                                                                    
Sweetheart Lake Project.                                                                                                        
                                                                                                                                
Representative  Munoz deferred  the  question  to the  chief                                                                    
executive officer of the Kensington Mine.                                                                                       
                                                                                                                                
Representative   Gara  asked   what   percentage  of   power                                                                    
generated from the project would go to the Kensington Mine.                                                                     
                                                                                                                                
Representative  Munoz  deferred   the  question  to  experts                                                                    
available to speak to the bill.                                                                                                 
                                                                                                                                
Co-Chair  Thompson  asked  the   other  testifiers  to  come                                                                    
forward to address the committee.                                                                                               
                                                                                                                                
KEITH COMSTOCK, CEO, JUNEAU  HYDROPOWER INC., indicated that                                                                    
there  was  a  slide  presentation  in  the  member  packets                                                                    
titled:  "Juneau  Hydropower  and Lynn  Canal  Transmission"                                                                    
(copy on  file). He  began by providing  a brief  history of                                                                    
the  project. It  was a  project identified  by the  federal                                                                    
government   in  1906   as  having   significant  hydropower                                                                    
capacity. In 1929 it was  identified as a federal power site                                                                    
classification and  removed from other uses.  There had been                                                                    
multiple attempts  to look at  the project. For a  number of                                                                    
reasons such  as access  to a market,  the timing,  or other                                                                    
issues have  prevented the project  from moving  forward. In                                                                    
the mid to  late 80s the state had come  closest to building                                                                    
the  project. In  December of  2009 Juneau  Hydropower filed                                                                    
for  a FERC  preliminary permit.  At that  time the  company                                                                    
began studying  and investing  money to  do all  the various                                                                    
environmental   studies,  the   hydrological  studies,   and                                                                    
fortunately  for the  company the  project had  been studied                                                                    
repeatedly and  had 40  years of  water data.  The 40  to 50                                                                    
year old  water data was  saying the  same as the  new water                                                                    
data.  He  continued that  from  2009  to 2014  the  company                                                                    
conducted  environmental, hydrological,  and preconstruction                                                                    
studies. It  had worked  on all  of the  various regulations                                                                    
and  defining the  customer base.  In May  2014 the  company                                                                    
submitted  its  final  FERC license  application  that  FERC                                                                    
accepted.  Once the  application was  accepted the  timeline                                                                    
began  for the  EIS.  The  final comment  period  was a  few                                                                    
months prior.  The company was expecting  its final license,                                                                    
the 404 permit,  and the notice to proceed on  or around the                                                                    
July timeframe.  Also in February the  company announced the                                                                    
existence of  the Juneau District Heating,  a major customer                                                                    
for Juneau  Hydropower Inc.  The company  received unanimous                                                                    
letters  of support  from  the City  and  Borough of  Juneau                                                                    
assembly. He was before the  committee asking for support in                                                                    
order to find some bond financing.                                                                                              
                                                                                                                                
4:51:18 PM                                                                                                                    
                                                                                                                                
Representative  Kawasaki  asked  Mr. Comstock  to  tell  him                                                                    
about  the  company's  attempt  to  make  private  financing                                                                    
available or whether private financing has been available.                                                                      
                                                                                                                                
Mr. Comstock answered that the  project had been 100 percent                                                                    
privately  financed,  very  unusual  for a  hydro  power  in                                                                    
Alaska. He  had not received  any or applied for  any grants                                                                    
or  assistance from  any state  or  federal agencies.  Every                                                                    
dollar to-date had  been private money. He  was bringing his                                                                    
own  private  equity to  the  project.  In addition,  should                                                                    
AIDEA  invest in  the company,  the company  would still  be                                                                    
required to put up a significant amount of private equity.                                                                      
                                                                                                                                
Representative  Kawasaki   asked  how  much   equity  Juneau                                                                    
Hydropower had  in the project  to-date. He wondered  if the                                                                    
amount of  the bond,  $120 million,  was enough  to complete                                                                    
the project.                                                                                                                    
                                                                                                                                
Mr.   Comstock  replied   that  the   entity  had   invested                                                                    
approximately $4  million private dollars in  the project at                                                                    
present.  The   company  anticipated  that   between  Juneau                                                                    
Hydropower Inc.,  the Juneau District Heating,  and the Lynn                                                                    
Canal   Transmission   Corporation,  the   project   totaled                                                                    
approximately  $175  million. He  was  expecting  to put  in                                                                    
about $40 million to $50 million in private equity.                                                                             
                                                                                                                                
Representative  Gara spoke  to the  Juneau District  Heating                                                                    
component  that would  convert energy  from  the canal  into                                                                    
heat.  He  asked if  the  component  was contingent  on  the                                                                    
Sweetheart Lake project.                                                                                                        
                                                                                                                                
Mr.  Comstock  answered  that the  items  were  related.  He                                                                    
provided  a brief  explanation  of  Juneau District  Heating                                                                    
project. The Ted Stevens Marine  Research Center in Auke Bay                                                                    
had  a  first  generation  seawater  heat  pump  system.  It                                                                    
resulted in  a savings  of 120 gallons  of fuel  annually by                                                                    
switching to  seawater heat pump  heating. The  heating only                                                                    
supplied  a  building. The  same  concept  was  in use  -  a                                                                    
generation 2 heating system -  at the Alaska Sea Life Center                                                                    
in Seward.  The Juneau  District Heating  system would  be a                                                                    
third generation  heating system, a high  heat system, which                                                                    
would allow a building  like Alaska's State Capital building                                                                    
to cheaply and easily convert  from an oil-based system to a                                                                    
seawater heat pump based system  or a hot water based system                                                                    
without a  costly retro  fit only  having to  change certain                                                                    
equipment. The other two systems  were low-heat systems that                                                                    
required new construction. The company  was copying a system                                                                    
that was first  brought online in Drammen,  Norway, in 2011.                                                                    
The payback  on their  total investment  was under  3 years.                                                                    
Seawater heat pumps were an  old technology. However, modern                                                                    
refrigerants and  the ability to  boil refrigerants  to very                                                                    
high temperatures have made it  viable as a capacity to heat                                                                    
a city.                                                                                                                         
                                                                                                                                
4:55:33 PM                                                                                                                    
                                                                                                                                
Representative  Gara  asked  how the  seawater  portion  was                                                                    
related to the Sweetheart Lake Hydro Project.                                                                                   
                                                                                                                                
Mr. Comstock  answered that in  order to run the  heat pumps                                                                    
it  required   a  significant  amount  of   electricity.  He                                                                    
suggested that  for every unit  of electricity that  was put                                                                    
in, 3  units of heat  energy resulted. It was  an incredible                                                                    
efficiency of  300 percent. This  efficiency was  the reason                                                                    
the numbers worked to pay  for the more expensive costs such                                                                    
as digging  up and laying  down pipes.  If a person  were to                                                                    
burn oil it  was 85 or 90 percent efficient  and natural gas                                                                    
was 95 percent  efficient. This project would  provide a 300                                                                    
percent efficiency rate.  It required a lot  of energy which                                                                    
the Sweetheart Lake project would be able to provide.                                                                           
                                                                                                                                
Representative  Gara  asked  for comfort  that  the  project                                                                    
would not damage fisheries.                                                                                                     
                                                                                                                                
Mr.  Comstock replied  that he  was a  life member  of Trout                                                                    
Unlimited  and had  been involved  in  cold water  fisheries                                                                    
issues most  of his adult  life. He spoke to  the Sweetheart                                                                    
Lake  fishery claiming  it was  a  no-deposit and  no-return                                                                    
salmon  fishery. In  other words,  the  Sockeye Salmon  that                                                                    
were stocked by  Douglas Island Pink and  Chum, Inc. (DIPAC)                                                                    
the local hatchery were stocked  and could get out. However,                                                                    
they could not  get back to span again.  Therefore, they had                                                                    
to be artificially replenished  every year. His organization                                                                    
worked  closely with  DIPAC who  supported the  project. His                                                                    
organization believed  it would  enhance the  fishery versus                                                                    
causing any distraction  at all from the  fishery. They have                                                                    
had  good  support  from  the   sportsmen  and  the  fishing                                                                    
community.                                                                                                                      
                                                                                                                                
Representative  Gara wondered  if there  were any  wild fish                                                                    
runs that would be impacted in the area.                                                                                        
                                                                                                                                
Mr. Comstock  reported that there  were no  significant wild                                                                    
runs  in the  lake because  the lake  was high  in elevation                                                                    
which meant it  was a relatively low  biomass, low producing                                                                    
lake. There were  some native Dolly Varden  trout that would                                                                    
not be  impacted. There  was a  small population  of Rainbow                                                                    
trout first stocked in the  50s. The company had worked very                                                                    
closely with the  Department of Fish and Game  (DFG) and the                                                                    
Department  of Natural  Resources  (DNR) on  the issues  and                                                                    
they had been very supportive.                                                                                                  
                                                                                                                                
4:58:38 PM                                                                                                                    
                                                                                                                                
Co-Chair Neuman asked if the  group anticipated asking AIDEA                                                                    
for future investments into the  project. Mr. Comstock asked                                                                    
if  he  meant  beyond   the  request  currently  before  the                                                                    
committee.                                                                                                                      
                                                                                                                                
Co-Chair Neuman understood that  AIDEA's role in the project                                                                    
was to provide some conduit  bonds so that the company would                                                                    
provide   for   its   own   financing.   Alaska   Industrial                                                                    
Development  and  Export Authority  would  help  set up  the                                                                    
financing  mechanism.  He  asked  if  he  was  correct.  Mr.                                                                    
Comstock replied in the affirmative.                                                                                            
                                                                                                                                
Co-Chair Neuman asked if it  was the company's intent to ask                                                                    
AIDEA to invest  in the project. Mr.  Comstock answered that                                                                    
the entity's intent  was to work with AIDEA as  a partner to                                                                    
work with the  Goldman Sachs Group and various  folks in the                                                                    
country. He did not  anticipate returning to the legislature                                                                    
with an  additional funding  request in  the future  if that                                                                    
was what  Co-Chair Neuman  was asking. He  did not  know the                                                                    
full gamut  of products  and services available  from AIDEA.                                                                    
At  the moment  discussions had  been focused  mostly around                                                                    
conduit bonds.                                                                                                                  
                                                                                                                                
Co-Chair  Neuman  commented  that  his  question  was  about                                                                    
whether the  financial plan for the  project revolved around                                                                    
AIDEA's  investment.  It  sounded   like  it  did  not.  Mr.                                                                    
Comstock  answered that  funds from  AIDEA were  desired but                                                                    
not required.                                                                                                                   
                                                                                                                                
Vice-Chair Saddler  asked about the percentage  of power the                                                                    
dam would  use. Mr.  Comstock answered  that his  belief was                                                                    
that Kensington  Mine's demand was  about 60 percent  of the                                                                    
capacity.                                                                                                                       
                                                                                                                                
Vice-Chair  Saddler  asked  how  much  the  Juneau  District                                                                    
Heating project would consume. Mr.  Comstock replied that it                                                                    
would take the bulk of the balance.                                                                                             
                                                                                                                                
Vice-Chair  Saddler asked  if  the  Juneau District  Heating                                                                    
project  would  be  possible  without  the  Sweetheart  Lake                                                                    
project.  Mr.  Comstock  answered   that  it  would  not  be                                                                    
possible. Currently  the local  utility had issues  with the                                                                    
possibility  of  running out  of  power,  especially in  low                                                                    
water years. They had  several major interruptible customers                                                                    
such  as the  Greens  Creek Mine,  Princess  Cruises, and  a                                                                    
variety  of  others. The  short  answer  was not  without  a                                                                    
significant supply of power into the community.                                                                                 
                                                                                                                                
5:01:39 PM                                                                                                                    
                                                                                                                                
Representative   Pruitt   asked   about   the   Lynn   Canal                                                                    
Transmission  Project  that  was removed  in  the  committee                                                                    
substitute. He wondered if Mr.  Comstock was associated with                                                                    
the change.                                                                                                                     
                                                                                                                                
Mr.  Comstock responded  that Juneau  Hydropower was  one of                                                                    
the  members of  the  Lynn  Canal Transmission  Corporation.                                                                    
Another primary  member was the  Alaska Power  and Telephone                                                                    
Company  (the  utility  for Haines  and  Skagway  and  other                                                                    
places).  His  company would  like  to  ask for  money  from                                                                    
AIDEA, but it was hard to ask  for the funds if they did not                                                                    
exist. The entity believed it  could locate other sources of                                                                    
funding. The company  liked the terms and  the interest rate                                                                    
in  AIDEA's  program.  He  understood  the  state's  current                                                                    
fiscal  situation  and  indicated  that  his  company  could                                                                    
access  money at  a  slightly higher  interest  rate in  the                                                                    
market.                                                                                                                         
                                                                                                                                
Representative Pruitt  wanted to ensure the  legislature did                                                                    
not fund another project and  then find the company short of                                                                    
funds before project completion.  He wondered if the company                                                                    
could  financially  handle   the  intertie  separately.  Mr.                                                                    
Comstock answered  that he was  fairly certain.  The company                                                                    
had several viable plans.                                                                                                       
                                                                                                                                
Representative  Pruitt  asked  for  the total  cost  of  the                                                                    
project. Mr.  Comstock answered that between  the Lynn Canal                                                                    
Transmission Corporation portion (set  up as a non-profit to                                                                    
keep transmission costs  as low as possible),  the build out                                                                    
of the Juneau District Heating  (putting pipes in the ground                                                                    
and building a heat pump  facility), and the Sweetheart Lake                                                                    
Hydro  Plant   the  cost  would  total   approximately  $175                                                                    
million.                                                                                                                        
                                                                                                                                
Representative  Pruitt spoke  to  the hydroelectric  project                                                                    
itself. He asked for the  cost of that portion. Mr. Comstock                                                                    
answered  that  the  cost was  about  $125  million  without                                                                    
contingencies.  The amount  depended on  how wet  the winter                                                                    
was,  how long  it  took  to build,  and  others things.  He                                                                    
thought  the $175  million total  project cost  was a  good,                                                                    
safe  number. Juneau  District Heating  was a  subsidiary of                                                                    
Juneau Hydropower Inc. They were one  and the same as far as                                                                    
construction  costs   went.  His  company  had   been  given                                                                    
direction from  Wall Street and other  financial entities to                                                                    
keep the items together as a single package.                                                                                    
                                                                                                                                
5:05:32 PM                                                                                                                    
                                                                                                                                
Representative  Kawasaki  asked  whether the  revenue  bonds                                                                    
would be tax exempt.                                                                                                            
                                                                                                                                
Mr.  Comstock   responded  that   Representative  Kawasaki's                                                                    
question  would be  better directed  to  AIDEA. He  reported                                                                    
that  his  company  was  not basing  its  decisions  on  any                                                                    
potential future tax credits or subsidies.                                                                                      
                                                                                                                                
Representative  Kawasaki  asked  if Mr.  Comstock's  private                                                                    
corporation  would be  required, if  it were  to obtain  the                                                                    
loans, to  pass on  savings to consumers  or if  the company                                                                    
would  be regulated  through  the  Regulatory Commission  of                                                                    
Alaska (RCA).                                                                                                                   
                                                                                                                                
Mr. Comstock believed that the  hydropower function would be                                                                    
a  qualifying  facility  and  not  necessarily  a  regulated                                                                    
entity. It was likely that  Juneau District Heating would be                                                                    
a regulated entity.                                                                                                             
                                                                                                                                
Co-Chair Thompson  thanked Mr.  Comstock for  testifying and                                                                    
introduced the  next testifier. He asked  Mr. Springsteen to                                                                    
review the decision tree that was in member packets.                                                                            
                                                                                                                                
JOHN  SPRINGSTEEN,  EXECUTIVE  DIRECTOR,  ALASKA  INDUSTRIAL                                                                    
DEVELOPMENT  AND  EXPORT   AUTHORITY  (via  teleconference),                                                                    
introduced  himself. He  explained that  the handout  showed                                                                    
the  decision  making process  for  any  project that  AIDEA                                                                    
considered for  AIDEA financing.  He relayed that  AIDEA was                                                                    
looking  at  a  conduit  bond issuance  for  the  particular                                                                    
project  being  discussed  which  would be  subject  to  the                                                                    
requirements  of the  actual bond  buyers. He  believed that                                                                    
their process  would marginally  mirror AIDEA's  process. He                                                                    
relayed that when AIDEA was  reviewing projects for an AIDEA                                                                    
investment  the  first step  was  to  perform a  suitability                                                                    
assessment to  determine if the  project fit the  mission of                                                                    
providing  jobs  and  creating  revenue  for  the  State  of                                                                    
Alaska. If the project met  the mission and was suitable for                                                                    
AIDEA  then  a  feasibility analysis  would  follow.  Alaska                                                                    
Industrial Development  and Export Authority  would evaluate                                                                    
whether the  project could be  done, made economic  sense to                                                                    
complete, and was feasible. If  their criteria was met AIDEA                                                                    
would  move  into  the  due  diligence  step,  a  much  more                                                                    
detailed review.  If agreements to terms  and conditions for                                                                    
financing  could  be crafted  then  they  would be  improved                                                                    
internally by  AIDEA's investment committee and  then by the                                                                    
board   of  directors.   The  last   phase   would  be   the                                                                    
finalization  and   closing  of  the  deal   which  included                                                                    
completing the  agreements and  doing the  financing. Alaska                                                                    
Industrial  Development and  Export Authority  believed that                                                                    
it would  be a similar  process for  the bond buyers  in the                                                                    
case of a conduit issuance.                                                                                                     
                                                                                                                                
5:09:33 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Saddler  referred  to   page  13  of  the  AIDEA                                                                    
document  titled  "Analysis  and Decision-Making"  (copy  on                                                                    
file). He asked Mr. Springsteen  to list the elements in the                                                                    
last blue box, after phase  4 was completed. Mr. Springsteen                                                                    
answered  that after  the finalization  and  closing of  the                                                                    
agreements,  ongoing  interactions   with  the  party  AIDEA                                                                    
financed would  ensue tracking the  progress of  the project                                                                    
and  ensuring that  the objectives  set out  with the  funds                                                                    
were being met.                                                                                                                 
                                                                                                                                
Representative Gara asked if the  $120 million requested for                                                                    
the  project  would  impact AIDEA's  bonding  capacity.  Mr.                                                                    
Springsteen replied  that because it was  a conduit issuance                                                                    
and the project  was funded on the merits of  the project it                                                                    
would  not  affect  AIDEA's bonding  capacity.  However,  it                                                                    
currently affected  AIDEA's rolling  12 month limit  of $400                                                                    
million.  Through  the  proposed  legislation  the  issuance                                                                    
would not be counted towards the cap.                                                                                           
                                                                                                                                
Representative Gara  asked for  detail related to  a conduit                                                                    
issuance. Mr.  Springsteen answered  that AIDEA  only filled                                                                    
the role  of a  facilitator related  to a  conduit issuance,                                                                    
which  was very  difference than  in  the case  of an  AIDEA                                                                    
obligation  bond  where  AIDEA's  revenue  and  assets  were                                                                    
providing a backstop  for a bond issuance. In the  case of a                                                                    
conduit issuance AIDEA was only a facilitator.                                                                                  
                                                                                                                                
Representative Gara  asked about  AIDEA's compensation  as a                                                                    
facilitator. Mr.  Springsteen answered  that AIDEA  paid for                                                                    
issuance costs and the reward  was that economic capital was                                                                    
being brought to  the State of Alaska  resulting in economic                                                                    
and enterprise development and jobs.                                                                                            
                                                                                                                                
Representative Gara observed that  the project seemed great,                                                                    
but  he wondered  if it  would cost  AIDEA. Mr.  Springsteen                                                                    
replied that AIDEA was paid back through issuances.                                                                             
                                                                                                                                
Representative Gara  asked if AIDEA  had an option to  own a                                                                    
portion of the project.                                                                                                         
                                                                                                                                
Co-Chair Thompson  stated that  the option  to own  was from                                                                    
the old version of the bill.                                                                                                    
                                                                                                                                
Representative  Gara asked  if  he was  correct in  assuming                                                                    
that  AIDEA  did not  have  an  option  to own  the  project                                                                    
because all it was doing  was helping to secure the bonding.                                                                    
Mr. Springsteen answered in the affirmative.                                                                                    
                                                                                                                                
5:14:39 PM                                                                                                                    
                                                                                                                                
Representative Kawasaki  asked how  long phases 1  through 4                                                                    
in  the  established  decision   making  process  took.  Mr.                                                                    
Springsteen answered that the process  typically took 4 to 6                                                                    
months given the  need for review and for  board comment and                                                                    
interaction.  In   certain  cases   the  process   could  be                                                                    
accelerated.                                                                                                                    
                                                                                                                                
Representative Edgmon  asked about the benefits  the project                                                                    
would provide  to the  longevity of  the Kensington  Mine by                                                                    
providing lower cost energy.                                                                                                    
                                                                                                                                
Co-Chair  Thompson replied  that  the  general manager  from                                                                    
Kensington Mine would be testifying.                                                                                            
                                                                                                                                
Representative  Edgmon  would  hold  his  question  for  the                                                                    
upcoming testifier.                                                                                                             
                                                                                                                                
Representative   Wilson  asked   if  the   reason  for   the                                                                    
legislation  being considered  was  due  to the  legislature                                                                    
deciding that if a loan was  over a certain dollar amount it                                                                    
had to come through statute.                                                                                                    
                                                                                                                                
Mr. Springsteen  answered that AIDEA  had a  restriction for                                                                    
general obligation bonds  and for total bonds  issued in the                                                                    
rolling 12  month period.  In the case  of an  AIDEA general                                                                    
obligation  bond over  $25 million  where the  authority was                                                                    
providing  its  assets as  a  backstop  to the  bond  buyers                                                                    
required  legislative approval.  In  the case  of a  conduit                                                                    
issuance the  question would be  about the $400  million 12-                                                                    
month rolling cap for bond issuances.                                                                                           
                                                                                                                                
Representative  Wilson  asked  for verification  that  AIDEA                                                                    
would  conduct due  diligence to  ensure the  investment was                                                                    
sound. Mr. Springsteen replied that  in terms of the project                                                                    
and  due diligence  both AIDEA  and the  actual bond  buyers                                                                    
performed independent and similar reviews.                                                                                      
                                                                                                                                
Representative  Wilson  asked   for  verification  that  his                                                                    
answer  was   a  "yes".  Mr.  Springsteen   replied  in  the                                                                    
affirmative.  In  any instance  AIDEA  had  a reputation  to                                                                    
uphold in the bond market.                                                                                                      
                                                                                                                                
Representative  Pruitt   asked  whether  AIDEA   would  have                                                                    
invested   in   the  project   on   its   own  without   the                                                                    
legislature's influence if  the $400 million cap  was not in                                                                    
place and there  was not a need for  the current legislation                                                                    
before  the  committee.  Mr. Springsteen  answered  that  it                                                                    
would be the  type of project AIDEA would  consider with its                                                                    
own funds.                                                                                                                      
                                                                                                                                
Co-Chair  Thompson Invited  the  next  testifier to  provide                                                                    
their statement.                                                                                                                
                                                                                                                                
5:18:23 PM                                                                                                                    
                                                                                                                                
MARY  BECKER,   MAYOR,  JUNEAU,  relayed  that   the  Juneau                                                                    
Assembly  had unanimously  voted  in support  of the  Juneau                                                                    
Hydropower  project  at  Sweetheart   Lake  and  the  Juneau                                                                    
District  Heating project.  She  thanked  the committee  for                                                                    
taking up the legislation.                                                                                                      
                                                                                                                                
RODNEY  HESSON,  IBEW,  JUNEAU,  spoke  in  support  of  the                                                                    
project.                                                                                                                        
                                                                                                                                
5:20:06 PM                                                                                                                    
                                                                                                                                
WAYNE ZIGARLICK,  GENERAL MANAGER, COEUR  ALASKA, KENSINGTON                                                                    
MINE, introduced himself.                                                                                                       
                                                                                                                                
Representative Edgmon  asked about the benefits  the project                                                                    
would offer  to the Kensington  Mine in terms of  savings in                                                                    
the future.                                                                                                                     
                                                                                                                                
Mr. Zigarlick responded that the  mine's single largest cost                                                                    
of  production was  labor and  the  second was  electricity.                                                                    
Although  it   was  difficult  to  quantify   what  kind  of                                                                    
extension there  might be with  a reduction in  power costs,                                                                    
any  reduction  in  the  mine's   operating  costs  had  the                                                                    
potential  to   take  mineralized  material  that   was  not                                                                    
currently generating  profits to  do so.  Thus, the  life of                                                                    
the mine would be extended.                                                                                                     
                                                                                                                                
Representative Edgmon surmised that  the Kensington Mine was                                                                    
the backbone  of the  project. He also  thought the  life of                                                                    
the   mine  as   it  was   currently  envisioned   would  be                                                                    
commiserate with the life of  the bond issuance and possibly                                                                    
beyond.                                                                                                                         
                                                                                                                                
Mr. Zigarlick asked for clarification.                                                                                          
                                                                                                                                
Representative  Edgmon stated  that, given  the significance                                                                    
of the  operations of  the Kensington Mine  and its  role in                                                                    
the overall  project, it would  extend the life span  of the                                                                    
mine enough to essentially pay off the loan package.                                                                            
                                                                                                                                
Mr. Zigarlick answered  that he was unsure of  the length of                                                                    
the loan  package. However, the  Kensington Mine's  life was                                                                    
dynamic in  that it grew  every year and was  very dependent                                                                    
on  metal   prices  and  other  factors.   He  believed  the                                                                    
Kensington Mine would be around for  a long time, but he did                                                                    
not know the length of time specifically.                                                                                       
                                                                                                                                
Representative Edgmon  clarified that  he was not  trying to                                                                    
put the  testifier in a box  with the question. He  spoke to                                                                    
long-term  opportunities that  cheaper  power could  provide                                                                    
citing Red Dog Mine as an example.                                                                                              
                                                                                                                                
Mr.  Zigarlick   replied  that  Representative   Edgmon  was                                                                    
accurate.                                                                                                                       
                                                                                                                                
5:23:25 PM                                                                                                                    
                                                                                                                                
Co-Chair Thompson OPENED public testimony.                                                                                      
                                                                                                                              
Co-Chair Thompson CLOSED public testimony.                                                                                      
                                                                                                                                
Co-Chair  Neuman  asked  if Alaska  Energy  Authority  (AEA)                                                                    
would  play a  role in  the transmission  of the  electrical                                                                    
power lines in the project.                                                                                                     
                                                                                                                                
SARAH   FISHER-GOAD,  EXECUTIVE   DIRECTOR,  ALASKA   ENERGY                                                                    
AUTHORITY,  DEPARTMENT OF  COMMERCE, COMMUNITY  AND ECONOMIC                                                                    
DEVELOPMENT  (via teleconference),  answered that  currently                                                                    
AEA would not play a role in the project.                                                                                       
                                                                                                                                
Co-Chair  Thompson  explained  that  HB  143  would  have  a                                                                    
forthcoming zero fiscal note.                                                                                                   
                                                                                                                                
Co-Chair  Neuman  MOVED  to  REPORT  CSHB  143(FIN)  out  of                                                                    
committee   with   individual    recommendations   and   the                                                                    
accompanying fiscal notes. There  being NO OBJECTION, it was                                                                    
so ordered.                                                                                                                     
                                                                                                                                
CSHB  143(FIN) was  REPORTED  out of  committee  with a  "do                                                                    
pass" recommendation  and with  one forthcoming  zero fiscal                                                                    
note  from   the  Department  of  Commerce,   Community  and                                                                    
Economic Development.                                                                                                           
                                                                                                                                
Co-Chair Thompson  discussed the schedule for  the following                                                                    
day.                                                                                                                            
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
5:26:30 PM                                                                                                                    
                                                                                                                                
The meeting was adjourned at 5:26 p.m.