Legislature(2017 - 2018)HOUSE FINANCE 519

05/03/2017 01:30 PM House FINANCE

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01:36:21 PM Start
01:37:49 PM Presentations: the Economy and Fiscal Policy Overview
04:01:01 PM SB32
04:46:30 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Overview: The Economy & Fiscal Policy by TELECONFERENCED
- Joey Crum, President, AK Truckers Assoc.,
President & CEO, Northern Industrial Training
- Joe Schierhorn, President & Chief Operation
Officer, Northrim Bank
- Vince Beltrami, President, AK American
Federation of Labor & Congress of Industrial
Organizations (AFL-CIO)
- Mike Navarre, Kenai Peninsula Borough Mayor
- Angie Newby, Homer Realty
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
                  HOUSE FINANCE COMMITTEE                                                                                       
                        May 3, 2017                                                                                             
                         1:36 p.m.                                                                                              
1:36:21 PM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair Foster  called the House Finance  Committee meeting                                                                    
to order at 1:36 p.m.                                                                                                           
MEMBERS PRESENT                                                                                                               
Representative Neal Foster, Co-Chair                                                                                            
Representative Paul Seaton, Co-Chair                                                                                            
Representative Les Gara, Vice-Chair                                                                                             
Representative Jason Grenn                                                                                                      
Representative David Guttenberg                                                                                                 
Representative Scott Kawasaki                                                                                                   
Representative Dan Ortiz                                                                                                        
Representative Lance Pruitt                                                                                                     
Representative Steve Thompson                                                                                                   
Representative Cathy Tilton                                                                                                     
Representative Tammie Wilson                                                                                                    
MEMBERS ABSENT                                                                                                                
ALSO PRESENT                                                                                                                  
Joey   Crum,   President,   Alaska   Truckers   Association,                                                                    
President  and   CEO,  Northern  Industrial   Training;  Joe                                                                    
Schierhorn, President and  Chief Operating Officer, Northrim                                                                    
Bank; Angie Newby, Homer  Realty; Vince Beltrami, President,                                                                    
Alaska American Federation of  Labor/ Congress of Industrial                                                                    
Organizations   (AFL-CIO);   Mike  Navarre,   Mayor,   Kenai                                                                    
Peninsula  Borough; Senator  Shelley Hughes,  Sponsor; Janey                                                                    
Hovenden, Director,  Division of Corporations,  Business and                                                                    
Professional  Licensing, Department  of Commerce,  Community                                                                    
and  Economic  Development;   Buddy  Whitt,  Staff,  Senator                                                                    
Shelley Hughes; Representative  Bryce Edgmon; Representative                                                                    
Louise  Stutes;  Representative  Adam  Wool;  Representative                                                                    
Chris Tuck;  Representative Geran Tarr;  Representative Zach                                                                    
Fansler; Representative Gabrielle LeDoux.                                                                                       
PRESENT VIA TELECONFERENCE                                                                                                    
Dr. Thomas Felix, Director, Medical Research, Amgen Inc.                                                                        
SB 32     PRESCRIPTIONS FOR BIOLOGICAL PRODUCTS                                                                                 
          SB 32 was HEARD and HELD in committee for further                                                                     
PRESENTATIONS: THE ECONOMY AND FISCAL POLICY OVERVIEW                                                                           
          ALASKA TRUCKERS ASSOCIATION                                                                                           
          NORTHRIM BANK AND ALASKA BANKERS ASSOCIATION                                                                          
          ALASKA AMERICAN FEDERATION OF LABOR/ CONGRESS OF                                                                      
          INDUSTRIAL ORGANIZATIONS (AFL-CIO)                                                                                    
          KENAI PENINSULA BOROUGH                                                                                               
Co-Chair Foster reviewed the meeting agenda.                                                                                    
^PRESENTATIONS: THE ECONOMY AND FISCAL POLICY OVERVIEW                                                                        
1:37:49 PM                                                                                                                    
Co-Chair Seaton spoke about the intent to hear an outside                                                                       
perspective about what was currently taking place in the                                                                        
state's economy.                                                                                                                
1:39:01 PM                                                                                                                    
JOEY   CRUM,   PRESIDENT,   ALASKA   TRUCKERS   ASSOCIATION,                                                                    
PRESIDENT AND CEO, NORTHERN INDUSTRIAL TRAINING, read from                                                                      
prepared remarks:                                                                                                               
     Good afternoon Co-Chairs Foster  and Seaton and members                                                                    
     of the Committee. I am  Joey Crum, President and CEO of                                                                    
     Northern  Industrial Training  and this  year I  am the                                                                    
     President  of the  Alaska  Trucking Association.  Thank                                                                    
     you for being invited to testify today.                                                                                    
     Founded  in 1958,  The Alaska  Trucking Association  or                                                                    
     ATA  represents roughly  200-member companies  spanning                                                                    
     the  entire   state.  Our  members  include   not  only                                                                    
     trucking   companies,  but   container  shippers,   the                                                                    
     railroad, fuel barges and much  more. From Ketchikan to                                                                    
     Barrow  if you  got  it, one  of  our member  companies                                                                    
     brought it.                                                                                                                
     In terms of employment,  in 2015, the trucking industry                                                                    
     in Alaska provided  13, 700 jobs or 1 out  of 19 in the                                                                    
     state. Total trucking industry wages  paid in Alaska in                                                                    
     2015  exceeded $800  million,  with  an average  annual                                                                    
     trucking industry salary of $56,283.                                                                                       
     As far as a Small  Business Emphasis, as of April 2015,                                                                    
     there were 2,710 trucking  companies located in Alaska,                                                                    
     most  of them  small, locally  owned businesses.  These                                                                    
     companies  are served  by a  wide  range of  supporting                                                                    
     businesses both large and small.                                                                                           
     We transport essential  products; trucks transported 60                                                                    
     percent of  total manufactured tonnage in  the state in                                                                    
     2012 or  17,647 tons  per day.  94.3 percent  of Alaska                                                                    
     communities depend exclusively on  trucks to move their                                                                    
     As  an  Industry  In 2014,  the  trucking  industry  in                                                                    
     Alaska paid  approximately $69  million in  federal and                                                                    
     state roadway  taxes. The industry  paid 51  percent of                                                                    
     all  taxes owed  by  Alaska  motorists, despite  trucks                                                                    
     representing only 11 percent  of vehicle miles traveled                                                                    
     in the state.                                                                                                              
     Individual Companies  pay taxes, as of  January 2016, a                                                                    
     typical five-axle  tractor-semitrailer combination paid                                                                    
     $1,783  in  state  highway  user   fees  and  taxes  in                                                                    
     addition  to $8,906  in federal  user  fees and  taxes.                                                                    
     These taxes were over and  above the typical taxes paid                                                                    
     by businesses in Alaska.                                                                                                   
     Our  member companies  literally  touch  all of  Alaska                                                                    
     giving us a unique  perspective and a firsthand account                                                                    
     as  to the  effects of  a down  economy, which  is very                                                                    
     clearly what we are experiencing now.                                                                                      
     Business   in  2014   and  part   of  2015   was  good,                                                                    
     particularly  on the  North Slope.  But  then the  slow                                                                    
     down began and  in 2016 ATA member  companies were down                                                                    
     nearly 40 percent over 2014.                                                                                               
     The  following  chart   will  demonstrate  the  numbers                                                                    
     received from  AK DOT Weigh  in Motion  device (Scales)                                                                    
     in  Fox just  outside of  Fairbanks. This  data is  for                                                                    
     large Commercial  Motor Vehicle  i.e. trucks  not pick-                                                                    
     ups or  vans and  reflects the  number of  loads headed                                                                    
     north on the Dalton highway toward Prudhoe Bay.                                                                            
     As  you can  see, the  numbers are  kind of  staggering                                                                    
     when you have  them represented in front  of you. Where                                                                    
     the year-over-year  difference of 9,984 loads  fewer in                                                                    
     2016 than in 2015.                                                                                                         
Co-Chair Foster  noted that some  committee members  did not                                                                    
have the document Mr. Crum  was referencing. He relayed that                                                                    
the document was being copied for the committee at present.                                                                     
1:42:58 PM                                                                                                                    
AT EASE                                                                                                                         
1:47:29 PM                                                                                                                    
Mr.  Crum  referenced a  document  he  had provided  to  the                                                                    
committee dated May 1, 2017 (copy  on file). He pointed to a                                                                    
table  on  page  2  and  relayed  that  the  data  had  been                                                                    
collected by  the scale  house in  Fox outside  of Fairbanks                                                                    
going north on the Dalton  Highway. He clarified that he had                                                                    
been referencing the  year-over-year comparison between 2015                                                                    
and 2016  that showed  9,984 fewer loads  went north  on the                                                                    
Dalton Highway in  2016 compared to 2015. The  2017 data had                                                                    
been  received  1.5  days earlier  and  indicated  that  the                                                                    
number  of loads  was down  19 percent  in 2017  compared to                                                                    
first quarter 2016. He read from page 2 the document:                                                                           
     The  data clearly  illustrates  that  we experienced  a                                                                    
     precipitous drop  in the number of  loads and therefore                                                                    
     work  occurring  on the  North  Slope.  A decline  this                                                                    
     dramatic is felt by all  of our member companies across                                                                    
     the entire state.                                                                                                          
Mr. Crum  turned to page  3 that  referenced a survey  of 10                                                                    
Alaska Trucking  Association motor carriers, which  began to                                                                    
show  the  depth and  impact  of  the downturn  in  Alaska's                                                                    
economy.  He  explained  of the  10  members  surveyed,  the                                                                    
lowest drop  between 2014  and 2016 was  15 percent  and the                                                                    
highest drop was 60 percent.  The fewest number of employees                                                                    
laid off  during the  timeframe was 16  and the  highest was                                                                    
800.  The right  column included  quotes from  the companies                                                                    
about their  outlook on the  Alaskan economy and  the future                                                                    
of their businesses. He read from the document:                                                                                 
     As you  can see, our outlook  is not good. I'd  like to                                                                    
     point out  that too often  when people hear  of layoffs                                                                    
     as  a result  of  reduced oil  activity they  associate                                                                    
     those  layoffs with  ConocoPhillips,  BP or  ExxonMobil                                                                    
     and  somehow  dismiss  them  or  think  of  them  as  a                                                                    
     localized problem.                                                                                                         
     The  fact is  that our  current situation  affects many                                                                    
     more than just  Fortune 500 companies. Every  one of us                                                                    
     that get  up in the  morning with  the desire to  go to                                                                    
     work  are  affected, and  work  is  getting harder  and                                                                    
     harder  to  come  by. The  trucking  industry  directly                                                                    
     employs or  supports not only truck  drivers, but pilot                                                                    
     car  drivers,   engineers,  welders,   mechanics,  fuel                                                                    
     delivery  services,  aviation, marine,  truck  dealers,                                                                    
     logistical support and  the list goes on  and on. Those                                                                    
     are the people we have been forced to lay off.                                                                             
     The motor  carriers don't see much  happening soon. Our                                                                    
     hope  for the  future relies  on increased  activity in                                                                    
     the oil patch and an  improved economy that will result                                                                    
     from increased  throughput and jobs.  The oil  patch is                                                                    
     very  important to  our industry.  It is  critical that                                                                    
     the  budget issues  be  resolved  without crushing  our                                                                    
     natural  resource extraction  industries or  the people                                                                    
     and companies that it employs.                                                                                             
     The Senate Resources Committee made  changes to HB 111,                                                                    
     the  oil tax  bill.  The version  passed  by the  House                                                                    
     significantly raised  taxes on the industry  when it is                                                                    
     trying  to prevent  further layoffs  and bring  new oil                                                                    
     reserves  into  production during  a  time  of low  oil                                                                    
     prices.  Our goal  should be  to  put more  oil in  the                                                                    
     pipeline, which  the existing tax system  does, because                                                                    
     that   means   more   revenues,   jobs   and   economic                                                                    
     opportunities  for our  state  and  its residents.  The                                                                    
     Senate version of  HB 111 eliminates cash  credits in a                                                                    
     way  that retains  incentives  for  new production.  It                                                                    
     does not  make many significant  tax changes to  the SB
    21 basic tax structure as did both House versions.                                                                          
     The ATA supports  the Senate version of  HB 111 dealing                                                                    
     with oil taxes. We believe  that it achieves the policy                                                                    
     goal set  by Governor Walker and  his administration to                                                                    
     eliminate    refundable     cash    credits,    without                                                                    
     compromising Alaska's  competiveness to  attract future                                                                    
     investment.  The  Senate  version of  HB  111,  through                                                                    
     modifications   of  the   oil   tax  credits   program,                                                                    
     significantly limits future  financial exposure for the                                                                    
     State of  Alaska while retaining important  elements of                                                                    
     the current  oil tax  framework that  enhanced Alaska's                                                                    
     competitive  position in  attracting future  investment                                                                    
     to grow  oil production,  increase throughput  in TAPS,                                                                    
     and strengthen  the economy. ATA strongly  supports the                                                                    
     Senate Version of HB 111.                                                                                                  
1:52:43 PM                                                                                                                    
Mr. Crum concluded his prepared remarks:                                                                                        
     In  closing,  ATA  like most  Alaskans  have  felt  the                                                                    
     devastating effects  of a decline in  the oil industry.                                                                    
     It has  impacted every decision  we make from  the kind                                                                    
     of coffee we use to  the number and experience level of                                                                    
     employs  we hire.  We believe  that passing  the Senate                                                                    
     version  of  HB  111, will  significantly  improve  our                                                                    
     economic outlook.  As business managers and  owners, we                                                                    
     know   the   importance   of   a   sound   and   stable                                                                    
     economic/fiscal policy.  We operate our  companies with                                                                    
     long  term visions  and plan  according  to the  policy                                                                    
     that the legislature sets. Our  hundreds of members and                                                                    
     thousands  of  employees  and their  families  want  an                                                                    
     opportunity to  work, and  to have  a purpose.  We urge                                                                    
     you to  give our companies  the stability they  need to                                                                    
     function  by  passing the  Senate  version  of HB  111.                                                                    
     Thank you for your attention.                                                                                              
1:53:43 PM                                                                                                                    
Co-Chair Foster recognized  Representatives Bryce Edgmon and                                                                    
Louise Stutes in the audience.                                                                                                  
Representative   Thompson    asked   about    the   trucking                                                                    
association's stance on the motor fuel tax.                                                                                     
Mr.  Crum replied  that as  part of  ATA's 2017  legislative                                                                    
priorities, it  had been willing  to support an  increase in                                                                    
the  motor fuel  tax if  it was  a part  of a  comprehensive                                                                    
fiscal plan and  as long as the money would  be considered a                                                                    
user fee that would go towards highway maintenance.                                                                             
Vice-Chair Gara  asked if ATA  had a position  about whether                                                                    
there  should be  a stable  fiscal plan  outside of  oil. He                                                                    
cited  a  broad-based tax  or  some  use of  Permanent  Fund                                                                    
earnings as examples.                                                                                                           
Mr.  Crum  answered   with  the  organization's  priorities.                                                                    
First, the ATA  believed action was critical  in the current                                                                    
year.  He spoke  to the  importance of  implementing a  plan                                                                    
putting  steps   in  place  to   get  to  a   solution.  The                                                                    
organization wanted to see a  series of annual reductions in                                                                    
state spending. Once  the reductions had been  made, the ATA                                                                    
wanted to see the development  of a balanced, durable, long-                                                                    
term fiscal plan for use  of the Permanent Fund earnings and                                                                    
taxes  if  required.  The  organization  did  not  want  the                                                                    
legislature to  destroy the  state's resource  industries by                                                                    
uncompetitive taxes and regulations.                                                                                            
Vice-Chair Gara  asked if  ATA benefitted  from construction                                                                    
outside of  the oil  patch. Alternatively,  he asked  if the                                                                    
oil  patch was  the  big  driver for  jobs  in the  trucking                                                                    
1:56:23 PM                                                                                                                    
Mr.  Crum   answered  that  the  trucking   industry  worked                                                                    
wherever   work  occurred   in  the   state.  The   industry                                                                    
benefitted  from  construction,  but  oil  was  the  largest                                                                    
driver for member companies.                                                                                                    
Vice-Chair  Gara  remarked that  with  the  downturn in  oil                                                                    
prices  and   the  growing   budget  deficit,   the  state's                                                                    
construction  budget  had  gone  from  an  average  of  $600                                                                    
million  per year  to less  than  $100 million  in the  last                                                                    
couple  of years.  He asked  if  raising revenue  to have  a                                                                    
construction budget mattered to members.                                                                                        
Mr.  Crum answered  in the  affirmative. He  elaborated that                                                                    
the  ATA  had  long  supported matching  funds  for  federal                                                                    
dollars  to achieve  the maximum  benefit  for the  national                                                                    
highway  system. The  organization believed  raising revenue                                                                    
needed to be part of a fiscal plan that included cuts.                                                                          
Vice-Chair  Gara  asked Mr.  Crum  to  consider the  economy                                                                    
outside the North  Slope. He spoke to the  difference in the                                                                    
House  and Senate  versions  of HB  111.  The House  version                                                                    
allowed tax  credits that accumulate  to about  $600 million                                                                    
over the next 10 years.  Whereas, the Senate version allowed                                                                    
oil  tax credits  with interest  that grew  to $1.7  billion                                                                    
over the next 10 years.  He noted the Senate's version would                                                                    
have  an impact  on what  the  state could  invest in  other                                                                    
sectors such as construction. He  wondered if ATA had looked                                                                    
at the provisions to determine which would work better.                                                                         
Mr.  Crum  responded  that  the  organization  believed  the                                                                    
priorities  should be  increasing  investment  and jobs  and                                                                    
providing  people to  work and  provide for  themselves. The                                                                    
organization supported the Senate version of HB 111.                                                                            
Vice-Chair  Gara  asked  if  he had  looked  at  the  credit                                                                    
portions closely. He reiterated  his previous question about                                                                    
the cost  differences between the House  and Senate versions                                                                    
of HB 111.                                                                                                                      
Mr.  Crum answered  that the  association  had compared  the                                                                    
bill  versions when  it  made the  decision  to support  the                                                                    
Senate version.                                                                                                                 
1:59:52 PM                                                                                                                    
Vice-Chair Gara asked for verification  that they had looked                                                                    
at  the tax  credit  portions. Mr.  Crum  answered that  the                                                                    
entire bill had been considered.                                                                                                
Vice-Chair  Gara stated  that the  House version  included a                                                                    
profits-based  tax, so  companies would  only pay  the state                                                                    
when profitable. The Senate version  reduced the revenue the                                                                    
state received below what it  received under current law. He                                                                    
asked  for   verification  the  ATA  was   amenable  to  the                                                                    
Mr. Crum  replied that the  association believed  the Senate                                                                    
version  gave the  best opportunity  to increase  investment                                                                    
and jobs.                                                                                                                       
Representative  Grenn referred  to  page 3  of the  document                                                                    
provided by Mr.  Crum that listed the top  10 motor carriers                                                                    
that lost jobs  - the total exceeded 1,000. He  spoke to the                                                                    
North  Slope  and  job  loss.   He  asked  if  the  momentum                                                                    
continued, how easy it would  be for the industry to replace                                                                    
the lost  jobs. He wondered if  the jobs would be  filled by                                                                    
Alaskans quickly.                                                                                                               
Mr. Crum responded that the  ATA had received the invitation                                                                    
to testify  to the committee  late in the previous  week. He                                                                    
clarified that the list did  not include the 10 top members,                                                                    
but the  10 members who  had responded to the  survey first.                                                                    
He  acknowledged  that  it would  be  difficult  to  replace                                                                    
skilled workers  if they began  leaving the  state; however,                                                                    
the ATA was seeing an increase  in activity for out of state                                                                    
carriers  to  hire  Alaskans. Some  of  the  companies  were                                                                    
rotating the drivers to the Lower  48 for work and back home                                                                    
for their "R&R" time. He stated  that on a limited basis, if                                                                    
someone had an  opportunity to work and live  at home, those                                                                    
would be easy to replace.  He emphasized that Alaska had the                                                                    
resources in-state to scale up the workforce quickly.                                                                           
2:02:39 PM                                                                                                                    
Representative   Grenn   asked   if  there   were   training                                                                    
opportunities  for the  workers. Mr.  Crum answered  that as                                                                    
the  president and  CEO of  Northern Industrial  Training he                                                                    
could say unequivocally "yes."                                                                                                  
Representative Wilson  asked if the association  would be in                                                                    
favor of  taking money  from the North  Slope to  place into                                                                    
other jobs.                                                                                                                     
Mr. Crum answered  that the association would  have an issue                                                                    
with taking money from just one industry.                                                                                       
Representative Wilson asked about  Mr. Crum's perspective on                                                                    
the  economy  from  his  perspective  as  the  head  of  the                                                                    
Northern Industrial Training organization.                                                                                      
Mr.  Crum   answered  that  the  training   school  was  run                                                                    
differently in  some ways  - it did  not offer  a tremendous                                                                    
number  of training  unless there  were  available jobs  for                                                                    
those skills. As  a result, enrollment had  decreased in the                                                                    
past couple of years. The  school believed that giving false                                                                    
hope by  training people  for a job  that no  longer existed                                                                    
was very destructive. The types  of currently available jobs                                                                    
seemed to  deal more  with attrition -  Alaska had  an aging                                                                    
workforce, which  did benefit  new individuals  getting into                                                                    
an industry because regardless of  the economy, people would                                                                    
2:05:13 PM                                                                                                                    
Representative  Wilson summarized  her understanding  of Mr.                                                                    
Crum's testimony.  She referred to individuals  who had lost                                                                    
trucking jobs  due to the  downturn on the North  Slope. She                                                                    
referenced  Mr.  Crum's  testimony   about  scaling  up  the                                                                    
workforce  quickly  and  asked  for  verification  that  the                                                                    
individuals most likely would be  out of work until the jobs                                                                    
grew in the industry.                                                                                                           
Mr.  Crum answered  in the  affirmative. He  elaborated that                                                                    
the individuals  would either be  out of work or  would have                                                                    
to take  an opportunity.  He specified  that his  agency had                                                                    
placed  47 drivers  with an  out-of-state  company that  was                                                                    
rotating them  to the Lower 48  to drive and home  for their                                                                    
Representative  Wilson asked  about  other training  schools                                                                    
the organization  competed with  that had  substantial state                                                                    
funding.  She asked  whether  the  competitors only  trained                                                                    
people for existing jobs.                                                                                                       
Mr.  Crum  replied  there were  many  trainings  offered  in                                                                    
fields that did not have jobs available.                                                                                        
Co-Chair Seaton referred to page  3 of the document provided                                                                    
by  Mr. Crum  where several  trucking companies  stated they                                                                    
expected further declines and  needed projects. He furthered                                                                    
that  Mr. Crum  had  testified that  he  believed the  state                                                                    
should retract the economy with  further cuts. He referenced                                                                    
the  proposed $185  million in  cuts as  an example.  He was                                                                    
trying to  reconcile how the  ATA supported  additional cuts                                                                    
and contraction in the economy,  but also supported a larger                                                                    
capital budget to provide new projects.                                                                                         
Mr. Crum responded  that one of the ATA's  priorities was to                                                                    
look at  areas where  services could be  offered at  a lower                                                                    
cost.  One  of  the   opportunities  was  privatization.  He                                                                    
organization was  not to point  the state into  a recession,                                                                    
but  to create  the  same  amount of  services  for a  lower                                                                    
expense, which ATA believed was possible.                                                                                       
Co-Chair Seaton asked  Mr. Crum to send in  specifics on how                                                                    
the economics  would work.  He did  not believe  taking $185                                                                    
million out of the economy  would not result in new projects                                                                    
going forward.  He opined that  it would result in  a longer                                                                    
recession. He  was happy to  look at  a proposal for  how to                                                                    
expand the economy instead of  doing a larger capital budget                                                                    
as proposed by the House.                                                                                                       
2:09:00 PM                                                                                                                    
Mr.  Crum  replied  in  the  affirmative.  The  organization                                                                    
believed  quality services  could  be  provided through  the                                                                    
private sector.                                                                                                                 
Representative Guttenberg recognized  the problem with never                                                                    
ending major maintenance on the  Dalton Highway. He wondered                                                                    
if  the organization  had  discussed  the major  maintenance                                                                    
problems on Alaska's roads.                                                                                                     
Mr. Crum  answered that the  organization had  discussed the                                                                    
issue  related to  the Dalton  Highway at  length. He  noted                                                                    
that an executive  director referred to the  highway as "the                                                                    
road to the bank." Maintenance  along the highway was one of                                                                    
the organization's legislative priorities.                                                                                      
Vice-Chair Gara  referred to Mr.  Crum's testimony  that the                                                                    
organization  wanted to  see more  cuts before  there was  a                                                                    
fiscal  plan.  He asked  for  detail.  He relayed  that  the                                                                    
legislature had  been trying to  find cuts and had  cut $3.4                                                                    
billion from  the budget since  2013. He continued  that the                                                                    
House  and the  governor had  found roughly  $80 million  in                                                                    
cuts.  The Senate  was proposing  an additional  $70 million                                                                    
cut  to education  and  $21 million  to  the University.  He                                                                    
asked if  those were the  kind of cuts the  organization was                                                                    
looking for. He  asked if the organization  had a preference                                                                    
on cuts.                                                                                                                        
Mr. Crum  responded that  cuts the ATA  was asking  for were                                                                    
areas   where  cheaper   and   potentially  private   sector                                                                    
solutions  were  available  to  provide  the  services.  The                                                                    
fiscal cuts were part of the overall fiscal plan.                                                                               
Representative Wilson highlighted that  there had been other                                                                    
cuts proposed by the House  Minority that had not related to                                                                    
the University or education.                                                                                                    
2:12:01 PM                                                                                                                    
JOE  SCHIERHORN,  PRESIDENT  AND  CHIEF  OPERATING  OFFICER,                                                                    
NORTHRIM   BANK,   thanked   committee   members   for   the                                                                    
opportunity  to  speak  with  them  about  the  economy  and                                                                    
important issues facing  the state. He shared  that the past                                                                    
and  present   bank  chairman   had  testified   to  various                                                                    
legislative  committees in  recent years  about a  long-term                                                                    
fiscal  plan  for  the  state.  The  former  chairman,  Marc                                                                    
Langland, had  devoted the  better part of  his 50  years in                                                                    
banking  in  Alaska to  the  subject  at hand.  The  current                                                                    
chairman Joe  Beedle had also  devoted a  significant amount                                                                    
of time to  the topic. He personally had  spoken to numerous                                                                    
forums  -  the  bank  had most  recently  provided  economic                                                                    
summit  meetings in  Fairbanks, Anchorage,  and Juneau;  the                                                                    
summit included discussion  on the economy and  the need for                                                                    
a long-term fiscal plan.                                                                                                        
Mr.  Schierhorn explained  that the  topic was  important to                                                                    
the bank  given it was proud  to be 100 percent  Alaskan. He                                                                    
shared that  he had grown  up in  Alaska and had  worked for                                                                    
the bank for  the past 26 years. He relayed  that the bank's                                                                    
success was  linked to  the health  of the  state's economy.                                                                    
The bank  was a publicly traded  institution, SEC registered                                                                    
on the Nasdaq.  The bank spent a significant  amount of time                                                                    
speaking to its investors -  approximately 65 percent of the                                                                    
bank was  owned by institutional investors  (i.e. mutual and                                                                    
other  investment  funds) -  and  discussed  the economy  at                                                                    
length. The investors had expressed  concern about the long-                                                                    
term  viability of  the Alaska  economy. The  issue impacted                                                                    
customers  in  a  significant  way  -  it  was  a  topic  of                                                                    
discussion almost daily with everyone  he met with. He noted                                                                    
that various customers were impacted in various ways.                                                                           
Mr. Schierhorn  communicated that the bank  had consistently                                                                    
advocated for  a balanced  approach to  the issue.  The bank                                                                    
supported a fiscal plan reliant  on continued efforts by the                                                                    
legislature  to reduce  the  cost of  government,  use of  a                                                                    
portion  of the  Permanent  Fund  earnings, and  broad-based                                                                    
taxes.  The  bank believed  all  three  areas needed  to  be                                                                    
addressed  in the  long-term plan  for the  state to  have a                                                                    
secure future for its customers.  He continued that recently                                                                    
economic  activity was  down. The  primary indicator  of the                                                                    
bank's  volume  was  loans.  He  detailed  that  loans  were                                                                    
currently down  for the first  time in recent  memory; loans                                                                    
had  been down  slightly  the previous  year  and were  down                                                                    
again in  the first  quarter. The  bank numbers  were public                                                                    
and were  published quarterly. Loans  were one  indicator of                                                                    
the  status  of economic  activity  in  Alaska. He  detailed                                                                    
there was less  building taking place on  a commercial basis                                                                    
- more projects had been completed  and not near as many had                                                                    
been  started. The  bank's  structure  included 14  branches                                                                    
across  the state  including  Fairbanks, Anchorage,  Mat-Su,                                                                    
Juneau,  Ketchikan,  and  Sitka. Through  its  wholly  owned                                                                    
subsidiary, Residential Mortgage, it  had another 14 offices                                                                    
throughout the  state. He  relayed that  loan volume  at its                                                                    
mortgage   subsidiary  was   down  substantially   over  the                                                                    
previous  year. The  bank covered  a broad  spectrum of  the                                                                    
2:17:42 PM                                                                                                                    
Mr.  Schierhorn  continued  to  address  the  committee.  He                                                                    
specified  that customers  were impacted  in different  ways                                                                    
due to  the overall decrease  in the economy.  Customers who                                                                    
were more  dependent on  the North  Slope oil  industry, had                                                                    
seen  revenue decreases  of 30-plus  percent  over the  last                                                                    
year.  Customers  in  the  medical  profession  and  tourism                                                                    
industry had not  seen comparable decreases -  in some cases                                                                    
their revenues were up slightly  over the previous year. The                                                                    
employment numbers were up for  the healthcare industry, and                                                                    
the  tourism  industry  remained  strong.  The  construction                                                                    
industry was down significantly.  He shared that residential                                                                    
activity varied  from market to  market, but year  over year                                                                    
prices  were  fairly  consistent.  Residential  construction                                                                    
activity  had decreased  over the  last  several years.  The                                                                    
bank remained cautiously optimistic  about the state's long-                                                                    
term prospects  given recent discoveries on  the North Slope                                                                    
and  the  prospect  of   future  development.  However,  the                                                                    
overarching  concern from  the  business  community was  the                                                                    
viability  of  its economy,  the  possibility  of having  to                                                                    
continually  deal  with  deficits  at  a  state  level,  and                                                                    
failing to address  the long-term needs of the  state in the                                                                    
Mr.  Schierhorn emphasized  the  importance  of a  long-term                                                                    
fiscal plan that addressed the  state's issues, paid for its                                                                    
current   obligations,  and   kept  its   natural  resources                                                                    
industry (oil  in particular) viable  and competitive  on an                                                                    
international basis. He  continued that if it  was not done,                                                                    
the  oil   industry  would  not   have  incentive   to  make                                                                    
investments that were critical to move the economy forward.                                                                     
2:20:41 PM                                                                                                                    
Representative Wilson referred  to Mr. Schierhorn's comments                                                                    
about  the  positive  nature of  discoveries  on  the  North                                                                    
Slope. She  asked how  the House's version  of HB  111 could                                                                    
impact  the  discoveries  and projects  going  forward  into                                                                    
Mr. Schierhorn answered  that he was not well  versed in the                                                                    
specifics of the  bill. He believed it was  critical to have                                                                    
policies  in  place  to  encourage  future  development.  He                                                                    
opined  that without  the policies,  the economy's  critical                                                                    
driver would  go away.  There was a  prospect of  very large                                                                    
discoveries  that could  produce  additional employment  and                                                                    
revenues to the state in  the form of royalty and production                                                                    
taxes.  He  supported consistency  in  the  approach to  the                                                                    
industry. He wondered how the  oil industry could make long-                                                                    
term investment  decisions if the state  continued to change                                                                    
its tax policies.                                                                                                               
Co-Chair  Seaton  discussed  that  there were  a  couple  of                                                                    
different  models,  one  model was  to  maintain  structural                                                                    
deficits going  forward (about $500  million per  year would                                                                    
be removed from  savings and capital budgets  would be small                                                                    
- enough to maintain  federal matching funds) or instituting                                                                    
a  broad-based  tax  that would  allow  for  larger  capital                                                                    
budgets and not  pulling money out of the  economy. He asked                                                                    
whether one of  the models fit under  the banking industry's                                                                    
Mr.  Schierhorn   returned  to   his  statement   about  the                                                                    
necessity  for a  long-term fiscal  plan that  addressed the                                                                    
issue facing the  state. The bank felt that  the plan needed                                                                    
to  contain three  components: continual  efforts to  reduce                                                                    
the  cost  of  government,  the  use of  a  portion  of  the                                                                    
Permanent Fund earnings, and  broad-based taxes. He believed                                                                    
a  solution  was  needed  to  have  cash  flow  to  pay  for                                                                    
obligations  and  to prevent  a  deficit  going forward.  He                                                                    
continued  it was  incumbent  on "us"  to  continue to  find                                                                    
efficiencies  in  government  and to  decrease  the  overall                                                                    
cost. He referred to the  previous testimony from the Alaska                                                                    
Trucking  Association.  He  continued that  "you're  talking                                                                    
about" taking money  out of the economy.  He suggested there                                                                    
may be  ways to  provide services  to government  that saved                                                                    
government  money and  transferred money  from a  government                                                                    
worker to  a non-government  worker instead of  taking money                                                                    
out  of  the  economy.   He  underscored  the  necessity  of                                                                    
developing  a plan  to ensure  obligations  were fully  paid                                                                    
going  forward.  He  noted  that  the  state  did  not  have                                                                    
substantial savings  any longer. He remarked  that the state                                                                    
was getting  dangerously close to  the point where  it would                                                                    
not have much maneuverable room  because it was about out of                                                                    
savings. He reiterated  the support of the use  of a portion                                                                    
of the Permanent Fund earnings.                                                                                                 
2:25:53 PM                                                                                                                    
Co-Chair Seaton discussed  that a cut of  $185 million would                                                                    
mean removing money  from the economy and  not investing it.                                                                    
He continued  that if the  money was spent on  supplying the                                                                    
services  the  government spend  would  not  be reduced.  He                                                                    
stated that if  the money was cut but money  was used from a                                                                    
different  source, it  would  not  be a  cut.  He asked  for                                                                    
Mr. Schierhorn replied that they  were arguing at the margin                                                                    
in terms  of cost savings.  He continued that the  state was                                                                    
trying to  arrive at a  sustainable level of  spending given                                                                    
its resources.  He commended the  legislature for  trying to                                                                    
do  that.   The  bank  believed  the   efforts  to  increase                                                                    
government efficiency continued to  need attention. The bank                                                                    
also believed  additional sources of revenue  were necessary                                                                    
to  cover government  expenses, primarily  through Permanent                                                                    
Fund earnings,  a broad-based tax, and  continued efforts to                                                                    
cut  the  cost of  government  where  possible. He  did  not                                                                    
recommend a specific figure in terms of the amount to cut.                                                                      
Co-Chair Foster  recognized Representative Adam Wool  in the                                                                    
2:28:23 PM                                                                                                                    
Representative  Grenn  referred  to  residential  loans  and                                                                    
construction that Mr. Schierhorn  had testified had remained                                                                    
stable compared to other construction  loans. He asked about                                                                    
the takeaway.                                                                                                                   
Mr.  Schierhorn  answered  that   the  housing  prices  were                                                                    
relatively stable across the various  markets. The volume of                                                                    
mortgage   originations  was   down  substantially   in  its                                                                    
subsidiary   Residential   Mortgage  and   through   overall                                                                    
mortgage originations in the state.  The third component was                                                                    
the  financing  for   residential  construction  itself.  He                                                                    
relayed that  the bank's builders  were down a bit  in their                                                                    
residential construction building activity year-over-year.                                                                      
2:30:26 PM                                                                                                                    
Representative  Guttenberg addressed  new home  construction                                                                    
and  originations and  the state  running at  a deficit  and                                                                    
running  with a  stable economy.  He stated  that an  entity                                                                    
providing   loans  for   heavy  equipment   or  construction                                                                    
operations gave  a longer perspective on  where the industry                                                                    
thought it  was going. He  asked how a  continued structural                                                                    
state deficit would  impact a stable economy  at present and                                                                    
into the future.                                                                                                                
Mr.   Schierhorn  answered   that   the   bank  was   seeing                                                                    
significantly   fewer   long-term    projects.   As   larger                                                                    
commercial  real  estate   construction  projects  had  been                                                                    
completed, there  had been  much less  replacement activity.                                                                    
General  building  activity  it was  down  substantially  in                                                                    
major markets.  Projects, by industries  requiring long-term                                                                    
investment for equipment  (e.g. road construction businesses                                                                    
and others)  reliant on state  and federal funds,  were down                                                                    
in general. There  would be an increase  in activity related                                                                    
to military construction  of F35s in the  Fairbanks area. He                                                                    
continued that  projects in the  greater Anchorage  area had                                                                    
been affected.  He addressed a scenario  where state funding                                                                    
financed obligations  completely and savings were  not used.                                                                    
He spoke  to the  need for  sufficient funds  for government                                                                    
operating costs  and an adequate capital  budget. Industries                                                                    
relying on  capital funding from state  government were down                                                                    
significantly and had been impacted.                                                                                            
2:34:08 PM                                                                                                                    
Representative  Guttenberg  had  met   with  CEOs  who  were                                                                    
concerned  about the  state's  economy. He  shared that  the                                                                    
individuals   had  expressed   that   there  was   currently                                                                    
hesitancy  towards  investing  in the  state's  economy.  He                                                                    
wondered if the banking  and business communities that there                                                                    
was  a  sense  waiting  for   the  state  to  "get  its  act                                                                    
Mr.  Schierhorn   believed  it  was  a   constant  topic  of                                                                    
conversation  and it  was witnessed  in the  actions of  the                                                                    
business community.  Businesses were hesitant to  make long-                                                                    
term  commitments  when the  frontline  news  coming out  of                                                                    
Juneau  was  consistently  negative. It  was  impinging  the                                                                    
development plans  of numerous businesses going  forward; it                                                                    
was a source of great concern.                                                                                                  
2:35:51 PM                                                                                                                    
Vice-Chair  Gara relayed  that the  state's average  capital                                                                    
construction budget over  the past ten years  had been about                                                                    
$600 million.  The past  few years had  been a  "bare bones"                                                                    
capital  budget,  which  only included  matching  funds  for                                                                    
federal  money. He  wondered  if a  full  revenue plan  that                                                                    
would  allow  for  larger  capital   budgets  would  have  a                                                                    
positive impact on an economy fighting recession.                                                                               
Mr. Schierhorn  answered that  the bank  had written  on the                                                                    
subject  most   recently  in  an  Alaska   Business  Monthly                                                                    
article. The bank believed that  enacting a long-term fiscal                                                                    
plan with  all three  components (he had  previously listed)                                                                    
could have  some negative  short-term effects,  but positive                                                                    
long-term  effects. He  elaborated that  negative short-term                                                                    
effects  would include  people adjusting  to  less money  in                                                                    
some  form  (e.g.  from  a   decreased  dividend  or  a  tax                                                                    
increase).  However, in  the  long-term,  providing a  sense                                                                    
that the  state was addressing  its needs and  balancing its                                                                    
own budget, would give confidence  to the business community                                                                    
and foster more investment.                                                                                                     
Vice-Chair  Gara stated  that  the dividend  had been  about                                                                    
$1,000 the  previous fall  and the Senate's  plan was  for a                                                                    
$1,000  dividend in  the coming  fall. A  plan by  the House                                                                    
could  bring the  dividend  up to  $1,250,  which would  add                                                                    
about $170  million into  the economy.  He asked  if raising                                                                    
the dividend to  $1,250 would have a positive  impact on the                                                                    
Mr. Schierhorn answered that if  the issue was considered in                                                                    
isolation it  would have a  positive impact on  the economy;                                                                    
however, he believed it was  necessary to look at everything                                                                    
together.  He  questioned  whether increasing  the  dividend                                                                    
meant taking away  from someone else or  another industry to                                                                    
balance  the budget.  Ultimately the  issue rested  upon the                                                                    
ability  to  have  a long-term,  sustainable,  and  balanced                                                                    
[fiscal]  plan. He  reiterated  that  an increased  dividend                                                                    
would be  positive if it  did not remove money  from another                                                                    
sector. He concluded that a balanced approach was needed.                                                                       
2:39:25 PM                                                                                                                    
Vice-Chair Gara stated that some  of the individuals opposed                                                                    
to  the  fiscal  plan  counted Permanent  Fund  earnings  as                                                                    
savings and viewed  using the reserve as a  viable option to                                                                    
solve  the state's  fiscal problems.  He was  concerned that                                                                    
spending  down the  earnings  reserve  would jeopardize  the                                                                    
dividend and the money that could  be spun off for a payout.                                                                    
He asked if  the bank had concern about  merely spending the                                                                    
reserve versus coming up with a payout formula.                                                                                 
Mr. Schierhorn  responded that the bank  had been consistent                                                                    
with  its message  about the  importance  of addressing  the                                                                    
issue at  present. He shared that  a delay put the  state in                                                                    
further danger  by decreasing the cushion.  He addressed the                                                                    
legislature's  discussion  about  using  a  portion  of  the                                                                    
Permanent  Fund  earnings  as  a  percent  of  market  value                                                                    
(POMV). He  stated the  markets would go  up and  down going                                                                    
forward.  He stated  that  it was  dangerous  for Alaska  if                                                                    
savings were  used and  the state's  ability to  cushion the                                                                    
effects of down markets was eliminated.                                                                                         
Vice-Chair  Gara discussed  that  some individuals  proposed                                                                    
significant cuts  to education  and continued cuts  into the                                                                    
future.   He  had   heard  from   friends,  neighbors,   and                                                                    
constituents  that they  would  close  their businesses  and                                                                    
leave  the state  if there  was no  long-term commitment  to                                                                    
public schools.  He wondered if the  bank believed continued                                                                    
cuts  to  school  funding  may have  a  negative  impact  on                                                                    
2:41:44 PM                                                                                                                    
Mr.   Schierhorn  replied   that  fundamentally   a  viable,                                                                    
vibrant,  and responsive  education system  was critical  to                                                                    
the state's  long-term future. He  shared that he  had three                                                                    
sons in the  school system and he  had personally benefitted                                                                    
from a good  education in the Fairbanks  School District. He                                                                    
had  not had  any  conversations with  businesses that  were                                                                    
considering  leaving  because  of   cuts  to  education.  He                                                                    
believed  in  the  importance of  education.  The  bank  had                                                                    
strong  partnerships with  K-12 schools  and the  University                                                                    
system;  the  bank had  benefitted  as  an institution  from                                                                    
University  system graduates.  He  furthered  that the  bank                                                                    
intended to maintain and  support its long-term relationship                                                                    
with the University.                                                                                                            
Representative  Pruitt asked  how many  members were  on the                                                                    
bank's  board of  directors.  Mr.  Schierhorn answered  that                                                                    
there were twelve.                                                                                                              
Representative Pruitt  asked if  the members  always agreed.                                                                    
Mr.  Schierhorn responded  that  the bank  prided itself  on                                                                    
having  a diverse  board with  varying backgrounds,  skills,                                                                    
and  opinions.   The  bank  encouraged  board   members  and                                                                    
employees to  bring in their  own viewpoints. The  bank felt                                                                    
that  through  a  concerted  effort   and  open  and  honest                                                                    
discourse  the best  solution was  achieved  on a  long-term                                                                    
basis. Once a  decision was made, the bank  moved forward as                                                                    
a unified organization.                                                                                                         
2:44:57 PM                                                                                                                    
Representative  Pruitt surmised  it was  appropriate to  say                                                                    
that  all twelve  members did  not get  100 percent  of what                                                                    
they wanted on every issue.                                                                                                     
Mr.  Schierhorn answered  that like  any organization  there                                                                    
was compromise involved.                                                                                                        
Representative  Pruitt  remarked  on the  diverse  group  of                                                                    
legislators.   He  believed   that  some   legislators  were                                                                    
confident  that one  direction going  forward  was the  only                                                                    
viable  option.   He  asked   if  Mr.   Schierhorn  believed                                                                    
legislators should  come to a  compromise where  members got                                                                    
80 percent  of what  they wanted  versus waiting  until next                                                                    
year with a hope of getting 100 percent.                                                                                        
Mr.  Schierhorn replied  that taking  action at  present was                                                                    
critical  to  address  the long-term  fiscal  plan  for  the                                                                    
state; it  involved all three  components he had  spoken to.                                                                    
The  bank  was  encouraged  that the  legislature  had  made                                                                    
significant progress  on all three  fronts. The  bank wanted                                                                    
the legislature to  get 100 percent of the way  there in the                                                                    
current  year. He  furthered  that if  100  percent was  not                                                                    
accomplished, the  bank would be supportive  if the majority                                                                    
of a  balanced fiscal plan  was achieved. The bank  wanted a                                                                    
full fiscal  plan and  it believed  the legislature  had the                                                                    
ability to  accomplish the goal;  it believed the  state and                                                                    
business community would be best  served by a comprehensive,                                                                    
complete, balanced solution going forward.                                                                                      
Representative Pruitt  asked if Mr. Schierhorn  feared 70 to                                                                    
80 percent of a solution versus zero.                                                                                           
Mr. Schierhorn answered it was  critical to avoid using more                                                                    
of the state's savings. The  legislature's ability as a body                                                                    
to enact  a solution that achieved  75 to 80 percent  of the                                                                    
goal would  help avoid using the  state's remaining savings.                                                                    
He  believed  it  would  be   positive.  However,  the  bank                                                                    
supported a comprehensive, all  inclusive plan. He continued                                                                    
that 75  or 80  percent would  be significant  progress, but                                                                    
ultimately the industry wanted 100 percent.                                                                                     
2:48:36 PM                                                                                                                    
Representative  Pruitt  thought   there  was  a  significant                                                                    
amount of  agreement with both  sides [in  the legislature].                                                                    
His  biggest  concern  was  that no  fiscal  plan  would  be                                                                    
achieved  because of  the  "add-ons"  that some  legislators                                                                    
were concerned about.                                                                                                           
2:49:26 PM                                                                                                                    
ANGIE  NEWBY, HOMER  REALTY, shared  her  intent to  provide                                                                    
detail about the  current real estate market.  She was happy                                                                    
to follow Mr. Shierhorn's  testimony because she could speak                                                                    
to some  of the cautious  optimism he had expressed  for the                                                                    
long-term.  She  reported  that   the  Kenai  Peninsula  was                                                                    
experiencing a vibrant and robust  real estate market, which                                                                    
was  surprising  in  some  ways   given  the  overall  state                                                                    
economy. The region was benefitting  from low interest rates                                                                    
(and the concern  of buyers that the low rates  may go away)                                                                    
and the  return of  the Lower 48  investor due  to financial                                                                    
and  economic  recovery  in  the  Lower  48.  an  optimistic                                                                    
outlook  in the  real estate  market presently.  She relayed                                                                    
that the  Kenai Peninsula was  a bit  of an anomaly  and had                                                                    
always  been  independent  of the  Fairbanks  and  Anchorage                                                                    
markets.  She  reported  very  limited  low  inventory.  She                                                                    
thought  a  portion of  the  trend  could be  attributed  to                                                                    
people purchasing second homes  in the region. Additionally,                                                                    
there  had  been  an increase  in  residential  construction                                                                    
after a hiatus  of about seven or eight  years; the increase                                                                    
was a  direct result  of declining inventory.  She continued                                                                    
that there  had been sellers who  had lost their job  on the                                                                    
North Slope or in other  oil related industries, but instead                                                                    
of facing  foreclosure, the homes  had sold by  buyers ready                                                                    
to absorb the inventory.  She relayed that foreclosures were                                                                    
Ms.  Newby continued  that at  the upper  end of  the market                                                                    
there were  more sophisticated buyers,  particularly Alaskan                                                                    
buyers, who were concerned about  the overall state economy.                                                                    
The  peninsula had  seen  numerous professional  relocations                                                                    
due to  the South Peninsula and  Central Peninsula Hospitals                                                                    
aggressively  expanding  and  recruiting  new  positions  in                                                                    
health-related  industries.  A  strong  real  estate  market                                                                    
provides for a strong property  tax base, which acted as the                                                                    
base  for   local  government  spending.  The   real  estate                                                                    
industry was only  as strong as the overall  vibrancy of the                                                                    
state. She encouraged the development  of a long-term fiscal                                                                    
plan to  maintain the vitality. Her  local and broader-based                                                                    
clients  saw that  buyers and  sellers understood  something                                                                    
needed to  happen on the  revenue side of the  state budget.                                                                    
Numerous  people  had  expressed   to  her  that  they  were                                                                    
prepared  to take  a larger  role  in supporting  government                                                                    
such as via  an income tax. Individuals she  had spoken with                                                                    
were  open to  an  income  tax because  it  was  one way  to                                                                    
capture the out-of-state residents  who work in all segments                                                                    
of Alaska's economy. She cited  fishermen coming in from the                                                                    
Lower 48  to work as  an example. Out-of-state  workers took                                                                    
all  their money  home; Alaska  was  one of  the few  states                                                                    
without an income tax.                                                                                                          
Ms. Newby relayed  that the peninsula had  good success with                                                                    
local  sales tax.  She suggested  reconsidering a  statewide                                                                    
sales tax  that could  be tailored to  individual purchasers                                                                    
of  larger goods  (e.g. items  exceeding $1,000  or $2,500).                                                                    
She  explained that  it  would tap  into  the large  trading                                                                    
center  in  Anchorage  where many  people  went  for  larger                                                                    
purchases. That  particular sales  tax revenue had  left the                                                                    
peninsula  and  was  not impacting  the  state  either.  She                                                                    
thanked the committee for its  time and hoped her report had                                                                    
been good news.                                                                                                                 
2:55:32 PM                                                                                                                    
Representative  Wilson mentioned  hearing  about layoffs  in                                                                    
the  private sector  prior to  layoffs taking  place in  the                                                                    
government sector. She  wondered if some of  the real estate                                                                    
activity taking place in the  peninsula was due to a private                                                                    
sector rebound  that could be  taking place  earlier because                                                                    
they had seen the downturn sooner.                                                                                              
Ms. Newby answered  that she had been in  the private sector                                                                    
business  in  Alaska  since 1983.  She  recalled  the  state                                                                    
budget  being cut  down to  nothing in  the late  1980s. She                                                                    
believed  there had  been an  opportunity for  businesses in                                                                    
the private  sector to retool  themselves and to  think more                                                                    
conservatively.  She stated  that the  region was  fortunate                                                                    
because   it  benefitted   from   fisheries,  tourism,   and                                                                    
government [jobs]. There was concern  in the community about                                                                    
drastic   state  cutbacks   especially  in   education.  She                                                                    
elaborated  that the  University's Kachemak  Bay campus  was                                                                    
important  to   the  community.   The  community   was  also                                                                    
concerned  about a  lack  of funding  for  state parks  that                                                                    
could result in a loss of ecotourism.                                                                                           
2:57:03 PM                                                                                                                    
Representative  Guttenberg  appreciated  the unique  set  of                                                                    
factors Ms.  Newby brought forward. He  listed second homes,                                                                    
outside recovery  money, the healthcare industry,  and other                                                                    
items mentioned  by Ms.  Newby as  contributing to  the real                                                                    
estate market.                                                                                                                  
Ms. Newby appreciated the hard work of the legislature.                                                                         
2:58:07 PM                                                                                                                    
VINCE BELTRAMI, PRESIDENT, ALASKA AMERICAN FEDERATION OF                                                                        
LABOR/ CONGRESS OF INDUSTRIAL ORGANIZATIONS (AFL-CIO), read                                                                     
from prepared remarks:                                                                                                          
     The AFL-CIO is the  state's largest labor organization,                                                                    
     representing  somewhere in  the neighborhood  of 52,000                                                                    
     members  currently. Just  a year  and a  half ago  that                                                                    
     number was a  little north of 55,000. So,  in that same                                                                    
     timeframe the state  has lost about 9,000  jobs - about                                                                    
     one-third  of those  came  out of  our  ranks -  fairly                                                                    
     evenly split  between public sector and  private sector                                                                    
     workers  in nearly  every field  imaginable around  the                                                                    
     state.  We're currently  suffering through  the highest                                                                    
     unemployment rate  in the country and  the highest that                                                                    
     we've had  in at least  two full decades in  the state.                                                                    
     As you know  all too well, we have  an approximately $3                                                                    
     billion budget  deficit. The AFL-CIO has  been involved                                                                    
     in an effort  over the past year and a  half called the                                                                    
     Alaska's  Future Coalition.  I'm not  here representing                                                                    
     the coalition;  however, I'd like  to read  the mission                                                                    
     statement  of   that  group  which   includes  Alaska's                                                                    
     largest  businesses, Native  corporations, unions,  and                                                                    
     former elected officials from both parties:                                                                                
          The mission  of Alaska's future is  to support the                                                                    
          development  of a  stable  and sustainable  fiscal                                                                    
          plan that  will allow  the Alaska economy  to grow                                                                    
          and  thrive.   Use  of  Permanent   Fund  earnings                                                                    
          starting this year is the  cornerstone of a fiscal                                                                    
          plan that  will significantly reduce  the deficit,                                                                    
          support essential public  services, and maintain a                                                                    
          sustainable  dividend  and   a  healthy  Permanent                                                                    
          Fund.  This   plan  must  also   include  specific                                                                    
          policies allowing for  responsible budget cuts and                                                                    
          new  revenue  generation,  and  lead  to  a  fully                                                                    
          balanced budget.  A resolution of  Alaska's fiscal                                                                    
          uncertainty will lead to new jobs, increased                                                                          
          investment, and a growing economy.                                                                                    
     While I'm  not speaking on  behalf of that  group, this                                                                    
     mission statement  embodies what the  AFL-CIO supports.                                                                    
     I commend the House  of Representatives in debating and                                                                    
     passing  bills  this session  that  meet  all of  those                                                                    
     criteria. Of course, one  important point of contention                                                                    
     is if  enough has been  cut, and where anywhere  in the                                                                    
     neighborhood  of having  a right-sized  budget. Several                                                                    
     legislators have  said they have  trouble rationalizing                                                                    
     new  revenues when  they don't  think  enough has  been                                                                    
     cut. I  read in  Bradner's Legislative Digest  a couple                                                                    
     of days  ago, where  Brian Fetcher, OMB  policy analyst                                                                    
     attempted  to   grapple  with  the  size   of  Alaska's                                                                    
     government.  He came  up with  figures that  considered                                                                    
     state-only spending and landed  on a number that stated                                                                    
     we're  approximately 7  percent  higher  than the  U.S.                                                                    
     average.  His conclusion  after considering  inflation,                                                                    
     population growth,  and the special  circumstances, the                                                                    
     size  and  cost of  Alaska's  state  government is  not                                                                    
     disproportionate to  other states,  nor has  it changed                                                                    
     significantly since before oil began to flow.                                                                              
     Some of you  may recall that I ran for  state Senate in                                                                    
     this most recent election. My  opponent stated over and                                                                    
     over  on the  campaign trail  that the  legislature had                                                                    
     cut  40  percent of  the  state  budget over  the  past                                                                    
     couple  of years  back to  2006 levels.  Continual cuts                                                                    
     won't cause prosperity, but instead,  puts us on a path                                                                    
     of anemic  growth and unnecessary uncertainty.  I would                                                                    
     offer that  we're in the neighborhood  of a right-sized                                                                    
     government  budget at  this point.  Of course,  this is                                                                    
     without a  decent capital budget  to speak of.  On that                                                                    
     note, we  have lots of  members in the  building trades                                                                    
     who  have left  their families  behind to  work outside                                                                    
     until work picks up in Alaska.                                                                                             
3:02:21 PM                                                                                                                    
Mr. Beltrami continued with prepared remarks:                                                                                   
     I'd  like to  move  on to  addressing  components of  a                                                                    
     comprehensive  fiscal plan  and  just how  to meet  the                                                                    
     needs  of   an  approximate   $5  billion   budget.  We                                                                    
     absolutely  need,  in  our opinion,  to  diversify  our                                                                    
     revenue  stream.  Oil  has   been  great  for  Alaska's                                                                    
     economy  and  I'm  hopeful  it  will  continue  to  be.                                                                    
     However,  to be  reliant on  just one  volatile revenue                                                                    
     stream is  no way to  pursue a sustainable plan  and it                                                                    
     has created  an environment where many  of our citizens                                                                    
     don't believe  they have  any obligation  to personally                                                                    
     contribute  to  support  the government  services  they                                                                    
     receive. I've  actually never seen anything  quite like                                                                    
     it. I  moved to Alaska 29  years ago from a  state just                                                                    
     like most others  that has both a state  income tax and                                                                    
     a state sales  tax. When it comes  to taxation Alaskans                                                                    
     enjoy the lowest individual tax  burden of any citizens                                                                    
     in  any state.  Only six  other states  have no  income                                                                    
     tax. Only  four other states  have no state  sales tax.                                                                    
     Only  one  state  in  the   entire  United  States  has                                                                    
     neither, and  that's us  of course.  We also  happen to                                                                    
     have  the  lowest gasoline  tax  of  any state  in  the                                                                    
     Of course,  some chime in that  we have extraordinarily                                                                    
     high property  taxes and I  don't think  that's exactly                                                                    
     the  case. According  to the  Tax Foundation,  Alaska's                                                                    
     property taxes on  average as a percent  of home values                                                                    
     ranks as  23rd highest -  right about in the  middle of                                                                    
     the  pack.  For over  30  years  Alaskans haven't  been                                                                    
     asked  to chip  in to  support their  state government.                                                                    
     The  only  state  citizens  in   the  entire  U.S.  who                                                                    
     haven't. On top  of that, for the same  period of time,                                                                    
     the state has  cut every man, woman, and  child a check                                                                    
     in the neighborhood of $1,000  a year. Not only have we                                                                    
     paid  zero  state taxes  we've  essentially  had a  net                                                                    
     negative  contribution to  state  finances. We've  been                                                                    
     extremely lucky.                                                                                                           
     Thanks to the  oil that has been pumped out  of our oil                                                                    
     fields,  we haven't  had to  pay one  thin dime  to the                                                                    
     state treasury  except for the  lowest gasoline  tax in                                                                    
     the  entire  country. Every  other  time  in our  short                                                                    
     state  history when  we've had  fiscal challenges  like                                                                    
     this  we've been  saved by  rebounding oil  prices. But                                                                    
     nearly  every  economic  analyst out  there  that  I've                                                                    
     heard from  is saying that's  not going to  happen this                                                                    
     time. But  even if  oil were to  rebound significantly,                                                                    
     it  shouldn't   be  something   that  is   the  primary                                                                    
     component of fiscal planning  because basing an economy                                                                    
     primarily  on  one  volatile  commodity  is  not  sound                                                                    
     fiscal  planning.  That's  not  to  say  that  the  oil                                                                    
     industry should  be let  off the  hook. There  are some                                                                    
     serious  unsustainable provisions  in  our current  oil                                                                    
     tax policy,  but I'm confident  that the House  and the                                                                    
     Senate can find some sensible compromise.                                                                                  
     I'm  not  going to  take  a  position on  that  because                                                                    
     amongst our membership we are  split - we have folks on                                                                    
     both sides  of the debate  and I need to  respect those                                                                    
     boundaries.  But, I  do applaud  the House's  effort to                                                                    
     offer  up  a complete  plan.  A  plan that  is  forward                                                                    
     looking that will take Alaska  away from this volatile,                                                                    
     unpredictable roller  coaster that has worked  only due                                                                    
     to luck.  A balanced,  diverse plan is  predictable and                                                                    
     responsible, it  will allow the credit  rating agencies                                                                    
     to restore our previously  gold standard credit rating,                                                                    
     and   it  won't   be   dependent   on  a   fluctuating,                                                                    
     unpredictable  commodity.  Implementing  a  broad-based                                                                    
     revenue such as a  progressive income tax, doesn't make                                                                    
     us  socialist. People  who argue  that we  are slipping                                                                    
     into a  socialist state while  they happily  cash their                                                                    
     annual government distribution of  wealth don't seem to                                                                    
     grasp  the  irony. In  fact,  the  reddest of  the  red                                                                    
     states  besides  Texas  and  Wyoming  have  both  state                                                                    
     income taxes and  state sales taxes. Of  course, no one                                                                    
     wants to or  should pay more taxes  than is reasonable.                                                                    
     To those who argue that  it's ridiculous to continue to                                                                    
     give us a  government check while looking  to taxes are                                                                    
     not acknowledging the $2.7 billion  in income earned by                                                                    
     nonresidents last  year who get no  PFD. So instituting                                                                    
     an  income tax  while distributing  a $1,250  or higher                                                                    
     dividend is a  way to reimburse Alaskans  for the taxes                                                                    
     paid. To me it makes complete sense.                                                                                       
     To those who fear Alaskans  will leave if a broad-based                                                                    
     tax such as an income  tax is passed, which I've heard,                                                                    
     I have one simple question:  where are you going to go?                                                                    
     Very  few wealthy  folks may  leave, but  where exactly                                                                    
     will  the average  citizen go  to be  less burdened  by                                                                    
     taxes. If  SB 26  passes, if  HB 115  passes, if  HB 60                                                                    
     (the  motor fuel  tax)  passes, we  will  still be  the                                                                    
     lowest taxed  citizens in the  entire country.  Now you                                                                    
     may  say that's  not true  -  maybe Wyoming  will be  a                                                                    
     little  lower  or maybe  New  Hampshire,  or maybe  the                                                                    
     Dakotas somewhere. However, the  average family of four                                                                    
     in  Alaska  will  receive   $5,000  in  Permanent  Fund                                                                    
3:07:10 PM                                                                                                                    
Mr. Beltrami continued to read prepared remarks:                                                                                
     However,  the average  family of  four  in Alaska  will                                                                    
     receive  $5,000  in  Permanent  Fund  Dividends.  Those                                                                    
     other  states won't.  So if  you factor  that into  the                                                                    
     equation, average  Alaskans will  still be  taking less                                                                    
     out of  their pockets  than any  other citizens  in any                                                                    
     other state  and yet we  still have the  most expensive                                                                    
     state in which to deliver  services. But all in all, it                                                                    
     will  still be  a better  deal to  live in  Alaska than                                                                    
     anywhere  else  in  the U.S.  Remember  those  building                                                                    
     trades workers  I mentioned who are  traveling to other                                                                    
     states to look for work.  You know where they're going?                                                                    
     To  states like  California, Oregon,  Montana, some  in                                                                    
     the  Midwest,  most  are headed  to  places  that  have                                                                    
     higher  personal  taxes.  Why  are  they  going  there?                                                                    
     Because that's where the work  is. They'll come back to                                                                    
     Alaska  if the  work  is here.  We  need a  sustainable                                                                    
     economy to do it.                                                                                                          
     Continuing to  push towards a budget  with a structural                                                                    
     deficit  foretells  more  Alaskans losing  their  jobs.                                                                    
     We've already  lost over  9,000 jobs  in the  past year                                                                    
     and a  half. How many more  jobs do we have  to lose? A                                                                    
     budget  plan that  calls for  another  $750 million  in                                                                    
     cuts and  leaves us with an  ongoing structural deficit                                                                    
     is simply  a recipe  for more job  loss in  all sectors                                                                    
     and   its  completely   antithetical  to   an  economic                                                                    
     recovery. So what  kind of Alaska do you  want to leave                                                                    
     for your  children and your grandchildren?  I know what                                                                    
     I want or what we want.  We want a plan that takes into                                                                    
     consideration  the needs  of our  senior citizens,  not                                                                    
     one that  leaves them  on the margins.  We want  a plan                                                                    
     that   considers  the   needs  of   our  children   and                                                                    
     adequately prepares them for  careers here in Alaska. A                                                                    
     plan that  doesn't force our  kids to go to  college or                                                                    
     trade   schools  outside   because  we've   gutted  our                                                                    
     University and vocational schools.  We want a plan that                                                                    
     has enough resources to keep  our citizens safe and our                                                                    
     roads plowed.  We want  a plan that  helps to  grow our                                                                    
     economy, not  one that  causes a  mass exodus.  We want                                                                    
     good jobs with decent benefits that support families.                                                                      
     Personally, what I want, I  want to go fly fishing, all                                                                    
     of the time.  In a few years, with  my wife, daughters,                                                                    
     grandkids, and  friends, without  wondering if  I could                                                                    
     have done more  or more importantly, if  you could have                                                                    
     done  more. I  hear from  opponents of  a comprehensive                                                                    
     fiscal plan  that it's too  much to try and  tackle all                                                                    
     at once. No,  it isn't. It's certainly not  a hard math                                                                    
     problem. The  solutions are  right in  front of  you. I                                                                    
     do,  however, know  the politics  of it  are hard.  But                                                                    
     that's exactly why you were  elected. I always remember                                                                    
     a somewhat  crotchety old electrical contractor  that I                                                                    
     had to deal with when  I was a brand-new business agent                                                                    
     for the IBEW nearly 20  years ago. He has since passed,                                                                    
     but his sons  continue to run one of  the largest, most                                                                    
     successful  electrical  contractors  in the  state.  We                                                                    
     used to fight and  argue, usually respectfully, mostly.                                                                    
     We were always on the  opposite side of the negotiating                                                                    
     table, but  both of us  cared deeply about  the success                                                                    
     of the electrical  industry. He used to  always tell me                                                                    
     this  one phrase:  "Just  do the  right  thing kid  and                                                                    
     things  will  work out  fine."  Now,  I appreciate  the                                                                    
     sometimes-thankless job you've all  signed up to do and                                                                    
     I know you have the best  interest of the state in mind                                                                    
     and I know it's not easy.  So, just do the right thing,                                                                    
     and do  it now.  We can't  afford to  wait. And  in the                                                                    
     end, you'll be able to say  that you were the ones that                                                                    
     finally fixed  the state  and put  us on  a sustainable                                                                    
     path  to economic  prosperity and  Alaskans will  thank                                                                    
     you. Thank you for listening.                                                                                              
3:10:37 PM                                                                                                                    
Co-Chair  Foster  recognized   Representatives  Chris  Tuck,                                                                    
Geran Tarr, and Zach Fansler in the audience.                                                                                   
Representative Guttenberg referred to  comments that a whole                                                                    
solution could  not be implemented  in the current  year. He                                                                    
opined that if  a solution was broken up  into taking action                                                                    
in a  few years, the  practicality of it becoming  a reality                                                                    
was slim. He  stated that mostly everything on  the table at                                                                    
present  would have  been a  special  session several  years                                                                    
earlier.  The legislature  had been  dealing with  the topic                                                                    
for a  long time.  He asked  for Mr.  Beltrami's perspective                                                                    
about whether  anything would be accomplished  if action was                                                                    
put off until the following year.                                                                                               
Mr.  Beltrami answered  it was  déjà vu  all over  again. He                                                                    
discussed the  situation had occurred  in the  previous year                                                                    
as well. He  stated that the previous year  the solution had                                                                    
been to  take $3.5 billion  out of savings. He  feared doing                                                                    
the same thing again in  the current year and explained that                                                                    
it  would impact  the ability  to  implement a  responsible,                                                                    
balanced fiscal  plan. He did  not believe they  should kick                                                                    
the  can down  the road.  He continued  that the  excuse the                                                                    
preceding year  had been  that it was  an election  year. He                                                                    
surmised it would be the same  excuse in the coming year. He                                                                    
underscored that  the tools were  available, and  the timing                                                                    
was right. He  stressed it was not a math  problem, it was a                                                                    
political problem.  He supported  tackling the  situation at                                                                    
present, which  would restore the state's  credit rating and                                                                    
put money back and jobs back into the economy.                                                                                  
3:13:06 PM                                                                                                                    
Representative  Grenn  spoke  to  Mr.  Beltrami's  testimony                                                                    
about  the loss  of 3,000  jobs in  the past  year, probably                                                                    
split between  private and  public sectors.  He asked  if it                                                                    
had  also  been  split   between  different  industries  and                                                                    
membership groups.                                                                                                              
Mr. Beltrami  replied the organization had  numerous members                                                                    
in  the oil  industry, individuals  working in  the building                                                                    
trades  construction outside  of  the oil  field, and  other                                                                    
individuals  in retail  and private  sector businesses,  and                                                                    
the lion's  share of public  employees. He relayed  that the                                                                    
organization had lost membership across the board.                                                                              
Vice-Chair  Gara  shared  a  story  about  fishing  and  Mr.                                                                    
Beltrami. He stated that people  came before the legislature                                                                    
and  discussed  things that  were  most  important to  their                                                                    
given  industry.  He  referred to  Mr.  Beltrami's  comments                                                                    
about  wanting  a  state  where  children  and  seniors  are                                                                    
protected.  He asked  why, as  a  union representative,  Mr.                                                                    
Beltrami was testifying to that desire.                                                                                         
Mr. Beltrami answered that many  of the union's members were                                                                    
retired and  had worked  hard for the  state or  the private                                                                    
sector. He  continued that the  individuals were on  a fixed                                                                    
income once they retired. He  specified that the individuals                                                                    
were  put  into the  margins  if  there were  programs  that                                                                    
impacted  seniors.   He  relayed  that  education   was  the                                                                    
future's   workforce;   if   the   education   system   (for                                                                    
traditional careers  or building trades) was  underfunded it                                                                    
harmed the future of the state.                                                                                                 
3:16:00 PM                                                                                                                    
Vice-Chair  Gara noted  there  had only  been  a bare  bones                                                                    
construction budget.  He detailed  that the state  was about                                                                    
$1  billion  behind on  maintenance  at  the University  and                                                                    
another   $1  billion   behind  on   maintenance  of   state                                                                    
buildings.  He   asked  what  a  more   reasonable,  vibrant                                                                    
construction  budget would  mean for  union members  and the                                                                    
Mr.  Beltrami answered  it was  the crux  of the  matter for                                                                    
most  building trades  individuals. He  stated that  capital                                                                    
budgets had been $2 billion or  more a few years earlier and                                                                    
they were  around $100 million  to $200 million  at present.                                                                    
He  stated that  if  it  was not  for  some  of the  federal                                                                    
construction dollars on bases  and other locations, it would                                                                    
be a "death nail" to many building trades members.                                                                              
Vice-Chair Gara  noted that  he would never  be in  favor of                                                                    
the Knik  Arm Bridge or  Susitna Dam projects or  other, but                                                                    
he asked what kind of  projects a better construction budget                                                                    
would lead  to for  union members. He  added that  the state                                                                    
could not afford a $2 billion capital budget.                                                                                   
Mr.  Beltrami   replied  that  when  it   came  to  deferred                                                                    
maintenance the state was $1.6  billion behind as of January                                                                    
[2017]. Infrastructure in the  state was potentially falling                                                                    
apart and  there were  insufficient funds to  get to  it. He                                                                    
noted  that  the capital  budget  under  discussion was  $50                                                                    
million or so  for deferred maintenance. He  believed that a                                                                    
budget  of  that amount  would  never  address the  backlog,                                                                    
infrastructure  would  continue  to fall  apart,  and  union                                                                    
members  would not  have opportunities  to  work. The  union                                                                    
liked building  projects. He shared that  from the beginning                                                                    
of  his career  until  present there  had  hardly ever  been                                                                    
members out  of work.  There were currently  members leaving                                                                    
the  state to  find  jobs. He  concluded  that a  reasonably                                                                    
sized capital  budget was essential  for the  livelihoods of                                                                    
3:18:39 PM                                                                                                                    
Vice-Chair Gara  referred to various proposed  fiscal plans.                                                                    
He spoke  to a plan  that included  a small income  tax, oil                                                                    
tax  and credit  reform, and  a $1,250  dividend. He  stated                                                                    
that  the  plan did  not  cut  schools, the  University,  or                                                                    
senior and children services. There  was one option that was                                                                    
a  partial plan,  left a  remaining deficit,  and cut  those                                                                    
items. He stated that Mr.  Beltrami had testified in support                                                                    
of the first  option. He wondered why and noted  it may cost                                                                    
some money  for the union's  members - larger  dividend, but                                                                    
an income tax.                                                                                                                  
Mr. Beltrami answered that there had  been a free ride for a                                                                    
long time. He  stated that no one wanted to  take more money                                                                    
out of their  pocket, but he would prefer to  have a job and                                                                    
pay  some taxes,  than have  no job  at all.  Currently, the                                                                    
austerity-type approach  did not do anything  to encourage a                                                                    
thriving economy.                                                                                                               
Representative  Wilson  referred  to   a  statement  by  Mr.                                                                    
Beltrami about  the PFD. She  asked if union  members really                                                                    
believed  that  the dividend  was  a  government check.  Her                                                                    
constituents believed  it was a resources  development check                                                                    
for their share of the state's oil.                                                                                             
Mr. Beltrami  replied that when  he received the PFD  it was                                                                    
from the State of Alaska.                                                                                                       
Representative Wilson  countered there  had to  be a  way to                                                                    
pay the PFD. She believed  "we trade that for our subsurface                                                                    
rights to  our properties," so  everyone received a  share -                                                                    
the government  took its  share first.  She believed  it was                                                                    
different than  a government share  - an agreement  had been                                                                    
made for it.  She spoke to her concern  related to education                                                                    
and University  cuts. She stated  that Alaska spent  more on                                                                    
education than most  other states and had some  of the worst                                                                    
results. She  asked what the  issue would be  with revamping                                                                    
the  education system  versus only  putting more  money into                                                                    
the system.                                                                                                                     
Mr.  Beltrami answered  that he  was  not an  expert in  the                                                                    
education  budget, although  he could  speculate. The  state                                                                    
had  greater challenges  to delivering  education in  Alaska                                                                    
than anywhere in  the country. The state  had 585,000 square                                                                    
miles   to   cover,   rural    Alaskan   villages,   and   a                                                                    
constitutional   requirement  for   the  state   to  provide                                                                    
education. He  believed it was  difficult to  be competitive                                                                    
on  a per  capita basis  with states  that were  smaller and                                                                    
easier to  get around.  Everyone wanted better  outcomes. He                                                                    
shared  that as  the  former director  of  the Alaska  Joint                                                                    
Electrical  Apprenticeship (IBEW's  apprenticeship program),                                                                    
the program had always had  qualified applicants who had all                                                                    
been  Alaska  high  school  graduates.   He  had  put  three                                                                    
daughters  through the  Anchorage School  District who  were                                                                    
smart and had received a  good education. He emphasized that                                                                    
the  state could  never stop  working towards  improving the                                                                    
education system.                                                                                                               
Representative  Wilson  thought the  state's  responsibility                                                                    
was  more  than financial.  She  believed  it was  also  the                                                                    
education  level for  all the  state's  students. She  noted                                                                    
that someone  had brought up  the University  and decreases.                                                                    
She  asked   if  in  times  of   decreased  funding  whether                                                                    
businesses ever  became more innovative  and able  to change                                                                    
the way they operate, resulting in a positive outcome.                                                                          
Mr. Beltrami answered he was  sure it was possible. However,                                                                    
he shared  that his  wife was  a CPA  working as  an adjunct                                                                    
professor  at the  University because  the university  could                                                                    
not  afford to  keep  more professors  around. He  continued                                                                    
that it  was increasingly common  for professors to  be laid                                                                    
off and  adjuncts were  hired. The  quality of  education at                                                                    
the  University   would  not   result  in   more  innovative                                                                    
approaches if funds continued to be cut.                                                                                        
3:23:40 PM                                                                                                                    
Representative Wilson  did not  know why the  University was                                                                    
cutting professor positions when  it had a bloated statewide                                                                    
system  with  high-costs.  She   stressed  the  need  to  be                                                                    
competitive. She  referenced Mr. Beltrami's  testimony about                                                                    
individuals  moving to  other states  because  of jobs.  She                                                                    
commented on  taxes being  related to  the issue.  She asked                                                                    
for verification  that the  overall income  and the  cost of                                                                    
food,  gas,  and other  things  were  also factored  into  a                                                                    
person's  decision to  move to  another state.  She surmised                                                                    
that  the tax  level in  a state  was not  the only  thing a                                                                    
person  considered   when  contemplating  a  move   to  that                                                                    
Mr. Beltrami  agreed that it  came into play.  However, when                                                                    
the state had a $3 billion  deficit and the ability to solve                                                                    
the problem easily except for  politics and jobs were drying                                                                    
up, it  was not that  individuals were going to  places with                                                                    
better  tax treatments,  it was  that people  were going  to                                                                    
places with higher taxes.                                                                                                       
Representative Wilson remarked that  the state paid the most                                                                    
in   gasoline,   healthcare,  education,   and   financially                                                                    
overall. She  believed that politically the  state needed to                                                                    
talk  about  revamping its  systems  and  not merely  adding                                                                    
money because it did not solve the problem.                                                                                     
Representative Guttenberg stated that  the union had members                                                                    
on  the   University  campus  including   United  Academics,                                                                    
support staff, and other groups.  He asked what Mr. Beltrami                                                                    
was  hearing from  the  groups regarding  the  state of  the                                                                    
Mr. Beltrami  answered there was  significant disappointment                                                                    
or  fear of  uncertainty regarding  the future.  He believed                                                                    
there was significant anxiety among  members that were still                                                                    
employed.  He specified  that programs  were being  cut left                                                                    
and right.  He stated that the  mood on campus was  not good                                                                    
and it did not lend itself to higher morale.                                                                                    
Vice-Chair  Gara stated  that he  would love  to be  able to                                                                    
magically  achieve better  education with  fewer professors.                                                                    
He  noted  that  it  was  no longer  possible  to  obtain  a                                                                    
chemistry  degree in  Anchorage. He  remarked that  numerous                                                                    
programs had  been eliminated in  the University and  he did                                                                    
not  consider  them  efficiencies.   He  remarked  that  the                                                                    
University  was the  biggest job  training institute  in the                                                                    
state. He  asked in  recent years with  funding cuts  if any                                                                    
union members had reported that  the University was becoming                                                                    
a more attractive place to go.                                                                                                  
Mr. Beltrami replied in the negative.                                                                                           
3:27:35 PM                                                                                                                    
MIKE NAVARRE,  MAYOR, KENAI  PENINSULA BOROUGH,  spoke about                                                                    
the Alaska Municipal League (AML)  and what it would like to                                                                    
see as a  plan. He was currently on  the executive committee                                                                    
of  the Conference  of Mayors  and had  served as  president                                                                    
twice in the  past. He was also a current  member of AML. He                                                                    
shared that  the league had  passed priorities for  a fiscal                                                                    
plan including a comprehensive  approach that should include                                                                    
responsible budget cuts, oil  tax reform, broad-based taxes,                                                                    
and use of  Permanent Fund earnings. He stated  there was no                                                                    
consensus within AML about  the appropriate broad-based tax,                                                                    
but he  believed the majority realized  a progressive income                                                                    
tax worked  better for  municipalities, simply  because many                                                                    
municipalities already used sales taxes  as a way of funding                                                                    
local budgets.  While a broad-based  sales tax at  the state                                                                    
level may work,  AML wanted to know what it  looked like and                                                                    
the impact  it would  have. He  noted there  were 100  or so                                                                    
different sales  tax jurisdictions in the  state. The league                                                                    
wanted  a  comprehensive  plan because  experiencing  budget                                                                    
cuts annually without  knowing what the cuts  would be, made                                                                    
it very difficult for municipalities to plan.                                                                                   
Mr.   Navarre  relayed   that  the   previous  evening   his                                                                    
administration  had  introduced  the  budget  to  the  Kenai                                                                    
Peninsula  Borough. The  borough was  looking at  increasing                                                                    
some taxes.  He stressed  there had been  cuts at  the local                                                                    
level. The general government  administrative portion of the                                                                    
budget had  decreased in the  past two years because  of the                                                                    
elimination  of some  positions in  capital projects.  Fewer                                                                    
project  managers were  needed,  therefore, two  departments                                                                    
had been combined. He continued  that solid waste facilities                                                                    
had been closed  for one day per week to  try to effect some                                                                    
changes where  increases had been  seen. The  increases were                                                                    
driving  the borough's  overall budget  - just  like at  the                                                                    
state  level  with education  -  education  was the  biggest                                                                    
expenditure and responsibility.                                                                                                 
Mr.  Navarre  addressed struggles  at  the  local level.  He                                                                    
appreciated being  invited to present  to the  House Finance                                                                    
Committee on a couple of  occasions because when he had been                                                                    
a mayor in  the 1990s the Conference of Mayors  had asked to                                                                    
be  engaged  in  the  discussion.  He  stressed  that  local                                                                    
government officials  could help the legislature  convey the                                                                    
message. He  detailed that local  mayors were closer  to the                                                                    
population  daily  and  were  willing  to  help.  The  Kenai                                                                    
Peninsula Borough  had seen a  reduction in  revenue sharing                                                                    
of about  $2 million over the  past four or so  years, which                                                                    
was  equivalent to  about $250,000  in taxes.  Additionally,                                                                    
due to a  contracting economy, the community  was seeing its                                                                    
sales tax revenue decline; the  revenue had declined by over                                                                    
2 percent in the first two  quarters, which could be as much                                                                    
as $3 million on an annual basis.                                                                                               
3:32:45 PM                                                                                                                    
Mr.  Navarre continued  to address  how cuts  were impacting                                                                    
boroughs. He discussed that the  Department of Public Safety                                                                    
(DPS) had closed the Girdwood  trooper station. He explained                                                                    
that the Kenai Peninsula Borough  had a dispatch center that                                                                    
dispatched on behalf  of the troopers. He  detailed that the                                                                    
closure  of  the  Girdwood station  meant  the  troopers  in                                                                    
Seward  or Soldotna  responded to  public  safety events  in                                                                    
different  communities.  For  example,   there  had  been  a                                                                    
domestic  violence call  to the  Kenai dispatch  center from                                                                    
Girdwood  and the  dispatchers had  to remain  on the  phone                                                                    
line  for more  than  two  hours to  get  the response  from                                                                    
Soldotna  (the trooper  in Seward  had been  off duty).  The                                                                    
Kenai Borough was very concerned  about what would happen in                                                                    
the coming summer on the  roadway. Troopers intended to have                                                                    
federal money  used for traffic enforcement,  but they would                                                                    
not  have  other  troopers  responding   in  that  area.  He                                                                    
explained  it  was concerning  because  there  was only  one                                                                    
highway between the Kenai Peninsula  and the rest of Alaska.                                                                    
There had  been a couple  of events  in the last  month that                                                                    
involved active shooters on the highway.                                                                                        
Mr.  Navarre continued  to discuss  the impacts  the borough                                                                    
had seen on  public safety - it was a  statewide concern. He                                                                    
stressed  the importance  of  healthcare  and education.  He                                                                    
knew  some  reform  in  Medicaid  was  needed,  but  he  was                                                                    
cautious  about cuts  to the  program,  in part  due to  the                                                                    
50/50  federal  match  for  every  state  dollar  spent.  He                                                                    
appreciated the  focus on the  overall economy  and believed                                                                    
it was  critically important. He remarked  that the economic                                                                    
indicators impacting  the state were happening  at the Kenai                                                                    
Peninsula  level as  well. For  example, the  borough had  a                                                                    
couple  of  hospital  projects  -  it had  bid  one  of  the                                                                    
projects and had  an engineering team that  had informed the                                                                    
borough it could  not add on contract  administration to the                                                                    
contract  because  the  firm  had   laid  off  some  of  its                                                                    
engineers. The borough was currently  searching to find some                                                                    
assistance overseeing  the project. His primary  concern was                                                                    
what  the  economy would  look  like.  He acknowledged  that                                                                    
economies  are  resilient  and   vibrant,  but  fragile.  He                                                                    
explained that  the last time  the state had gone  through a                                                                    
similar  downturn it  had some  of the  same components.  He                                                                    
shared that he  had been elected to the  legislature in 1984                                                                    
and  recalled  serving  right  when the  price  of  oil  had                                                                    
dropped from $26 per barrel to $9 per barrel.                                                                                   
3:36:30 PM                                                                                                                    
Mr.  Navarre continued  that the  economy and  state budgets                                                                    
had been  smaller at the time,  but the loss of  revenue had                                                                    
impacted the state. The first  thing that happened was a cut                                                                    
to the state  capital budget while industry  was cutting its                                                                    
employment and  contracting work. He detailed  that industry                                                                    
had cut  jobs due to lower  cash flow and because  the North                                                                    
Slope had  been ramped up  to full production and  there was                                                                    
not  much additional  investment  to be  made;  it had  been                                                                    
almost  a perfect  storm. He  shared that  his business  had                                                                    
lost 50  percent in  some of its  stores. He  detailed there                                                                    
had been  numerous home foreclosures  and other  because the                                                                    
funding had  been turned  off. He spoke  to things  that had                                                                    
pulled the state  out of recession at the end  of the 1980s.                                                                    
The price of  oil had ticked back up, which  helped from the                                                                    
state  standpoint. Additionally,  there had  been a  massive                                                                    
injection of spending into the  economy in 1989; it had been                                                                    
an environmental disaster, but  an economic saving grace for                                                                    
the  state. Several  billions of  dollars had  been injected                                                                    
into the  economy in  a very  short timeframe,  which helped                                                                    
pull Alaska's economy out.                                                                                                      
Mr. Navarre highlighted where to  go from the current point.                                                                    
He  believed the  paradigm had  shifted in  oil and  gas. He                                                                    
specified that oil  and gas competition was  not only coming                                                                    
from  overseas,  but from  the  Lower  48 where  there  were                                                                    
massive  fields. He  stated that  a person  could blame  the                                                                    
companies  for   not  investing  in  Alaska;   however,  the                                                                    
companies   had   a   fiduciary  responsibility   to   their                                                                    
shareholders  to  get  the best  return  on  investment.  He                                                                    
underscored that  the state  had to be  able to  compete. He                                                                    
argued  in  favor  of  a   stable  oil  tax  policy  because                                                                    
companies needed  to be  able to make  investment and  get a                                                                    
return for the long-term.                                                                                                       
Mr.  Navarre  discussed  the disconnect  between  government                                                                    
services and  the cost of  the services. At the  local level                                                                    
taxes  were paid,  but at  the state  level Alaska  had been                                                                    
living  off   its  natural  resources,  primarily   oil.  He                                                                    
addressed  why he  believed a  comprehensive plan  for local                                                                    
governments   was  important.   He   explained  that   local                                                                    
governments did  not know  where the next  cut would  be. He                                                                    
questioned  whether  additional  cost shifting  would  occur                                                                    
because of  Public Employees'  Retirement System  (PERS) and                                                                    
Teachers'  Retirement System  (TRS).  He questioned  whether                                                                    
reductions in  education would occur. Most  of the education                                                                    
budget  went to  people  - teachers  and  support staff.  He                                                                    
stressed  that when  education was  cut, people's  jobs were                                                                    
cut. He elucidated that when  cuts were made to education in                                                                    
a   contracting   economy,   the   economic   downturn   was                                                                    
exacerbated. He believed a partial  plan changed the dynamic                                                                    
of  the  debate. He  thought  it  may  be possible  for  the                                                                    
legislature to  implement part  of the  plan in  the current                                                                    
year,  but he  stressed  the importance  of identifying  the                                                                    
remainder of the  components, so everyone would  be aware of                                                                    
them. He  stated that if  the legislature only passed  SB 26                                                                    
or some similar  rendition with the percent  of market value                                                                    
(POMV) it would  get part of the way there.  He opined there                                                                    
was  no  responsible  economic   plan  that  worked  without                                                                    
earnings of the Permanent Fund.  He noted he had taken grief                                                                    
from some  of his constituents  over the belief, but  he did                                                                    
not believe  there was  a plan that  would work  without it.                                                                    
Budget cuts was another option  the legislature had tried to                                                                    
focus  on  - he  commented  on  the different  opinions  and                                                                    
perspectives on what could be cut or should be cut.                                                                             
3:41:10 PM                                                                                                                    
Mr. Navarre  asked what would  happen in the  following year                                                                    
if only a partial plan  was implemented in the current year.                                                                    
He  stated that  the  debate would  change,  and the  option                                                                    
would be down  to budget cuts, potentially  going after more                                                                    
of the  PFD, or implementing broad-based  taxes. He believed                                                                    
it  would change  the debate  the following  year. It  would                                                                    
mean losing  one of the  elements in the debate  because the                                                                    
legislature  would have  taken a  big  piece of  it off  the                                                                    
table, which was fine. However,  if it was budget cuts, many                                                                    
local  governments  (those  with tax  bases  in  particular)                                                                    
could   absorb   additional   cuts.   He   elaborated   that                                                                    
municipalities  would have  to  accept  the consequences  or                                                                    
raise taxes at  the local level. He furthered  that it could                                                                    
be done,  but it  would take  time. Municipalities  were not                                                                    
all  situated similarly  - some  had  sales taxes,  property                                                                    
taxes  (or a  combination of  the two),  fish taxes,  or tax                                                                    
caps. He stressed that the  response by municipalities could                                                                    
not be done  quickly, which was the reason  a long-term plan                                                                    
was   necessary.  He   referred  to   conversation  in   the                                                                    
legislature about  reducing education funding. He  stated it                                                                    
was fine  if the legislature  was planning to  cut education                                                                    
if it could own up  to the consequences and communicate what                                                                    
the cuts  would be. He  believed people were willing  to pay                                                                    
for  education. He  recalled when  he was  a child  that his                                                                    
mother had always argued about  the cost of education with a                                                                    
good friend/teacher. He did not  believe the debate over the                                                                    
cost of education would end in the current year.                                                                                
Mr. Navarre stated that there  was no perfect plan. Whatever                                                                    
happened in  the current year  would be modified  over time.                                                                    
He believed a  plan premised on the rising price  of oil was                                                                    
not sufficient.  He observed that currently  all pressure on                                                                    
oil and gas  was downward pressure. He had  read articles in                                                                    
the past  couple of  days specifying that  the price  of oil                                                                    
was  dropping  and  that  compliance  with  quotas  for  Oil                                                                    
Producing and  Exporting Countries  (OPEC) had gone  from 95                                                                    
percent  to  the  upper  70s, which  meant  that  they  were                                                                    
cheating. When there  was cheating it increased  the glut on                                                                    
the market and drove down prices.                                                                                               
3:44:22 PM                                                                                                                    
Mr. Navarre  did not think  the differences [of  opinion] in                                                                    
the  legislature were  that great.  He noted  that sometimes                                                                    
people polarized one  another or issues. He  did not believe                                                                    
legislators  were that  far apart.  He believed  everyone in                                                                    
the  legislature   wanted  a  strong  Alaskan   economy  and                                                                    
everyone  supported   education.  He  reasoned   there  were                                                                    
differences  of  opinion about  the  level  of support,  but                                                                    
everyone  ultimately supported  education. He  believed some                                                                    
of  the   differences  at  present  were   being  driven  by                                                                    
politics.  There  were  some  individuals  who  would  never                                                                    
support  any tax  and  others believed  there  were no  more                                                                    
reductions  to  be  made  in  the  budget.  He  opined  that                                                                    
establishing  a plan  that  maintained  some reserves,  left                                                                    
opportunity  to  inject spending  into  the  economy in  the                                                                    
future. He  reasoned that an economic  contraction could not                                                                    
be avoided,  but if the  situation was handled well,  a full                                                                    
blown economic  crisis could be  avoided. He hoped  a budget                                                                    
crisis would not be turned into an economic crisis.                                                                             
Mr. Navarre stressed that the  last economic downturn in the                                                                    
1980s  had  been  very  bad,  which  he  believed  could  be                                                                    
avoided.   He  thought   deferred   maintenance  should   be                                                                    
addressed prior  to the construction  of any  new buildings.                                                                    
He  remarked that  every time  the state  got some  money it                                                                    
built new  facilities and continued to  defer maintenance on                                                                    
other facilities.  Local governments would also  be impacted                                                                    
by the school bond debt  reimbursement program that had been                                                                    
changed because of a commitment  that local governments were                                                                    
adding to  the state  budget. He shared  that the  last time                                                                    
the Kenai  Peninsula Borough  had done a  bond issue  it had                                                                    
been almost  $20 million  ($18.5 million  had been  for roof                                                                    
repairs and replacement for  energy efficiency savings). The                                                                    
community received 70 percent  reimbursement from the state.                                                                    
The other  bond issue had  been for a  turf field -  two had                                                                    
been funded by  capital grants and the  community had bonded                                                                    
for the third.                                                                                                                  
3:48:22 PM                                                                                                                    
Vice-Chair  Gara  stated  that the  legislature  was  either                                                                    
going to do a fiscal plan or  not. He was not willing to get                                                                    
reelected by  telling people the  state could get  away with                                                                    
no  fiscal  plan  and  that everything  would  be  okay.  He                                                                    
believed that  would result  in a  deep recession.  He spoke                                                                    
about the  concept of  a partial  fiscal plan.  For example,                                                                    
only cutting the dividend to  $1,000 and doing nothing else.                                                                    
He  stated a  partial plan  would  not solve  the deficit  -                                                                    
there would  still be  pressure to cut  schools. He  did not                                                                    
foresee solving the entire budget  gap the coming year as it                                                                    
was an election year. He  reasoned that action taken in 2019                                                                    
would mean it  could probably not be  implemented until 2020                                                                    
or  2021. He  asked if  there was  concern that  the problem                                                                    
would not  be solved for  years if  the can was  kicked down                                                                    
the road.                                                                                                                       
Mr. Navarre replied  in the affirmative. He  reasoned that a                                                                    
plan could include some trigger  points. He stated there was                                                                    
substantial talk about additional  budget cuts and the price                                                                    
of oil  going up.  He questioned what  would occur  if those                                                                    
things  did   not  happen.   He  recalled   his  legislative                                                                    
experience where statements had been  made that if one party                                                                    
agreed  to do  something  one year,  the  other party  would                                                                    
agree to doing something else  in the next year. He remarked                                                                    
that it  did not  really work that  way. He  elaborated that                                                                    
"whatever  happened  last  year,  happened  last  year";  it                                                                    
changed the dynamic of the debate.                                                                                              
Vice-Chair Gara stated he could  claim that cutting hundreds                                                                    
of millions  of dollars  from the budget  would not  have an                                                                    
impact on  the economy.  However, he knew  and had  read the                                                                    
studies showing  that major budget  cuts did have  an impact                                                                    
on the economy.  He asked how further large cuts  (such as a                                                                    
proposal to cut another $200  million per year) would impact                                                                    
the economy. He  asked if it would support  a stable economy                                                                    
or would cause the economy to continue to contract.                                                                             
Mr.  Navarre answered  that the  economy  would continue  to                                                                    
contract if  that was done.  He shared that his  company had                                                                    
sold some property and had some  cash it would be willing to                                                                    
invest. He  stated it was  not currently a  good environment                                                                    
for investment  because there was  way too  much uncertainty                                                                    
in the  state at present  due to the  lack of a  plan. There                                                                    
was  no certainty  for  the oil  and  gas industry,  private                                                                    
investment,  or  for  funding and  passthrough  funding  for                                                                    
local  governments. The  uncertainty was  already putting  a                                                                    
damper  on  investment.  He  compared  the  situation  to  a                                                                    
snowball rolling  downhill - it  would pick up  momentum and                                                                    
would be  unstoppable when  it became  large enough.  He had                                                                    
shared  the concern  with the  shareholders of  his company.                                                                    
The  company  was preserving  cash  because  he believed  it                                                                    
would be  needed. He reiterated  his earlier  testimony that                                                                    
the company  had gone  through 50 percent  loss of  sales in                                                                    
the  1980s.  He  was  cautiously  optimistic  it  would  not                                                                    
happen,  but  it  was  a concern.  He  concluded  there  was                                                                    
significant  anxiety over  the  economic outlook  - all  the                                                                    
indicators were  going the wrong way  except for healthcare,                                                                    
which  was  dependent  on  a  strong  economy.  He  believed                                                                    
healthcare would eventually turn as well.                                                                                       
3:53:33 PM                                                                                                                    
Co-Chair Seaton  provided a  scenario where  the legislature                                                                    
was looking at  5 percent cuts to education,  $20 million to                                                                    
the University, and $40 million  to the Department of Health                                                                    
and  Social  Services  with  a   $500  million  deficit  the                                                                    
following  year. He  asked  if there  was  some other  place                                                                    
where similar  cuts could be  achieved or if the  same items                                                                    
would continue to be cut.                                                                                                       
Mr. Navarre  answered that education  and health  and social                                                                    
services used  most of  the budget  resources and  both were                                                                    
critically  important. He  believed that  at some  point the                                                                    
state would return to a  stable economy and spending. In the                                                                    
short-term  with  education   cuts,  children  currently  in                                                                    
school were  the ones who  would be negatively  impacted. He                                                                    
furthered that those  children did not get to  make the time                                                                    
up. He shared that he had  been recently speaking to a young                                                                    
man  who  was  thinking  about starting  a  family  and  had                                                                    
graduated five  years earlier. The individual  had said that                                                                    
five years  earlier, many graduates  of Nikiski  High School                                                                    
had  the opportunity  to  go  to work  in  the  oil and  gas                                                                    
industry or  a support industry  due to an  aging workforce.                                                                    
The  individual  had  been  concerned  and  was  asking  for                                                                    
assurance  there  would be  opportunity  for  his family  in                                                                    
Alaska. He had told the  individual yes, because he believed                                                                    
in the  long-term the state  would get through  the problem,                                                                    
but short-term there would be struggle.                                                                                         
Representative  Grenn referred  to  Mr. Navarre's  testimony                                                                    
about a  reduction in revenue sharing,  decreasing sales tax                                                                    
revenue, and impacts to public  safety. Mr. Navarre had also                                                                    
discussed  speaking to  various groups  about the  immediate                                                                    
need  for  a  fiscal  plan.  He  asked  about  the  public's                                                                    
Mr. Navarre replied it had  been favorably received and many                                                                    
people had stated they had  not considered the issue in that                                                                    
way previously. In terms of  economic development, there was                                                                    
a state cost  (for things like public  safety and education)                                                                    
for every  person who moved  to Alaska. Part of  the problem                                                                    
was that disconnect in the past two generations.                                                                                
3:57:20 PM                                                                                                                    
Representative  Grenn provided  a scenario  where a  company                                                                    
offering  5,000  jobs  moved   into  the  Kenai  region.  He                                                                    
surmised it would be a benefit  to the Kenai region, but the                                                                    
cost to the state would be a negative impact.                                                                                   
Mr. Navarre answered in the  affirmative. He relayed that he                                                                    
had  been  consistent with  that  perspective  since he  had                                                                    
chaired the committee in 1991  and 1992. The state could not                                                                    
afford economic  development in Alaska  - it was a  net loss                                                                    
to the state - unless it was in oil and gas.                                                                                    
Representative  Wilson asked  whether  development of  newly                                                                    
discovered oil projects would positively impact Kenai.                                                                          
Mr. Navarre  answered that oil  and gas  development started                                                                    
on  the Kenai  Peninsula and  had given  Congress confidence                                                                    
that Alaska could  pay some of the cost  to provide services                                                                    
to  residents. There  was significant  oil and  gas industry                                                                    
based on the  peninsula that provided services  to the North                                                                    
Slope. There were many residents  in Kenai who worked on the                                                                    
slope and many  service companies working in  Cook Inlet and                                                                    
on the slope.                                                                                                                   
Representative Wilson  thought it  appeared that  getting HB
111   correct  would   be  very   important  to   Kenai  for                                                                    
development to continue.                                                                                                        
Mr. Navarre  replied in the  affirmative. He  believed there                                                                    
would continue  to be and  should be oil and  gas investment                                                                    
in Alaska.  He believed a  stable tax policy  was necessary,                                                                    
but  he also  believed the  state  needed a  fair share.  He                                                                    
recognized  the  realities of  trying  to  ensure the  state                                                                    
could encourage  the investment it needed  to get production                                                                    
in place and receive royalty revenues and production taxes.                                                                     
Representative Wilson  imagined Kenai would benefit  as much                                                                    
as  Fairbanks.   She  remarked  that   the  last   time  the                                                                    
legislature had  gotten oil taxes  wrong, it  had devastated                                                                    
Fairbanks.  However, when  the  legislature  had gotten  oil                                                                    
taxes right, it had been a turnaround for Fairbanks.                                                                            
4:00:19 PM                                                                                                                    
Co-Chair Foster  recognized Representative  Gabrielle LeDoux                                                                    
in the audience.                                                                                                                
SENATE BILL NO. 32                                                                                                            
     "An Act relating to biological products; relating to                                                                       
     the practice of pharmacy; relating to the Board of                                                                         
     Pharmacy; and providing for an effective date."                                                                            
4:01:01 PM                                                                                                                    
SENATOR SHELLEY HUGHES, SPONSOR,  asked for direction on the                                                                    
bill presentation.                                                                                                              
Co-Chair  Foster  answered  that   a  brief  overview  would                                                                    
Senator Hughes  complied. She explained that  the bill would                                                                    
update  statutes to  allow pharmacists  to substitute  a new                                                                    
category  of   medicines  called   interchangeable  biologic                                                                    
products. The  medicines were life-changing for  people with                                                                    
debilitating diseases and could  make the difference between                                                                    
being bed-ridden  or up and  functional. The drugs  were not                                                                    
the same as  generics. She detailed that a  biologic is made                                                                    
from  a   living  cell  and   is  a   complicated  molecular                                                                    
structure.  Whereas, a  generic  drug copies  a recipe.  She                                                                    
furthered that a biosimilar  or interchangeable biologic was                                                                    
trying to replicate  a complex cell and the  items would not                                                                    
be identical. The bill maintained  the physician's control -                                                                    
if the doctor  did not want a substitution  they could write                                                                    
"dispense as  written (DAW)." If  the doctor wanted  to know                                                                    
whether  an interchangeable  was available,  they could  ask                                                                    
the pharmacist  to call  if it  was available.  A pharmacist                                                                    
could  do the  substitution if  it  was not  written on  the                                                                    
script pad,  but they would  be required to  communicate the                                                                    
substitution to  the physician. The  bill also  required the                                                                    
pharmacist to receive the patient's  consent prior to making                                                                    
a substitution.                                                                                                                 
Representative  Wilson  asked  if   the  bill  pertained  to                                                                    
compound prescriptions.                                                                                                         
Senator  Hughes replied  in the  negative. She  stated there                                                                    
were    entrepreneurs,    small   companies,    and    large                                                                    
pharmaceutical companies who were  currently working to make                                                                    
more  affordable biologic  products  as  biosimilars and  to                                                                    
raise  them  to  the  standard   where  there  would  be  no                                                                    
different  clinical reaction  for the  patient. She  relayed                                                                    
that 33 states  had passed similar legislation  and 7 others                                                                    
had pending  legislation. The states  had done  analysis and                                                                    
had  determined there  should be  some  savings to  Medicaid                                                                    
budgets  because biologics  were expensive.  Interchangeable                                                                    
biosimilars  should help  the budget.  She did  not want  to                                                                    
make a claim about what the  savings may be, but some states                                                                    
had done  so. She  continued that  the Centers  for Medicare                                                                    
and   Medicaid  Services   (CMS)  believed   interchangeable                                                                    
biosimilars should bring down the cost for Medicaid.                                                                            
Representative  Wilson  referred  to the  fiscal  note  that                                                                    
included  the following  language:  "in  addition this  bill                                                                    
requires the Board  of Pharmacy to post and  maintain a link                                                                    
to  the   U.S.  Food  and  Drug   Administration's  list  of                                                                    
currently  approved interchangeable  biological products  on                                                                    
the board's website." She asked  if the board already had to                                                                    
post  medications   and  how  much   the  bill   would  cost                                                                    
4:06:49 PM                                                                                                                    
Senator  Hughes  answered   that  pharmacists  could  choose                                                                    
whether to  carry interchangeable biological  products. Most                                                                    
pharmacists  had automated  systems  to contact  physicians.                                                                    
She did  not know whether there  was a current link  to post                                                                    
medications.  She  thought  it   was  a  simple  thing.  She                                                                    
believed the fiscal note was  related to the requirement for                                                                    
the  board to  send  something out  by  mail to  pharmacists                                                                    
around the  state. She thought  the legislature may  want to                                                                    
consider   why   the   information  was   not   being   sent                                                                    
Representative Wilson  explained that  her question  was not                                                                    
related  to  the  fiscal  note because  the  state  did  not                                                                    
normally care  about the  cost for the  private sector  - it                                                                    
only  cared about  the  cost  to the  state.  She asked  for                                                                    
follow up on whether there would  be a cost to pharmacies or                                                                    
whether  it was  something the  pharmacies already  did. She                                                                    
asked about  the fiscal  note and the  legal costs  to amend                                                                    
the regulation and  printing and postage in  the first year.                                                                    
She  noted  the funding  source  was  receipt services.  She                                                                    
asked if all  business licenses would pay.  She wondered why                                                                    
it  was a  receipt  service "for  this  area." She  reasoned                                                                    
bill's  goal was  to make  things easier  for Alaskans.  She                                                                    
wondered  if   the  Board  of   Pharmacy  would   be  solely                                                                    
responsible for  paying or  whether all  corporate licensing                                                                    
would pay a portion for the writing of regulations.                                                                             
Senator  Hughes  replied  that  she  would  follow  up.  She                                                                    
reiterated that  pharmacists could  choose whether  to carry                                                                    
interchangeable biological products.  She specified that not                                                                    
all pharmacists  would carry the  products that  were highly                                                                    
specialized.  She deferred  to  the  department for  further                                                                    
JANEY   HOVENDEN,   DIRECTOR,  DIVISION   OF   CORPORATIONS,                                                                    
BUSINESS   AND   PROFESSIONAL   LICENSING,   DEPARTMENT   OF                                                                    
COMMERCE, COMMUNITY AND  ECONOMIC DEVELOPMENT, answered that                                                                    
they  were  receipt  supported  services  and  the  pharmacy                                                                    
program  would pay  through licensing  fees.  She could  not                                                                    
imagine the cost impacting every  licensee. It was a nominal                                                                    
one-time cost to do the regulation project.                                                                                     
4:09:44 PM                                                                                                                    
Representative  Wilson asked  if pharmacists  had asked  for                                                                    
the  bill. She  surmised it  appeared to  be an  improvement                                                                    
over  what could  be given  to Alaskans.  She was  trying to                                                                    
determine why the fiscal note  would not come out of general                                                                    
funds  versus  being charged  back  to  the pharmacist.  She                                                                    
stated the situation was unique  - typically items were more                                                                    
closely related to the board when  they were paid for by the                                                                    
board. She observed  that the bill was  different because it                                                                    
was trying to  do something positive for  Alaskans by making                                                                    
medication  more affordable  and  did  not necessarily  fall                                                                    
under the board's responsibility.                                                                                               
Ms.  Hovenden  replied that  the  changes  would impact  the                                                                    
statutes  of the  pharmacy program;  the  Board of  Pharmacy                                                                    
members would  help design the regulations  to implement the                                                                    
Representative  Kawasaki  asked   for  verification  that  a                                                                    
biosimilar was  not identical to  another product.  He asked                                                                    
for   the   difference   between   a   biosimilar   and   an                                                                    
Senator Hughes answered  that a generic is a  duplicate of a                                                                    
medicine made  of various chemicals and  ingredients - there                                                                    
was  no requirement  to communicate  between the  pharmacist                                                                    
and the  doctor. A complicated biologic  called a biosimilar                                                                    
was  made  from  living  cells (e.g.  Insulin  and  Humira).                                                                    
Companies were trying  to develop a product  that would have                                                                    
the same clinical impact. The  companies were using the same                                                                    
basic thing,  but because they  were using living  cells the                                                                    
product   would  never   be  100   percent  identical.   The                                                                    
interchangeable   biosimilar  or   interchangeable  biologic                                                                    
product  was  the  gold  standard  of  the  biosimilar.  She                                                                    
detailed that the FDA would  test and approve the product as                                                                    
interchangeable because  if administered  to a  patient, the                                                                    
patient  would  have  to  have  the  same  clinical  results                                                                    
whether  they  were  taking   the  original  biologic,  were                                                                    
alternating   between   the   original  biologic   and   the                                                                    
interchangeable,  or were  only taking  the interchangeable.                                                                    
There would  be no difference  in the clinical  results. She                                                                    
continued  that biosimilars  would  not all  fit within  the                                                                    
interchangeable  category.  She  clarified that  the  doctor                                                                    
would have to specify on a  script when a biosimilar was not                                                                    
categorized as  interchangeable. It was a  new category that                                                                    
would  be somewhat  like a  generic, but  not identical  (it                                                                    
would be  clinically similar, but  the genetic  makeup would                                                                    
be different).                                                                                                                  
Representative  Kawasaki shared  that he  took fish  oil for                                                                    
cholesterol    for   triglycerides.    He   detailed    that                                                                    
prescription  fish oils  were ten  times the  price of  non-                                                                    
prescription  fish  oils.  He  asked   if  a  fish  oil  was                                                                    
considered biosimilar.                                                                                                          
DR.  THOMAS FELIX,  DIRECTOR, MEDICAL  RESEARCH, AMGEN  INC.                                                                    
(via teleconference),  communicated that he had  worked with                                                                    
the   coalition  of   organizations  to   present  coalition                                                                    
language included  in the bill.  He replied that a  fish oil                                                                    
was not  considered a biosimilar  product. A  biosimilar was                                                                    
something that  took a very specific  regulatory pathway for                                                                    
approval  by the  FDA  to  try to  create  and reference  an                                                                    
existing biologic. A  fish oil was not  as closely regulated                                                                    
as  a  biologic  and  another  fish  oil  from  a  different                                                                    
manufacturer would  not be considered  a biosimilar.  It was                                                                    
necessary  to take  the 351(k)  pathway to  be considered  a                                                                    
Representative  Kawasaki   asked  if   fish  oil   would  be                                                                    
considered  a  biosimilar product  if  it  was regulated  as                                                                    
other specific drugs.                                                                                                           
Mr. Felix believed  the question was whether  fish oil would                                                                    
be considered a biologic because  it was derived from living                                                                    
tissues. He relayed  that it could be  considered a biologic                                                                    
in a very technical  definition, but for regulatory purposes                                                                    
it was not considered like  or governed like biologics would                                                                    
be. However,  in a  technical term,  because it  was derived                                                                    
from living tissues or living  cells, it was possible to say                                                                    
that it was a derivative of a biologic entity.                                                                                  
Representative  Kawasaki  asked  for verification  that  the                                                                    
point was  for a  biosimilar to mimic  the exact  same thing                                                                    
that an interchangeable would do.                                                                                               
Mr. Felix replied  it was important to understand  why a new                                                                    
industry   had  been   built  around   the  development   of                                                                    
biosimilars. He  explained that biologic  drugs had  been on                                                                    
the  market   for  over   40-plus  years   and  intellectual                                                                    
properties  around long-existing  biologics were  coming off                                                                    
patent.  He furthered  that biosimilars  or versions  of the                                                                    
older  products coming  off patent  were intended  to create                                                                    
competition  to lower  healthcare costs  and the  analog was                                                                    
generics. Biosimilars were  coming to the market  to do what                                                                    
generics  have   done,  but  with  a   different  scientific                                                                    
framework and expectation financially.                                                                                          
Representative  Kawasaki   relayed  that  the   bill  packet                                                                    
included a letter of opposition  from the Board of Pharmacy.                                                                    
He thought the  board may support a bill like  the one under                                                                    
consideration. He asked for comment.                                                                                            
Senator Hughes answered that there  were some pharmacists in                                                                    
support of  the bill.  She explained that  pharmacists would                                                                    
prefer  having the  ability  to  substitute [drugs]  without                                                                    
making the  communication. Physicians would  probably prefer                                                                    
total control and that substitutions  could not be made. She                                                                    
detailed  that  because of  the  ability  for physicians  to                                                                    
specify  "dispense  as  written" they  ultimately  had  full                                                                    
control.  She  furthered  that the  change  the  bill  would                                                                    
implement  would  be  best  for  the  patient  in  terms  of                                                                    
affordability. The extra step  was communication - something                                                                    
pharmacists  did   not  have  to   do  with   generics.  Her                                                                    
understanding was that the pharmacies  - the number would be                                                                    
relatively  low  because  there were  a  limited  number  of                                                                    
individuals with applicable diseases  -  would probably have                                                                    
the  automated  system  set  up, meaning  it  would  not  be                                                                    
burdensome. She relayed that  the State Medical Association,                                                                    
Alaska   State  Hospital   and   Nursing  Home   Association                                                                    
(ASHNHA),  the Alaska  Commission on  Aging, and  the Alaska                                                                    
Cancer   Action  Network   were  all   in  support   of  the                                                                    
Senator Hughes  corrected her earlier example  of biosimilar                                                                    
drugs  and clarified  she  had been  referring  to the  drug                                                                    
Humira for rheumatoid arthritis. She  shared an example of a                                                                    
Vietnam veteran  from Wasilla named Cajun  Bob. She detailed                                                                    
he had been featured in Life  or Time Magazine in the 1960s.                                                                    
He had been  bed-ridden, and the use of a  biologic drug had                                                                    
given him a  new lease on life. She  stressed the importance                                                                    
of the  drugs for  Alaskans with debilitating  diseases. She                                                                    
discussed that  sometimes the effectiveness of  a medication                                                                    
wore off  for an individual,  making it necessary  to switch                                                                    
to a new medicine. The  goal was to ensure individuals would                                                                    
have immediate access to all options.                                                                                           
4:20:15 PM                                                                                                                    
Representative Kawasaki  referred to a letter  of opposition                                                                    
from  the Alaska  Rheumatology Alliance  in  the packet.  He                                                                    
added  that members'  packets were  very comprehensive  with                                                                    
letters of support.                                                                                                             
Senator Hughes replied  that her office had  worked with the                                                                    
group and  it had been helpful  for them to learn  that they                                                                    
could specify to dispense as written and maintain control.                                                                      
Representative Kawasaki  provided a scenario of  the receipt                                                                    
of a prescription. He thought in  the past he had been asked                                                                    
by  the pharmacist  whether he  wanted  the cheaper  generic                                                                    
prescription. He asked how it would work with a biosimilar.                                                                     
Senator Hughes  answered that the physician  would prescribe                                                                    
the biologic. When the patient  went to the pharmacy to pick                                                                    
up the  prescription the pharmacist  would notice  there was                                                                    
an interchangeable and would ask  the patient if they wanted                                                                    
the interchangeable. She noted  that the interchangeable was                                                                    
the FDA approved gold standard.  If the patient selected the                                                                    
interchangeable, the pharmacist would  be required to inform                                                                    
the   physician  within   three  business   days  that   the                                                                    
substitution  had  been  made.  She stated  that  with  most                                                                    
pharmacies   the   information  would   be   instantaneously                                                                    
communicated as  the medicine was processed  and provided to                                                                    
the patient.                                                                                                                    
BUDDY WHITT,  STAFF, SENATOR SHELLEY HUGHES,  referred to an                                                                    
earlier  question by  Representative  Wilson  and wanted  to                                                                    
ensure he  understood the  question. He  noted she  had been                                                                    
speaking about  links to the  FDA's list. He thought  he had                                                                    
heard  her ask  if  the  pharmacist had  to  post links.  He                                                                    
clarified that  the Board of  Pharmacy had to post  the link                                                                    
to the  FDA website with  a list of all  the interchangeable                                                                    
biological products  approved by the  FDA. The bill  did not                                                                    
require individual pharmacists to provide the information.                                                                      
4:22:42 PM                                                                                                                    
Representative Ortiz asked how  long the term biosimilar had                                                                    
Senator Hughes deferred the question to Dr. Felix.                                                                              
Mr.  Felix responded  that the  term biosimilar  had existed                                                                    
since   the  early   2000s  when   Europe  had   been  first                                                                    
considering development  and existence of a  pathway forward                                                                    
for  biosimilars.   The  issue  had  arisen   because  their                                                                    
intellectual     properties     were     expiring     [audio                                                                    
Representative  Ortiz  surmised  that the  movement  towards                                                                    
biosimilars  was based  on similar  motivations of  movement                                                                    
towards  generics, which  had probably  taken  place in  the                                                                    
1970s or 1980s. He believed  the motivation was about trying                                                                    
to provide medications  that were equally as  effective at a                                                                    
lower price.                                                                                                                    
Senator Hughes  replied in the  affirmative. The  intent was                                                                    
to increase access and affordability.                                                                                           
Representative  Ortiz referred  to  a  letter of  opposition                                                                    
from the  Board of  Pharmacy dated March  6, 2017.  He asked                                                                    
for verification that  the group was still  in opposition to                                                                    
the bill.                                                                                                                       
Senator Hughes  replied that the  board had not  submitted a                                                                    
letter  of   support,  but  individual  pharmacists   and  a                                                                    
national pharmacy association had  vocalized support for the                                                                    
bill. The  individuals understood  the importance  of access                                                                    
to  the medicines.  She stated  that the  Board of  Pharmacy                                                                    
retained its position.                                                                                                          
4:25:12 PM                                                                                                                    
Representative  Guttenberg believed  the biosimilars  were a                                                                    
good  thing.  He  referred  to  letter  from  the  Board  of                                                                    
Pharmacy. He  believed one  of the  problems was  related to                                                                    
who  was  paying  the  bill   and  who  had  the  burden  of                                                                    
fulfilling  the legislative  requirements  for reporting  by                                                                    
doctors and pharmacies. He thought  the issue of payment may                                                                    
mean large-scale pharmacies would  be supportive, but smal1-                                                                    
scale  pharmacists may  feel burdened.  He  referred to  the                                                                    
last few lines  of the letter - the board  believed the bill                                                                    
would  create an  unintended barrier  to access.  The letter                                                                    
also    stated   there    were   currently    no   available                                                                    
interchangeable  biosimilar medications  on the  market. The                                                                    
board  did  not  see  the  need  for  legislation  regarding                                                                    
biosimilars, but  wanted the legislation to  follow the BPCI                                                                    
Act  of 2009  [Biologics  Price  Competition and  Innovation                                                                    
Act] and its  intent of increasing access  to medication. He                                                                    
asked  if any  changes had  happened in  the bill  regarding                                                                    
some of  the board's position on  the bill. He did  not know                                                                    
what the  BPCI Act was.  He asked  for detail about  the act                                                                    
and about the bill's conflict with the act.                                                                                     
Senator Hughes deferred the question to Dr. Felix.                                                                              
Mr.  Felix replied  that the  BPCI  Act allowed  the FDA  to                                                                    
create regulatory pathways for  approval for biosimilars and                                                                    
interchangeable biologic  products. The act had  been passed                                                                    
in March 2010  as part of the Affordable Care  Act (ACA); it                                                                    
was  one of  the few  portions  of the  ACA with  bipartisan                                                                    
support. He  believed the most important  recent development                                                                    
was   that,   at   the   beginning    of   the   year,   the                                                                    
interchangeability designation finally  had a draft guidance                                                                    
released by  the FDA. The guidance  provided transparency to                                                                    
the  community  in terms  of  what  was required  to  obtain                                                                    
interchangeability.   He   spoke   to  the   importance   of                                                                    
understanding that  for companies  that were  not developing                                                                    
biosimilars  or interchangeables,  the  area had  previously                                                                    
not been  clear. However, for  developers of  biosimilars or                                                                    
interchangeables, the  FDA had been transparent  in terms of                                                                    
providing direction  for the development of  clinical trials                                                                    
and  data requirements.  There had  been companies  that had                                                                    
completed clinical trials that  may satisfy the requirements                                                                    
for   an   interchangeability   designation.   Additionally,                                                                    
companies had  announced starting clinical trials  to pursue                                                                    
an interchangeability designation.  He stated that sometimes                                                                    
there   was  a   description  that   the  only   reason  the                                                                    
legislation  was needed  was to  ensure the  facilitation of                                                                    
interchangeability and  that substitutions could be  made by                                                                    
pharmacists.  In general,  the  community was  not aware  of                                                                    
what  biosimilars were  as compared  to generics.  He shared                                                                    
that  five  biosimilars had  been  approved  to date  [audio                                                                    
indecipherable]. He noted they were  awaiting an approval of                                                                    
an interchangeable  in the future. People  typically thought                                                                    
of   biosimilars   as   generics  -   most   generics   were                                                                    
substitutable  -  but  biosimilars were  not  substitutable.                                                                    
Another   reason  to   pass  legislation   was  to   clearly                                                                    
communicate how to use the  products when they were approved                                                                    
under different designations.                                                                                                   
Co-Chair Foster passed the gavel to Vice-Chair Gara.                                                                            
Vice-Chair Gara remarked that some  of Dr. Felix's testimony                                                                    
had been difficult to hear.                                                                                                     
Mr. Felix  apologized and  reiterated his  previous remarks.                                                                    
He restated  his previous testimony related  to the creation                                                                    
of the  BPCI Act and draft  guidance released by the  FDA in                                                                    
January  on the  path  to  obtaining the  interchangeability                                                                    
designation.  He  explained  that were  companies  that  had                                                                    
completed  trials to  try to  achieve an  interchangeability                                                                    
designation.  When  they  would be  approved  was  currently                                                                    
unknown.  Companies   had  also  announced  they   would  be                                                                    
interchangeability  trials  to  pursue the  designation.  He                                                                    
underscored  the importance  of the  legislation because  it                                                                    
would  facilitate substitution  of an  interchangeable by  a                                                                    
4:32:18 PM                                                                                                                    
Mr.   Felix   reiterated   that  the   legislation   clearly                                                                    
communicated  how to  use  biosimilars and  interchangeables                                                                    
when they  were approved  under different  designations. The                                                                    
five biosimilars approved to date  were only biosimilars and                                                                    
did  not   have  the  FDA   designation  that   would  allow                                                                    
substitution  by   a  pharmacist.  He  explained   that  the                                                                    
products were very different than  how generics were viewed.                                                                    
If  the  community was  uneducated  and  began to  think  of                                                                    
biosimilars as  approved and immediately used  their closest                                                                    
analog, which was generic approval,  the community may think                                                                    
the  biosimilars were  substitutable unless  clear terms  of                                                                    
use  were  in   place.  He  stated  that   every  aspect  of                                                                    
healthcare  was  trying  to increase  communication  between                                                                    
members  of  the  healthcare  team.  The  bill  would  allow                                                                    
transparency for  a prescriber  to know what  was ultimately                                                                    
dispensed to the patient for the  prescriber to be on top of                                                                    
their care. If there was  any change in a patient's response                                                                    
to  a  medication the  prescriber  would  know exactly  what                                                                    
medication the patient was on.                                                                                                  
Representative Guttenberg spoke to  who was paying the bill.                                                                    
He observed  that Dr.  Felix had not  stated whether  any of                                                                    
the products  were approved by  the FDA. He referred  to Dr.                                                                    
Felix's  testimony   about  clarity  and   transparency.  He                                                                    
wondered  why  the decision  would  not  be handled  in  the                                                                    
doctor's  office instead  of at  the pharmacy.  He continued                                                                    
that  patients were  often in  a hurry  at the  pharmacy and                                                                    
were amenable to whatever was  given to them. Alternatively,                                                                    
he  thought  it  made  sense  to  have  the  physician  tell                                                                    
patients  what  they  would  receive.  He  referred  to  Dr.                                                                    
Felix's  earlier  testimony   that  many  practitioners  and                                                                    
people were  not up  on the issue.  He thought  the doctor's                                                                    
office was  the best place  to do prescribing.  He continued                                                                    
that  the doctor  could  specify for  a  pharmacist to  only                                                                    
prescribe a prescription as written.                                                                                            
Mr. Felix  answered that biologics were  distributed through                                                                    
either  a  medical  benefit (administered  by  a  healthcare                                                                    
professional) or were  self-administered (pharmacy benefit).                                                                    
The  legislation  pertained  to biologics  that  were  self-                                                                    
administered. The  medications would  not be dispensed  in a                                                                    
physician's office. Often the  pharmacist would be the first                                                                    
to  become aware,  especially  when  an interchangeable  was                                                                    
approved  in  the  marketplace. He  explained  that  medical                                                                    
benefit   biologics  were   typically   administered  by   a                                                                    
healthcare  professional in  a clinic,  hospital, or  office                                                                    
setting.   Whereas  self-administered   biologics  meant   a                                                                    
patient  self-injected  the  medication.  The  physician  or                                                                    
their  delegate  would  not be  directly  administering  the                                                                    
product  to  the  patient. The  method  of  facilitation  of                                                                    
substitution by  a pharmacist had  worked well  for generics                                                                    
and had worked to lower cost and facilitate access.                                                                             
4:38:02 PM                                                                                                                    
Senator   Hughes   referenced  Representative   Guttenberg's                                                                    
comments about  the letter from  the Board of  Pharmacy. She                                                                    
agreed there were not any  [interchangeables] on the market;                                                                    
the products  were in the  testing phases. There had  been a                                                                    
projection that the products could  be out within a month to                                                                    
a year.  The primary  issue was  that they  did not  want to                                                                    
wait an extra  year to provide the products  (if they became                                                                    
available)  to  Alaskans  suffering from  diseases  such  as                                                                    
lupus,  multiple sclerosis,  and  rheumatoid arthritis.  She                                                                    
reiterated her  earlier testimony  that pharmacists  did not                                                                    
have  to  carry  the  products.  She  relayed  that  if  the                                                                    
communication requirement was not  included, it would be bad                                                                    
for patients  - patients  wanted the substitution  listed in                                                                    
their  medical  records;   doctors  needed  the  information                                                                    
because they were not 100 percent identical like a generic.                                                                     
Representative Wilson asked who had requested the bill.                                                                         
Senator Hughes replied it had  been a combination of patient                                                                    
groups and companies developing  the products. The companies                                                                    
were spending  millions on product development;  if statutes                                                                    
were  not set  up, patients  would  not have  access to  the                                                                    
products.  The  individuals  suffering,   who  had  tried  a                                                                    
biologic, wanted continued access.                                                                                              
Representative Wilson  stated it had been  her understanding                                                                    
that a pharmacist would have  to call the physician prior to                                                                    
giving the product  to a patient; however, that  was not the                                                                    
case. She  summarized that there was  discussion between the                                                                    
pharmacist   and  the   patient,   the   patient  made   the                                                                    
determination,  and the  doctor may  not know  what happened                                                                    
for  three days.  She was  uncomfortable with  that process.                                                                    
She  referred  to  a  letter  in  members'  packets  from  a                                                                    
physician specifying  their practice would be  in harm's way                                                                    
because they were not notified  right away. She requested to                                                                    
hear from  the Board  of Pharmacy at  a future  hearing. She                                                                    
remarked  that the  bill would  charge pharmacists  and they                                                                    
had not asked  for it. She asked  for additional information                                                                    
at a future hearing.                                                                                                            
Senator   Hughes   reiterated   that   the   State   Medical                                                                    
Association  supported  the  bill.   She  explained  that  a                                                                    
physician could retain control  by specifying a prescription                                                                    
was to be dispensed as  written. She added that the products                                                                    
were  FDA   approved  and  clinical  results   would  be  no                                                                    
different than the original reference product.                                                                                  
Representative Wilson understood, but  she surmised it could                                                                    
constitute a  significant medical  change. She wanted  to be                                                                    
very  careful. She  surmised there  could be  a change  from                                                                    
what the physician wanted. She  wanted to ensure all parties                                                                    
were involved, not only groups or outside entities.                                                                             
4:42:45 PM                                                                                                                    
Mr. Whitt pointed to Section 4  of the bill that specified a                                                                    
pharmacist  who substituted  a biologic  in compliance  with                                                                    
the section did  not incur any greater  liability than would                                                                    
be  incurred  in  filling  the  original  prescription.  The                                                                    
section also specified the dispense as written provision.                                                                       
Representative  Wilson  noted  that  her  concern  was  with                                                                    
Section 5  related to the  three-day timeframe  a pharmacist                                                                    
had to  communicate a prescription  to a physician.  She was                                                                    
concerned  about the  liability  to the  physician. She  was                                                                    
certain that  if a person had  side effects it would  be the                                                                    
physician who  was accountable. She stated  that prescribing                                                                    
was a physician's duty. She  was concerned that the Board of                                                                    
Pharmacy  would have  to pay  for  something it  was not  in                                                                    
favor of. She  had not understood earlier  that the pharmacy                                                                    
would  be   telling  a   physician  what   prescription  was                                                                    
dispensed without obtaining approval from the physician.                                                                        
Senator Hughes noted  that the process for  medication to be                                                                    
approved by  the FDA was incredibly  rigorous. She furthered                                                                    
that  if a  medication was  categorized as  interchangeable,                                                                    
there was a  high assurance level, which was  the reason for                                                                    
the State Medical Association's support of the bill.                                                                            
Representative  Wilson   clarified  her  concern   was  that                                                                    
pharmacists  were not  doctors.  She stated  that a  patient                                                                    
could  receive  a doctor  prescription,  but  then go  to  a                                                                    
pharmacy and get something that  was slightly different. She                                                                    
was  concerned that  the doctor  would  not know  for up  to                                                                    
three days  what prescription had been  dispensed. She spoke                                                                    
to the  liability to  the physician.  She believed  the bill                                                                    
would allow a medical decision  to be made by the pharmacist                                                                    
and  patient. She  had initially  believed the  doctor would                                                                    
know about the prescription before it had been dispensed.                                                                       
Senator Hughes  answered that the  types of  pharmacies that                                                                    
would be  handling the expensive medication  would more than                                                                    
likely  have instantaneous  notification  to the  physician.                                                                    
She  reasoned  that  the FDA's  rigorous  process  had  been                                                                    
trusted with great success and savings.                                                                                         
SB  32  was   HEARD  and  HELD  in   committee  for  further                                                                    
Co-Chair  Foster addressed  the schedule  for the  following                                                                    
4:46:30 PM                                                                                                                    
The meeting was adjourned at 4:46 p.m.                                                                                          

Document Name Date/Time Subjects
SB032 Opposing Document-Opposition Letters 04.17.17.pdf HFIN 5/3/2017 1:30:00 PM
SB 32
SB032 Sectional Analysis ver J 04.17.17.pdf HFIN 5/3/2017 1:30:00 PM
SB 32
SB032 Sponsor Statement 04.17.17.pdf HFIN 5/3/2017 1:30:00 PM
SB 32
SB032 Supporting Documents-Support Letters 04.17.17.pdf HFIN 5/3/2017 1:30:00 PM
SB 32
SB32_Support_050317.pdf HFIN 5/3/2017 1:30:00 PM
SB 32
HFIN Crum ATA.pdf HFIN 5/3/2017 1:30:00 PM