Legislature(1995 - 1996)
03/12/1996 01:40 PM House FIN
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
March 12, 1996
1:40 P.M.
TAPE HFC 96-72, Side 1, #000 - end.
TAPE HFC 96-72, Side 2, #000 - end.
TAPE HFC 96-73, Side 1, #000 - #406.
CALL TO ORDER
Co-Chair Mark Hanley called the House Finance Committee
meeting to order at 1:40 p.m.
PRESENT
Co-Chair Hanley Representative Martin
Co-Chair Foster Representative Mulder
Representative Brown Representative Navarre
Representative Grussendorf Representative Parnell
Representative Kelly Representative Therriault
Representative Kohring
ALSO PRESENT
Representative Carl Moses; Kenneth Vassar, Bond Counsel,
Municipal Bond Bank; Lamar Cotten, Deputy Director,
Department of Community and Regional Affairs; Jim Baldwin,
Assistant Attorney General, Department of Law; Elary
Gromoff, Jr., Aleut Corporation; Chris Gates, Attorney,
Aleut Corporation; Representative Joe Green; Tim Benintendi,
Staff, Representative Moses.
SUMMARY
HB 341 An Act establishing a tax court to consider and
determine certain taxes and penalties due and
collateral matters, and amending provisions
relating to taxpayer challenges to the assessment,
levy, and collection of taxes by the state; and
providing for an effective date.
HB 341 was rescheduled to another time.
HB 466 An Act establishing the Adak Reuse Authority.
HB 466 was HELD in Committee for further
discussion.
HOUSE BILL NO. 466
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"An Act establishing the Adak Reuse Authority."
REPRESENTATIVE CARL MOSES, Sponsor HB 466, testified in
support of the legislation. He provided members with a
proposed Committee Substitute for HB 466, #9-LS1580\F,
3/11/96 (copy on file). He noted that Terri Lauterbach in a
memorandum dated 3/11/96 clarified the relationship of
subsections (a) and (b) in AS 30.17.260 (copy on file).
TIM BENINTENDI, STAFF, REPRESENTATIVE CARL MOSES provided
members with a memorandum dated 3/12/96, summarizing changes
made by the proposed committee substitute (Attachment 1).
Representative Parnell referred to page 5, lines 18 to 21.
He noted that the Administration has the discretion to
determine whether sufficient money is available to the Adak
Reuse Authority with respect to each proposed transfer. Mr.
Benintendi explained that this provision provides oversight
and addresses concerns regarding the State's liability. The
language expands oversight to the Administration and ties
the receiving of federal assets to federal funding to help
develop the assets. He did not think that the language
would impinge upon the authority of the Legislature to make
similar determinations. Representative Parnell summarized
that the Office of Management and Budget has to act in
accordance to legislative appropriation or authority to
receive federal appropriations.
Representative Parnell referred to page 7, lines 14 and 15.
He noted that the bond limit was changed from $400 to $100
million dollars. Mr. Benintendi explained that a total bond
sum of $400 million dollars was deemed to be excessive. He
stated that $100 million dollars is more realistic.
Representative Parnell referred to page 11, lines 7 - 9.
Mr. Benintendi explained that this provision would assure
that any applicant entering into activity with the Adak
Reuse Authority is not in arrears on any taxes due the state
of Alaska. Representative Parnell noted that line 9, "paid
all taxes due" may be changed to "current on all taxes due."
Co-Chair Hanley noted that taxes can be due while an
individual is under appeal or on a payment schedule. He
noted that the intent is not to preclude someone who has
appealed the process, had their taxes reduced and are on a
schedule for the remaining amount. He stated that the
amount in default or in arrears needs to be distinguished
from what is due.
Representative Parnell cited page 13, line 17: "The
municipality may not levy taxes to pay the indebtedness."
Mr. Benintendi stated that the language could be amended.
He noted that the intent is that the assets of the Adak
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Reuse Authority cover the debt.
Representative Parnell referred to page 15, line 21. He
asked what other obligations could be issued.
Representative Moses referred to obligations under lease
agreements.
Representative Martin stressed the importance of legislative
oversight. He questioned if arrearage of taxes to the
federal government would be included under page 11, lines 7
- 9. Mr. Benintendi stressed that the concern is to protect
the State. Representative Martin noted that the federal
government takes assets to cover arrears of federal taxes.
Representative Moses did not think arrears of federal taxes
would be the Adak Reuse Authority's responsibility other
than to discover an applicant's financial capability.
Representative Brown cited page 14, lines 13 - 17. Mr.
Benintendi explained that the objective was to facilitate
the autonomy of the Adak Reuse Authority. Representative
Brown observed that page 14, line 21 states: "To further
ensure the effective budgetary decision making by the
legislature, the authority shall..." She questioned who
owns the assets if they do not belong to the State. She
pointed out that the legislation sets up an entity of the
State. A corporation would be created to run and generate
economic activity using assets the State receives from the
federal government. She acknowledged that the assets would
be transferred to a local municipality after organization.
She asserted that until the transfer the assets and
obligations would be the State's.
JIM BALDWIN, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW
observed that the language in HB 466 is similar to enabling
language for the Alaska Industrial Development and Export
Authority (AIDEA). He emphasized that the intent is to make
funds separate from the state treasury. They are corporate
receipts. He noted that language referring to the Executive
Budget Act is similar to language governing AIDEA. He noted
that under this language the Legislature and Administration
have only required that AIDEA submit its operating costs.
Loan programs and capital expenditures are not part of
AIDEA's budget submission. The Alaska Industrial
Development and Export Authority's budget submissions are
shown as corporate receipts not as state general fund
receipts.
Mr. Baldwin stressed that public corporations are created to
be separate entities and to have their own assets. The
corporation itself may be an asset of the State, but it is
created to have separate assets. Creditors can only seek
recovery against the corporation's assets if there is a
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default. He emphasized that the legislation states that the
Adak Reuse Authority is independent from the State. As a
creature of the State the Legislature can specify varying
ways for handling their finance and accounts. He noted that
finances and accounts are handled differently among the
various public corporations. There is no set formula to
follow.
Representative Brown maintained that AIDEA's assets are
considered as state assets. She noted that they are part of
the budget plan proposed for appropriation. Co-Chair Hanley
clarified that AIDEA's assets would be paid to the State in
the form of a dividend. Mr. Baldwin stressed that AIDEA is
surrendering its assets. He maintained that if AIDEA did
not surrender its assets it would have to be dissolved for
the State to access them.
Co-Chair Hanley noted that the Legislature retains control
of AIDEA's operating budget. Representative Brown
summarized that the Adak Reuse Authority's operating budget
would be under the Executive Budget Act. Mr. Baldwin agreed
that the Adak Reuse Authority's operating budget would be
submitted through the Office of Management and Budget in the
general appropriation bill.
Representative Brown asked if conditions of the federal
transfer would be affected by the language that expresses
that the land does not belong to the State. Representative
Moses replied that this implies that the Adak Reuse
Authority is not the direct responsibility of the State.
LAMAR COTTEN, DEPUTY COMMISSIONER, DEPARTMENT OF COMMUNITY
AND REGIONAL AFFAIRS AND CHAIRMAN, LOCAL REUSE Adak Reuse
Authority PLANNING ACTIVITIES gave a brief background on the
closure of Adak. He observed that the Navy approached the
state of Alaska indicating that Adak would be on the August,
1995 Base Realignment and Closure list and scheduled for
closure on January 1, 1998. The Navy assisted the State in
developing a reuse process. The process is broken into two
components, planning and implementation. He noted the
absence of a local entity.
Mr. Cotten observed that a Local Reuse Adak Reuse Authority
Planning Committee was created by the State. He emphasized
the Committee's intent to involve local groups in the
planning process. He noted the diversity of interests in
the region. He observed that the local school district and
the U.S. Department of Commerce provided funds for a
conceptual reuse plan. He noted that a preliminary plan
will be ready in May. He noted reuse potential in
transportation, fishing, and storage. He discussed assets
of the base. He observed that assets are estimated at $1.0
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- $3.0 billion dollars.
Mr. Cotten noted that it is the intent of the Adak Reuse
Authority Planning Committee to finish the initial
conceptual plan by May. A final plan along with marketing
activities would be completed in the summer.
Mr. Cotten observed that the base is located on lands which
will return to the Department of Interior. He noted that
the Department of Interior is undergoing negotiations with
the Aleut Corporation in regards to the lands. The Aleut
Corporation is interested in obtaining the base lands. The
State is not opposed to ownership of the base land by the
Aleut Corporation. The State's position is that the Adak
Reuse Authority should be self sustaining. State general
fund support should not be needed. He noted that there is a
provision in the bill that says the Adak Reuse Authority
must demonstrate the means to operate the base for two years
without state funds. To generate operating funds the Adak
Reuse Authority has to be in the position to receive rents
and other income. The Navy estimated base operation and
maintenance costs for full capacity at $30.0 million
dollars. The State does not anticipate that the entire base
and assets will be assumed. The planning process will
dictate which parts of the base will be obtained. He
observed that there are 600 - 700 housing units on the base.
He pointed out that these housing units will be of little
value if they are not maintained.
Mr. Cotten noted that Senator Steven's office has been
involved in discussions regarding the base. He emphasized
the Senator could introduce federal legislation at some
future date.
Mr. Cotten explained that the State is concerned that
somebody could get the key assets on the base with the
expectations that the State or a municipality would pick up
traditional maintenance and operation activity.
Mr. Cotten referred to page 13, line 11. He observed that
the legislation assumes that assets and liabilities of the
Adak Reuse Authority would be assumed by a municipality. He
noted that the city of Unalaska and the Aleutians West
Borough have expressed interest in incorporating the base.
He added that base civilians have also expressed interest in
creating a second class city. He stressed that the State
would not support transference of the Adak Reuse Authority
to a second class city.
Representative Brown asked if the fiscal note covers public
safety and education services. Mr. Cotten stated that these
services are not covered by the fiscal note. He stressed
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that the function of the assets are to pay for traditional
operational costs including traditional municipal costs. He
cited page 5, lines 14 - 21. This provision would assure
that funds are available before the assets are assumed. He
emphasized that the base should be driven by public
contracts with federal agencies and the private sector. He
explained that the federal government will continue these
services in the interim. He added that the federal
government has a major clean-up responsibility and will
maintain a presence until clean-up is completed.
Mr. Cotten further discussed the Department's fiscal note.
He observed that some expenses in the fiscal note may be
covered by revenues from leasing and renting. He asserted
that the fiscal note reflects a conservative outlook that
these operations may not occur quickly. The fiscal note
provides for an executive director, staff assistant, travel
and legal costs.
Representative Mulder felt that the fiscal note could be
reduced. He noted that legal work could be performed by the
Office of the Attorney General. Mr. Cotten agreed that work
would be performed through the Office of the Attorney
General. He did not know if the Department of Law would
have to be reimbursed. Representative Moses emphasized that
federal transition money should be available.
(Tape Change, HFC 96-72, Side 2)
ELARY GROMOFF, JR., ALEUT CORPORATION provided members with
a letter from the Corporation to Co-Chair Hanley, dated
3/11/96 regarding proposed changes to the legislation
(Attachment 2). He emphasized the Aleut Corporation's
willingness to work with the state of Alaska regarding the
reuse of Adak. He noted that Adak is a traditional Aleut
land. He observed that the Aleut Corporation is currently
negotiating with the federal government on land transfers.
He maintained that the Department of Interior wants to
transfer the lands to the Aleut Corporation. He stressed
the need for equal representation. He noted that the local
Aleut community is composed of Village Corporations, the
regional corporation and tribal governments. He referred to
a memorandum provided to members from the Aleut Corporation,
dated 3/12/96 regarding the Corporation's concerns
(Attachment 3).
CHRIS GATES, ATTORNEY, ALEUT CORPORATION emphasized
cooperation. He requested that a majority of the Adak Reuse
Authority's Board members come from the region. He observed
that the legislation states that the Adak Reuse Authority
"shall" be integrated into the municipality within one year
after incorporation. He expressed concern that assets not
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be stripped by a municipality that may not be interested in
seeing Adak effectively developed. He asked that provisions
be included that would prevent stripping assets for 4 to 5
years. He emphasized that Adak needs to be aggressively
marketed in order to create 500 full-time year around jobs.
He maintained that these jobs must exist to justify the
starting infrastructure. He stressed that the Aleut
Corporation is prepared to immediately begin aggressive
marketing.
In response to a question by Representative Kohring, Mr.
Gromoff noted that the Navy estimates the value of the base
at $2.8 billion dollars.
Mr. Gates summarized discussions with the U.S. Department of
Fish and Wildlife. He noted that the Aleut Corporation
would allow the U.S. Department of Fish and Wildlife to
retain 65,000 to 75,000 acres that were identified for land
selection by the Corporation in exchange for base lands.
Mr. Gromoff noted that the U.S. Department of Fish and
Wildlife consider the base lands to be compromised. Co-
Chair Hanley clarified that the lands will be exchanged acre
for acre. Mr. Gates pointed out that the Aleut people are
exchanging all of their legitimate ANSCA entitlement land
"to place all of their eggs in the Adak basket." He
reiterated the need for a team approach and substantial
involvement of the Aleut people.
Representative Brown asked if the Aleut Corporation would
want to own the land if representation remains the same as
is currently in the legislation. Mr. Gromoff stated that
the Aleut Corporation would still pursue land ownership. He
stated that the Aleut Corporation would look at first rights
on some Navy facilities. He asserted that the Aleut
Corporation will be the land owners.
Representative Brown referred to page 13, Succession. Mr.
Gates requested that "shall" be changed to "may" on page 13,
line 13. Representative Brown questioned if "within one
year" could be deleted. Mr. Gates did not support the
deletion of "within one year."
Mr. Gates asked for a prohibition on stripping assets from
the Island for at least 5 years without a super majority
vote. He stressed that operations and maintenance costs at
the base would be a minimum of $10.0 million dollars a year.
He stated that assets should remain in place while
aggressive marketing occurs to assure full-time year around
jobs.
Representative Mulder maintained that the Adak Reuse
Authority is going to pursue those avenues which it finds
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financially feasible and economically advantages for the
promotion of Adak. He argued that they would not strip the
assets for a one time cash out.
Representative Mulder stressed that representation is the
most important issue. He asked if the Aleut Corporation
would accept 3 members on the Board. Mr. Gromoff responded
that the Corporation is seeking people representation. He
suggested that the Adak Reuse Authority be composed of nine
members with two appointed by the Governor. He stressed
that he would at least like to see an equal vote.
Representative Mulder noted that the legislation calls for
seven members on the Adak Reuse Authority. He stressed that
there needs to be state involvement. He estimated that the
legislature would take a dim view of assisting a semi-tribal
organization that was created through ANILCA. He stressed
that three members on the Adak Reuse Authority would provide
for fair and adequate representation. He noted that company
towns have a history of failure.
Mr. Gromoff emphasized that the Aleut Corporation has
cooperated with the State. He stressed the Corporation's
willingness and ability to market and invest in Adak. He
disagreed that Adak would be similar to a one company town.
He stressed that the Aleut Corporation can meet the Navy's
closure schedule. He expressed support for four regional
members on the Adak Reuse Authority's Board. He
acknowledged that a municipality will be needed to provide
public support. He stressed that Adak should be an Aleut
community. He pointed to the high unemployment rate among
the Aleut people. He maintained that Adak is an opportunity
to create jobs and opportunities for the Aleut people.
Representative Mulder asked why the Adak Reuse Authority
would not meet the Navy's schedule. Mr. Gates questioned
what would happen if the congressional delegation is unable
to obtain two years worth of funding.
Mr. Gromoff restated that the Aleut Corporation is ready to
back the plan with aggressive marketing and financial
support. He stressed that there are no guarantees of
federal support. He observed that the Corporation through a
subsidiary offered to operate and maintain the facilities
and contract to the Navy.
Mr. Gates added that the legislation requires regulations to
be reviewed by the Office of the Lieutenant Governor. He
restated the request to provide representation for the
region. He stressed that the people of the region are the
ones that will suffer from failure or benefit from success.
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Representative Brown noted that the legislation calls for
three state commissioners to be members of the Board. She
questioned if members of the public would have more time and
interest. Representative Mulder suggested that the
commissioners be allowed to appoint designees.
Mr. Cotten spoke in support of retaining the provision to
designate three commissioners. He pointed out that page 2,
line 1 - 5 allows the commissioners to appoint designees.
He suggested that in addition to the Department of Community
and Regional Affairs, the Department of Transportation and
Public Facilities, Department of Commerce and Economic
Development or Department of Natural Resources could have a
vested interest in the Adak Reuse Authority.
Mr. Cotten clarified that there is no agreement in regards
to land ownership by the Aleut Corporation. He added that
the legislation creates an Adak Reuse Authority that will
have title to the property. He restated that the Local
Reuse Adak Reuse Authority Planning Committee will have a
preliminary plan in May. He pointed out that their plan
calls for extensive marketing activities.
Co-Chair Hanley asked if the sponsor would support language
preventing removal of assets for the first 3 to 5 years.
Representative Moses stated that he could not imagine the
Adak Reuse Authority removing assets. He spoke against the
proposal to add language prohibiting removal of assets. He
maintained that the language would be too restrictive. Mr.
Cotten pointed out that it may be wise to move some assets
off the Island. He noted that there will be surplus housing
on the Island. He stressed the need for housing in other
areas of the region. Co-Chair Hanley summarized concerns
that a municipality could absorb the Adak Reuse Authority
only to utilize the assets.
Mr. Gates noted that discussions have taken place between
the federal government and the Aleut Corporation that Mr.
Cotten was not privy to. He maintained that there are draft
agreements for the land transfer. He asserted that the land
issue is well down the road. He maintained that this is the
appropriate time to anticipate and address problems. He
expressed hope that the Adak Reuse Authority and
municipality will act in good faith, but emphasized the need
for assurances.
In response to a question by Representative Parnell, Mr.
Gates noted that the majority of the value is in real
property. Representative Parnell asked if real property
should be restricted. Mr. Gates asked how generators would
be defined. Co-Chair Hanley pointed out that housing would
be real property.
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Mr. Gromoff noted that under the base closure surplus
property will be available for other federal agencies unless
it is identified in a Reuse Plan. The Navy will have to
remove equipment that is not identified. He maintained that
the Navy wants to find a way to keep as much of the
equipment in the community as possible due to the cost of
removal. He observed that it would cost $100.0 thousand
dollars to move each house.
KENNETH VASSAR, MUNICIPAL BOND COUNSEL, ANCHORAGE testified
via the teleconference network. He summarized points of
concern. He referred to page 3, lines 15 and 16. He
stressed that bond counsel generally desires more
flexibility, especially in the case of a brand new
authority. He suggested that subsection (2) be amended to
read, "to enter into agreement" for the operation of the
facilities.
Mr. Vassar cited AS 30.17.110 on page 3. He noted that the
Adak Reuse Authority might finance projects for other
entities. He suggested that this be referenced in the
legislation.
(Tape Change, HFC 96-73, Side 1)
Mr. Vassar addressed page 4, lines 25 - 27. He noted that
other authorities have the ability to expedite
administrative procedure actions under which regulations may
be in effect immediately instead of 30 days. He suggested
that this ability would be helpful for the Adak Reuse
Authority.
Mr. Vassar referred to page 5, line 7 - 13. He noted that
this section prohibits the Adak Reuse Authority from certain
actions. He questioned why the Adak Reuse Authority is
prohibited from the use of state grants, appropriations or
other transfers. He noted that it is a restriction on the
potential bonding authority of the Adak Reuse Authority. He
added that (2) in the same section limits the ability of the
Adak Reuse Authority to finance based upon its asset base.
The Adak Reuse Authority would be dependent on a facility by
facility revenue bonding approach. He noted that this is
not consistent with other provisions of the legislation. He
pointed out that the purposes section refers to creating
jobs and advancing general prosperity. He stressed that (2)
is in conflict with this purpose. It would preclude the
Adak Reuse Authority from using other facilities that
generate more than enough revenue to subsidize others in the
early years.
Mr. Vassar observed that AS 30.17.210 allows the Adak Reuse
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Authority to issue bonds payable from designated projects
whether or not they are financed in whole or in part with
the proceeds of the bonds. He stressed that this language
contemplates allowing the revenue from one facility to
support another facility. He suggested that (2) on page 5,
lines 11 - 13 be deleted.
Mr. Vassar cited page 5, line 24. He noted that it is
presumed that the Adak Reuse Authority has the authority to
issue bonds. He suggested that the Adak Reuse Authority's
ability to issue bonds be clarified in the powers section.
Mr. Vassar noted that there is no moral obligation created
in the bonding power. He noted that the Adak Reuse
Authority will be new. He added that if the decision is
made not to include moral obligation power then page 7, line
11 - 13, could affect the State's ability to issue bonds.
Mr. Vassar observed that page 9, lines 25 - 27 raises
questions regarding the type of financing that the Adak
Reuse Authority might undertake. He noted that projects
financed under this chapter are included in the exemption
from taxation. He stated that if only Adak Reuse Authority
projects are financed under this chapter this language would
make sense. He stressed that if the Adak Reuse Authority is
a conduit or revenue lender for private entities then
private entities would benefit through Adak Reuse Authority
bond packages while being exempted from property taxes. Mr.
Vassar noted that reference is made under section 30.17.280
to conduit type financing by the Adak Reuse Authority.
Mr. Vassar referred to page 13, lines 11 - 17. He pointed
out that the Adak Reuse Authority would be attempting to
enter into the bond market to sell debt, pledging their own
general obligation indebtedness. He explained that the
Adak Reuse Authority can sell bonds based on their asset
base. The assets are pledged to secure bonds. He observed
that a bond buyer would need to know that a municipality may
be formed and when it is formed the Adak Reuse Authority
would be integrated into the municipality. The general
obligation debt of the Adak Reuse Authority would not become
the general obligation of the municipality. He concluded
that general obligation bond financing would not be
realistic under this scenario. The Adak Reuse Authority
would be limited to revenue supported financing.
Mr. Vassar questioned the severity of page 13, line 17:
"The municipality may not levy taxes to pay the
indebtedness." He suggested that the language could be
changed to: "The municipality may not be required to levy
taxes."
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Mr. Gates expressed concern that there is no restriction on
the use of development fund account monies outside of Adak.
He maintained that development funds should be focused on
trying to create jobs and economic activity on Adak.
Mr. Vassar pointed out that section 30.17.100, Purpose and
General Powers specifically states that the Adak Reuse
Authority is to "develop and implement a comprehensive reuse
and redevelopment plan for the territory encompassed by the
Adak Naval Air Facility..." He noted that "In furtherance
of its corporate purposes...," section 30.17.110, Powers
of the Adak Reuse Authority, relates back to the Adak Naval
Air Facility. He added that the specific items mentioned in
section 30.17.100, Purpose and General Powers also specify
the Adak Naval Air Facility. He stressed that the Adak
Reuse Authority would not be able to finance a project
outside of the Adak Naval Air Facility.
HB 466 was HELD in Committee for further discussion.
ADJOURNMENT
The meeting adjourned at 3:36 p.m.
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