Legislature(1999 - 2000)
03/08/2000 02:20 PM House FIN
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HOUSE FINANCE COMMITTEE
March 8, 2000
2:20 P.M.
TAPE HFC 00 - 68, Side 1
TAPE HFC 00 - 68, Side 2
CALL TO ORDER
Co-Chair Therriault called the House Finance Committee
meeting to order at 2:20 p.m.
PRESENT
Co-Chair Mulder
Co-Chair Therriault Representative Foster
Vice Chair Bunde Representative Grussendorf
Representative Austerman Representative Moses
Representative J. Davies Representative Phillips
Representative G. Davis Representative Williams
ALSO PRESENT
Mike Tibbles, Staff, Representative Therriault; Kevin Hand,
Staff, Representative Halcro; Paul Grossi, Director,
Division of Workers' Compensation, Department of Labor; Don
Etheridge, Lobbyist, AFL/CIO; Dwight Perkins, Deputy
Commissioner, Department of Labor and Workforce Development;
Remond Henderson, Director, Division of Administrative
Services, Department of Labor and Workforce Development;
Don Shannon, Alaska Safety Advisory Council, Fairbanks; Bear
Piekarski, District Council of Labors, and Workers'
Compensation Board, Anchorage; Kevin Smith, Risk Manager,
Alaska Municipal League.
TESTIFIED VIA TELECONFERENCE
Leandra Estep, Joint Insurance Association, Alaska Municipal
League, Anchorage; Glen Smith, Risk Manager, Municipality of
Anchorage.
SUMMARY
HB 218 "An Act relating to property loaned to or held by
museums."
CSHB 218 was moved from Committee on 3/3/00. The
Committee reviewed the committee substitute as it
incorporated conceptual amendments made at that
time. There were no changes and the bill was
forwarded to the Chief Clerk's Office.
HB 378 "An Act eliminating certain taxes under AS 21.09
on premiums from the sale of workers' compensation
insurance; relating to the establishment,
assessment, collection, and accounting for service
fees for state administration of workers'
compensation and worker safety programs;
establishing civil penalties and sanctions for
late payment or nonpayment of the service fee; and
providing for an effective date."
CSHB 378 (FIN) was REPORTED out of Committee with
"no recommendation" and five fiscal impact notes:
one by the Office of the Governor; one by the
University of Alaska; two by the Department of
Labor and Workforce Development, dated 2/16/00;
and one by the Community and Economic Development,
dated 2/16/00.
HJR 58 Respectfully requesting the members of the Alaska
Congressional delegation to sponsor and support
passage of an amendment to the statute relating to
the disposition of federal funds received by the
state from oil and gas leases in the National
Petroleum Reserve - Alaska to authorize use of the
funds for the state's power cost equalization
program.
CSHJR 58 was REPORTED out of Committee with a "no
recommendation" and with a zero fiscal note by the
House Finance Committee.
HOUSE BILL NO. 218
"An Act relating to property loaned to or held by
museums."
CSHB 218 was moved from Committee on 3/3/00 with a
conceptual amendment. Members were provided with the House
Finance Committee version of HB 218, version 1-LS0786\I,
dated 3/7/00.
MIKE TIBBLES, STAFF, REPRESENTATIVE THERRIAULT explained
that if the changes made to the bill to incorporate the
conceptional amendment are in keeping with the Committee's
intent no further action is needed. He reviewed CSHB 218
(FIN).
On page 2, lines 14 and 15: language requiring "a statement
that the museum will acquire title to the property if a
valid claim to the property is not made in 90 days" was
replaced with "a statement that outlines the schedule and
requirements for the museum to acquire title under this
section."
Language was amended on page 2 from line 28 to page 3 line 1
requiring the museum: To publish the last date that the
newspaper article will run (four weeks) and provide a
statement that the individuals will lose title and the
museum will acquire title within 46 days. The owner would
have 45 days from the date of the last article.
Mr. Tibbles observed that the Committee discussed a 30-day
acquisition period. He explained that if there is not an
address and a newspaper article is run for four weeks, then
by the beginning of the fourth week only three weeks would
have lapsed. The additional time was added to assure due
process. Corresponding changes were made to reflect the
forty-sixth day.
A conflicting definition of "notice" was also deleted to be
consistent.
KEVIN HAND, STAFF, REPRESENTATIVE HALCRO stated that the
sponsor supports the change.
Representative J. Davies stated that he appreciated and
concurred with the changes that were made.
CSHB 218 was moved from Committee on 3/3/00. The Committee
reviewed the committee substitute as it incorporated
conceptual amendments made at that time. There were no
changes and the bill was forwarded to the Chief Clerk's
Office.
HOUSE JOINT RESOLUTION NO. 58
Respectfully requesting the members of the Alaska
Congressional delegation to sponsor and support passage
of an amendment to the statute relating to the
disposition of federal funds received by the state from
oil and gas leases in the National Petroleum Reserve -
Alaska to authorize use of the funds for the state's
power cost equalization program.
Co-Chair Mulder explained that the resolution requests
Congress to amend federal statutes to allow National
Petroleum Reserve Alaska (NPRA) funds to be used to fund
Power Cost Equalization (PCE). He observed that under
federal statutes NPRA funds can be used for: planning,
construction, maintenance and operation of essential
facilities, and other necessary provisions of public
service. Federal statutes also provide that the state in
allocation of such funds shall give priority to use by
subdivisions within the state most directly or severely
impacted by development of oil and gas leasing. He explained
that there is currently $40 to $41 million dollars in the
NPRA account and gave a brief history of NPRA funding.
Co-Chair Mulder emphasized that it is time to establish a
long-term solution to fund PCE through an endowment, which
would spin off interest each year. He acknowledged that the
North Slope Borough would not support the approach. He
provided members with a list of projects listed on the North
Slope Borough's Impact Mitigation Program application (copy
on file). He stressed that a funding mechanism for PCE would
be in the interest of all of rural Alaska. The NPRA funding
provides an opportunity to develop an endowment for PCE. He
maintained that the projects requested by the North Slope
Borough, while worthy, do not come to the same level of
prioritization as PCE. He maintained that all rural Alaska
should share the benefits of NPRA leasing and drilling.
Representative Grussendorf spoke in support of the
resolution. He pointed out that it could take time to get
the changes past Congress and questioned what other sources
of funds are being considered.
Co-Chair Mulder observed that changes to the federal statute
would not be needed if the North Slope Borough concurred
with the use of NPRA funds for an endowment.
Representative J. Davies felt that language on page 3, line
18 was ambiguous: "to authorize annual appropriation of
money received from this source". He questioned if the
intent is to have a mechanism to allocate the money that is
available to the state of Alaska. He asked if all the money
available from the source would be appropriated.
Co-Chair Mulder responded that the intent is to appropriate
the entire $41 million dollars to be part of an endowment.
He discussed the overall proposal. He estimated that
resolution of the Four Dam Pool would result in funding for
use in a PCE endowment. He estimated that an endowment using
NPRA funds and money from the sale of the Four Dam Pool
could total $120 - $125 million dollars. This would provided
$8 to $10 million dollars a year in interest. In addition,
there is a possibility of assistance from the Alaska housing
authorities. The housing authorities are willing to be part
of a long-term solution. A portion of the AIDEA dividend
could be used to fill in the gap between the endowment and
the $15.7 million dollars needed to fund PCE. He clarified
that interest from the $41 million dollars will generate
approximately $2.5 to $3 million dollars a year. Combined
with funding generated from the Four Dam Pool or from its
sale to the communities would provide the additional amount.
Co-Chair Therriault explained that there would be an annual
appropriation from the interest on the $41 million dollars
in NPRA funds.
Representative J. Davies questioned if there would be
additional funds. Co-Chair Mulder could not say if there
would be future funds available. He suggested that "annual"
could be deleted to allow additional appropriations.
Representative J. Davies agreed with the deletion of
"annual" on line 18, page 3 and suggested that "the" be
added before "money".
Co-Chair Therriault MOVED to ADOPT Amendment 1: that
"annual" be deleted from line 18, page 3 and "the" be added
before "money". There being NO OBJECTION, it was so ordered.
Representative Austerman recalled that Senator Stevens
indicated that the issue of PCE funding is an Alaskan
problem.
Co-Chair Mulder responded that Alaska is not asking the
federal government to fund PCE. Representative Austerman
pointed out that the resolution asks the federal government
to step into the issue. Co-Chair Mulder stressed that Alaska
should have a voice in how the money is spent.
Representative Austerman clarified that he is a strong
supporter of the endowment concept for PCE.
Co-Chair Therriault suggested that Senator Stevens would
consider the rest of Alaska's plan regarding PCE funding.
Representative Austerman noted that the plan is not beyond
the conceptional stage. Co-Chair Mulder spoke in support of
developing a plan. He stressed the need to address the
issue.
Representative J. Davies pointed out that NPRA land is part
of the federal public domain. Co-Chair Mulder observed that
the federal government gives the state 50 percent of the
revenue and reiterated that the state should have some say
over how the money is spent.
Co-Chair Therriault pointed out that there is a zero fiscal
note.
Co-Chair Mulder MOVED to report CSHJR 58 (FIN) out of
Committee with the accompanying fiscal note.
Representative J. Davies OBJECTED. He questioned if anyone
opposing the bill had been contacted. Co-Chair Therriault
responded that no one contacted his office.
A roll call vote was taken on the motion.
IN FAVOR: Austerman, Bunde, Davis, Foster, Phillips,
Williams, Moses, Therriault, Mulder
OPPOSED: Davies, Grussendorf
The MOTION PASSED (9-2).
CSHJR 58 was REPORTED out of Committee with a "no
recommendation" and with a zero fiscal note by the House
Finance Committee.
HOUSE BILL NO. 378
"An Act eliminating certain taxes under AS 21.09 on
premiums from the sale of workers' compensation
insurance; relating to the establishment, assessment,
collection, and accounting for service fees for state
administration of workers' compensation and worker
safety programs; establishing civil penalties and
sanctions for late payment or nonpayment of the service
fee; and providing for an effective date."
PAUL GROSSI, DIRECTOR, DIVISION OF WORKERS' COMPENSATION,
DEPARTMENT OF LABOR testified in support of the legislation.
He explained that the legislation eliminates the premium tax
on workers' compensation insurance polices, enacts a user
fee and establishes a special account for funding workers'
compensation and safety programs. Currently, all employers
are required to cover their employees for workers'
compensation. Employers can use a workers' compensation
insurance policy, which requires a premium tax. Larger
employers could also self-insure. A self ensured employer
does not pay a fee or tax. Public entities can form a Joint
Insurance Arrangement to cover their liabilities. The
legislation eliminates the premium tax. The premium tax
collected $3.5 million dollars in 1998. The fee that the
legislation would enact is designed to collect approximately
$3.5 million dollars. This would be used to fund the
Division of Workers' Compensation and the Occupational
Safety and Health Division (OSH). The fee will start at 3.3
percent and graduate down to 2.6 percent. Self-insurers
would be phased in. Eventually everyone would pay at the
same rate, according to their use of the system. Employers
would pay according to their amount of injuries. He stressed
that the legislation would provide an incentive for a safer
work place and requires all employers to pay at the same
rate. He added that the legislation would reduce the
dependence on general funds.
Mr. Grossi pointed out that Alaska is one of only six states
that fund their programs through general funds. Thirty-four
states pay for their programs through special accounts. Ten
states use a combination. Sixteen states have a similar
mechanism to the legislation.
Mr. Grossi acknowledged that there is opposition to the
legislation. He pointed out that the opposition has come
from employers that have not had to pay under the current
system.
Vice Chair Bunde questioned if school districts oppose the
legislation. He noted that self-insurers pay for the
liability on claims. Mr. Grossi responded that self-insurers
don't pay for administration of the workers' compensation
system: hearings to resolve disputed cases and work place
safety programs.
In response to a question by Representative Phillips, Mr.
Grossi explained that employers pay based on their number of
claims times the multiplier.
Discussion ensued regarding support for the legislation. Mr.
Grossi acknowledged that the Alaska Municipal League and the
city of Anchorage have testified against the legislation.
Representative Austerman questioned what the affect would be
of exempting the public sector.
Mr. Grossi explained that the total liability for
municipalities is approximately $270 - $300 thousand dollars
or 10 percent of the total.
Co-Chair Therriault observed that the administrative cost
would be shared over a wider pool. He questioned the impact
on small business. Mr. Grossi stated that small business
should pay less because the pool is larger.
Vice Chair Bunde concluded that the cost of administration
would be spread but that the Division would not receive more
funding. He recounted testimony that the Division of
Workers' Compensation is not supportive of workers. He
questioned the net gain of the legislation. Mr. Grossi
responded that if workers' compensation remains a general
fund program it would be subject to reductions. The Division
has received $500 thousand dollars in cuts over recent
years. Combined with inflation this is approximately 40
percent less than what was available in 1998. He
acknowledged that service has been reduced but pointed to
budget reductions as the cause. The legislation was not
designed to increase revenue.
Representative Austerman questioned the cost to
municipalities. Mr. Grossi responded that municipalities
would pay 2.6 percent of claims. Single employers currently
pay their workers' compensation liabilities.
DWIGHT PERKINS, DEPUTY COMMISSIONER, DEPARTMENT OF LABOR AND
WORKFORCE DEVELOPMENT provided information on the
legislation. He noted that the city and borough of Juneau
had $716,490 dollars in workers' compensation claims in
1998. Based on a phased in approach the city and borough of
Juneau would pay $5,911 dollars the first year and $18,629
thousand dollars on the fourth year, if their safety record
did not change. He emphasized that the Division is having a
hard time keeping their doors open due to budget reductions.
He pointed out that the change would take $1.5 million
dollars off budget in FY01 and an additional $2 million
dollars the following year. Payment is only on services.
Most other states require users to pay.
Representative Phillips clarified that the state of Alaska
has never charged for processing workers' compensation
claims. Mr. Perkins suggested that businesses take advantage
of the consultation side of the OSH program.
Co-Chair Therriault referred to the fiscal notes. He
observed that there would be a decrease in revenues from the
deletion of the insurance tax. This would be offset from OSH
and workers' compensation funds. He questioned the cost for
an assessment fee under Risk Management.
REMOND HENDERSON, DIRECTOR, DIVISION OF ADMINISTRATIVE
SERVICES, DEPARTMENT OF LABOR AND WORKFORCE DEVELOPMENT
explained that the state of Alaska would also pay the fee.
Mr. Grossi explained that the cost would be spread across
agencies as interagency receipts. Mr. Perkins explained that
the estimated cost from state employee claims is $75.8
thousand dollars in FY01. After the phase in (forth year)
this would be $238.9 thousand dollars. He added that this
amount would be charged off proportionately to federal
receipts that the state receives.
Representative J. Davies questioned if interagency receipts
would be based on each department's claims.
Tape Change, HFC 00 - 68, Side 2
Representative Foster noted that municipalities and schools
pool together for self-insurance. He questioned if air taxis
are combined into self-insured pools. Mr. Grossi clarified
that there are no self-insurance pools of air taxis.
In response to a question by Representative Foster, Mr.
Grossi acknowledged that there would be an additional cost
to the state of Alaska, but emphasized that there would also
be a reduction of $1.5 million dollars in general fund
support.
LEANDRA ESTEP, MANAGER, JOINT INSURANCE ASSOCIATION (JIA),
ALASKA MUNICIPAL LEAGUE, ANHCHORAGE spoke in support of a
municipal exemption. She stressed that municipalities have
already take substantial cuts in state support. She
expressed concern that a user fee would be assessed on every
dollar paid on claims. This would include medical benefits,
attorney fees, defense costs, and contractual fees. Every
employer pays into the Second Injury Fund. The city and
borough of Anchorage paid between 5 and 6 percent into the
Second Injury Fund over the last several years. She proposed
that the user fee only be paid on indemnity claims. Medical-
only claims should be exempted, since they are not generally
denied or litigated.
In response to a question by Vice Chair Bunde, Ms. Estep
explained that the municipalities pay injured employees.
State support is given when cases are litigated and through
hearing officers. The state also receives notice of claims
and assigns a case number.
Vice Chair Bunde questioned why the claim would be filed
with the state. Ms. Estep explained that there is a
statutory requirement that the state be notified of all
injuries.
GLEN SMITH, RISK MANAGER, MUNCIPALITY OF ANCHORAGE provided
information regarding self-insurance. He pointed out that
the Alaska Municipal League was created in response to
increased insurance costs. He gave a brief history of self-
insurance legislation and activities. The 45 percent loss
ratio for the Alaska Municipal League is lower than any
other industry in Alaska. He discussed the loss ratio. The
premium an individual pays is based on the combined loss
ratio. Self-insured entities do not make a profit on their
programs. The municipality of Anchorage pays for third party
administration of claims. He maintained that it should not
cost as much to litigate a claim as to process a claim.
In response to a question by Representative J. Davies, Mr.
Smith noted that there are 3,900 municipal employees. There
were 453 workers' compensation claims and $1.9 million
dollars in claims payments in 1998. He estimated that $3.4
million dollars in claims would be paid for 1999.
In response to a question by Representative Foster, Mr. G.
Smith observed that the municipality of Anchorage would pay
$30 thousand dollars a year based on the legislation. He
estimated that there would be a proposal to cap property tax
on the November ballot.
KEVIN SMITH, RISK MANAGER, ALASKA MUNICIPAL LEAGUE stated
that the League opposes the bill and wishes to have the
public sector excluded. He noted that the JIA was created in
1986 to allow public entities to self-insure. There are a
number of cities and schools within the JIA program.
Mr. K. Smith pointed out that self-insurers buy insurance
with a large deductible. There is a premium payment on the
reinsurance. He explained that an additional amount is paid
to the Second Injury Fund.
Mr. K. Smith stated that the legislation represents a cost
shift from private insurance companies to the public sector.
The state represents the largest portion of the shift.
Mr. K. Smith disagreed that claims would be reduced by the
legislation. He emphasized that there is sufficient
incentive to reduce costs under the current program. He
maintained that the legislation would provide a
disincentive. He suggested that the Workers' Compensation
Board would have a conflict since it would be supported from
payments to claimants. He maintained that safety incentives
do not work.
Mr. K. Smith suggested the addition of language on page 3,
line 20: "except a municipality, a municipal school
district, or regional education attendance area". He added
that subsection 6(g) on page 4 should be deleted:
(g) Notwithstanding AS 21.76.020(a), a joint insurance
arrangement established under AS 21.76 is subject to
the provisions of this section and regulations adopted
under this section and, if self-insured, shall pay the
annual service fee on behalf of its members.
Vice Chair Bunde asked how many communities are uninsured.
Mr. K. Smith clarified that workers' compensation is
required by the state of Alaska. There are communities that
are having difficulty making payments. The number that is
not purchasing some protection is small at this time. He
estimated that the number would increase with reductions to
municipalities.
Representative Foster questioned who would be covered by the
legislation if public entities were exempted. Mr. K. Smith
explained that private entities would still pay. He
maintained that the public sector runs efficiently.
Representative Phillips noted that $17,000 - $56,000 dollars
a year would be assessed to the Alaska Municipal League. She
asked how the additional fee would be assessed to the
communities and school districts in the JIA. Mr. K. Smith
noted that there are 141 members, of which 20 are school
districts. He noted that rates for the coming year have been
established and did not know how the increase would be
addressed. He spoke in support of a delayed effective date.
Representative Phillips observed that the effective date is
January 1, 2001.
Co-Chair Therriault pointed out that the JIA has a
significant reserve and assets of $15 million dollars.
Since, JIA is never exposed to more than $250 thousand
dollars on any loss; it would take more large losses in a
single year than have been experienced in the past twelve
years to exhaust their resources.
Representative J. Davies questioned the number of employees
covered by JIA. Mr. K. Smith responded that there are
approximately 2,500 employees covered by the JIA.
DON SHANNON, ALASKA SAFETY ADVISORY COUNCIL, FAIRBANKS
testified in support of the legislation. He noted that
Alaska's on the job injury rate is 4 to 5 times higher than
other states. He stressed that the legislation would reduce
injury. He stated that he was not concern with the Workers'
Compensation Board's ability to settle claims fairly if the
legislation is in affect.
DON ETHERIDGE, LOBBYIST, AFL/CIO testified in support of the
legislation. He maintained that the legislation would
stabilize the Divisions of Workers' Compensation and OSH.
The only way public employees can be covered is through the
state Division of Occupational Safety and Health.
ANDREW (BEAR) PIEKARSKI, BUSINESS MANAGER, DISTRICT COUNCIL
OF LABORS, AND MEMBER, WORKERS' COMPENSATION BOARD,
ANCHORAGE spoke in support of the legislation. He observed
that funding is going down and there is a large turnover in
state hearing officers. He observed that many companies do
not have workers' compensation. He maintained that a lot of
out-of-state companies operating in Alaska do not have
workers' compensation programs.
Vice Chair Bunde questioned if the legislation would capture
entities that do not have workers' compensation. Mr.
Piekarski responded that a stable funding source would help.
Co-Chair Therriault noted that the Office of Management and
Budget provided members with a fiscal note (copy on file.)
Mr. Henderson explained that the fiscal note shows the cost
to each state agency by funding source.
Vice Chair Bunde questioned the cost per agency. Mr.
Henderson reiterated that the cost per agency is based on
injuries.
Mr. G. Smith stressed that each municipality would be
considered as several employers.
Representative Phillips MOVED to report CSHB 378 (L&C) out
of Committee with the accompanying fiscal note. Vice Chair
Bunde OBJECTED for purpose of discussion.
There being NO OBJECTION, it was so ordered.
CSHB 378 (FIN) was REPORTED out of Committee with "no
recommendation" and five fiscal impact notes: one by the
Office of the Governor; one by the University of Alaska; two
by the Department of Labor and Workforce Development, dated
2/16/00; and one by the Community and Economic Development,
dated 2/16/00.
ADJOURNMENT
The meeting was adjourned at 3:55 p.m.
House Finance Committee 12 3/8/00 p.m.
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