Legislature(2005 - 2006)HOUSE FINANCE 519
02/15/2006 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB273 | |
| HB421 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 421 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| = | HB 273 | ||
HOUSE FINANCE COMMITTEE
February 15, 2006
1:42 P.M.
CALL TO ORDER
Co-Chair Meyer called the House Finance Committee meeting to
order at 1:42:16 PM.
MEMBERS PRESENT
Representative Kevin Meyer, Co-Chair
Representative Bill Stoltze, Vice-Chair
Representative Mike Hawker
Representative Reggie Joule
Representative Mike Kelly
Representative Beth Kerttula
Representative Carl Moses
Representative Bruce Weyhrauch
MEMBERS ABSENT
Representative Mike Chenault, Co-Chair
Representative Richard Foster
Representative Jim Holm
ALSO PRESENT
Christopher Poag, Assistant Attorney General, Department of
Law; Sharon Barton, Director, Alaska Permanent Fund Dividend
Division, Department of Revenue; Sue Stancliff, Staff,
Representative Mike Kelly;
Cheryl Frasca, Director, Division of Management & Budget,
Office of the Governor; Craig Tillery, Deputy Attorney
General, Department of Law; Kathryn Daughhetee, Director,
Administrative Services Division, Department of Law; Eric
Swanson, Director, Division of Administrative Services,
Department of Administration; Stan Herrara, Director,
Enterprise Technology Services, Department of
Administration; Sam Thomas, Director, Division of
Administrative Services, Department of Commerce, Community
and Economic Development; Laura Flemming, Communications
Director, Alaska Seafood Marketing Institute, Department of
Commerce, Community and Economic Development; Sharleen
Griffin, Acting Director, Division of Administrative
Services, Department of Corrections; John Cramer, Director,
Administration Services Division, Military and Veterans
Affairs; Nico Bus, Acting Director, Division of
Administrative Services, Department of Natural Resources;
Dan Spencer, Director, Division of Administrative Services,
Department of Public Safety; Bob Bartholomew, Chief
Operating Officer, Alaska Permanent Fund Corporation,
Department of Revenue.
SUMMARY
HB 273 An Act relating to the dividends of individuals
claiming allowable absences; and providing for an
effective date.
CS HB 273 (FIN) was reported out of Committee with
a "no recommendation" and with a new fiscal note
by the Department of Revenue.
HB 421 "An Act making supplemental appropriations,
capital appropriations, and other appropriations;
amending appropriations; making appropriations to
capitalize funds; and providing for an effective
date."
HB 421 was HEARD and HELD in Committee.
1:42:59 PM
HOUSE BILL NO. 273
An Act relating to the dividends of individuals
claiming allowable absences; and providing for an
effective date.
Representative Joule WITHDREW Amendment #1, #24-LS0871\F.4,
Cook, 2/6/06.
Representative Joule MOVED to ADOPT Amendment #2, #24-
LS0871\F.5, Cook, 2/7/06. Co-Chair Meyer OBJECTED.
1:44:29 PM
Representative Joule explained that Amendment #2 would add a
new subsection, which would read:
"(f) The dividend for a current year shall be paid
under AS 43.23.055(2) during the current year to an
otherwise qualified individual claiming an allowable
absence under AS 43.23.008(a)(1) or (2) if the
individual was present in the state for at least 90
days during the qualifying year."
Representative Joule stated the amendment would allow a
student attending college out-of-state to collect the
dividend if in that qualifying year, the student returns
back to State at least 90 days. He submitted that benefit
could encourage the student to come back to Alaska. He
requested a positive vote on the amendment.
1:45:41 PM
Representative Weyhrauch mentioned legal concerns with
Amendment #2. He requested that the Department of Law
testify regarding the amendment.
1:46:03 PM
Representative Weyhrauch pointed out that there are already
a number of allowable absences. He believed that the
amendment would now "carve out" a student category.
Presently, HB 273 holds the Permanent Fund Dividend (PFD)
check for that student for when they do return and establish
their residency; that could be a nice "nest egg" for them.
Representative Weyhrauch pointed out that some students opt
to give up Alaska State residency in order not to pay out-
of-State tuition. He added that the University of Alaska
has a tremendous program to educate students and that
staying in State guarantees a dividend.
1:48:21 PM
CHRISTOPHER POAG, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF
LAW, provided background on the allowable differences for
the PFD check. Persons who receive the PFD are Alaskan
residents. The Supreme Court has allowed the State to go
broader than the legislative provisions and indicate that
they are permanent Alaskan residents. Alaska Statute (AS)
defines what is a permanent resident. The person must be
present in State and must intend to remain indefinitely.
Allowable absences are for when a person is not present but
intend to return & remain. If a person is a permanent
resident, they receive the PFD check. The State has adopted
statutory and regulatory provisions that allow for objective
criteria as to who are current residents.
1:49:26 PM
Mr. Poag continued, the thirteen allowable exceptions are
essentially legislative findings that affect those people
likely to return to the State. The Supreme Court has looked
at that issue on a number of occasions, as it is an area
that gets challenged quite often. The challenges are
usually upheld for equal protection. In the thirteen
categories, the Courts have said that the legislative
objective had a fair and substantial relationship within the
means used. Those are the guidelines that the proposed
provision would be held too if the provision was challenged
before the Supreme Court. The Supreme Court has said that
the PFD is designed to encourage residents that are in
Alaska to stay and/or return.
1:50:37 PM
Mr. Poag advised that the provisions in the allowable
categories have to be consistent with that purpose. There
have been amendments offered to the provision based on need.
He believed that the need-based exceptions could not survive
that scrutiny. The exception must show that there are
legislative findings to support a position that they are
likely to return.
Mr. Poag discussed Amendment #2, "common sense" that if the
student returns to the State every year on the allowable
absence for college for those 90-days, that would be a
pretty good estimate that student intends to return.
Mr. Poag pointed out that statistical evidence that the
Permanent Fund Division has put together does not support
the amendment. That evidence indicates that college
students, if they were likely to return, it would be within
the first two years. The statistics don't match the common
sense being applied to the amendment. Another concern is by
accepting one category, it would be carving out another
"class". He noted criticism for an "elite" class of people
allowed to leave the State. The amendment would be creating
a third class for students. Creation of classes makes the
provision less defensible to the Department of Law. He
encouraged that if the amendment were passed, it should be
applied across the board to all thirteen allowable
categories.
1:52:59 PM
Mr. Poag believed that the provision was defensible because
the "common sense" approach supports it. When the
Legislature indicated support for the 13 categories, it was
based on common sense. That same common sense is not borne
out of statistics and it would be more defensible if applied
across the board.
1:53:50 PM
Representative Kerttula referenced a "separate class" and
asked if it would receive the same scrutiny if a Court
looked at it. Mr. Poag said it would; the Supreme Court has
said that the Permanent Fund Dividend is an economic
interest and as a result of that interest, it receives
minimal scrutiny. Representative Kerttula thought that
could help a little.
1:54:08 PM
Representative Kerttula agreed with the "common sense"
approach, and that returning every year for 90-days
indicates a likelihood of coming back to the State. She
pointed out that the statistical evidence quoted was based
on one year - 1996. That was the year that the dot.com
bubble was going wild; she believed a one-year snap shot was
not relevant to the current scenario and was not sufficient
evidence.
1:55:24 PM
Mr. Poag agreed that it had only been a one-year survey - a
statistically valid one-year survey. The assumption showed
that those students were not returning at the rate thought
in that period and those findings have been supported.
1:56:32 PM
Representative Kerttula proposed that it would be better to
do an across the board exemption.
1:56:48 PM
Vice Chair Stoltze mentioned that the Courts should be
responsible for making those "common sense" rules. He noted
support for the amendment.
1:57:30 PM
Representative Weyhrauch requested clarification on the data
provided by the Division.
SHARON BARTON, DIRECTOR, ALASKA PERMANENT FUND DIVIDEND
DIVISION, DEPARTMENT OF REVENUE, explained that the study
was statistically valid. Last year, a sample was taken from
1995 and tracked through 2004. This year's study was from
1996, and those students were tracked through 2005. The
Division chooses a 10-year period as current statutes allow
people to be out of State ten years. Ms. Barton did not
sense that anything had changed since that time.
1:59:21 PM
Representative Kerttula said that she did not mean to
suggest that anything inappropriate was done; however, she
believed that much had changed since the 90's. She inquired
if it would be possible for the Division to go back and
track what has happened since those years.
Ms. Barton responded that the data was there, however, it
would be a manual effort for the Division with the current
computer systems used and would take a lot of time.
2:00:09 PM
Representative Kerttula reiterated, all that is presently
known are the two years in the '90's, which have been
tracked; there is no way to know what applies to later
years.
2:00:27 PM
Representative Joule commented on the challenges facing the
State to develop a necessary workforce and that the concern
is a "huge issue". He maintained that it warrants passage
of the amendment.
2:01:32 PM
A roll call vote was taken on the motion.
IN FAVOR: Joule, Kerttula, Moses, Stoltze
OPPOSED: Hawker, Wehyrauch, Meyer
Representative Foster, Representative Holm, Representative
Kelly, and Co-Chair Chenault were not present for the vote.
The MOTION FAILED (4-3).
2:02:14 PM
Co-Chair Meyer MOVED to ADOPT Amendment #3, #24-LS0871\F.10,
Cook, 2/14/06. Representative Weyhrauch OBJECTED.
2:02:43 PM
SUE STANCLIFF, STAFF, REPRESENTATIVE MIKE KELLY, explained
Amendment #3, would change the qualifying period from 10-
years to 5-years. Questions that came up regarding that
change were from people already beyond the five years such
as military, education, post secondary students and those
caring for or have terminal illness. Because of that, the
legislative drafter added an application section that would
allow anyone currently in the system, past those five years
but under the ten years, to stay in and term out.
Ms. Stancliff noted that the Division concurs with the
proposed option.
Representative Weyhrauch WITHDREW his OBJECTION. There
being NO further OBJECTION, Amendment #3 was adopted.
2:04:21 PM
Representative Kerttula MOVED to ADOPT Amendment #4, #24-
LS0871\F.6, Cook, 2/9/06. Vice Chair Stoltze OBJECTED.
Representative Kerttula explained that Amendment #4 would
adjust language on Page 4, Line 19:
Delete: "the year"
Insert: "the two years"
Representative Weyhrauch added that he objected to the
amendment, referencing previous testimony provided by Mr.
Poag, Department of Law and Ms. Barton, Permanent Fund
Dividend Division.
2:05:55 PM
Representative Kerttula claimed that the language was too
narrow and that the amendment was justifiable.
2:06:05 PM
Vice Chair Stoltze WITHDREW his OBJECTION. Representative
Weyhrauch OBJECTED.
A roll call vote was taken on the motion.
IN FAVOR: Joule, Kerttula, Moses, Stoltze
OPPOSED: Hawker, Wehyrauch, Meyer
Representative Foster, Representative Holm, Representative
Kelly, and Co-Chair Chenault were not present for the vote.
The MOTION FAILED (4-3).
2:07:16 PM
AT EASE: 2:07:26 PM
RECONVENE: 2:08:35 PM
Vice Chair Stoltze MOVED to REPORT CS HB 273 (FIN) out of
Committee with individual recommendations and with the
accompanying fiscal note. There being NO OBJECTION, it was
so ordered.
CS HB 273 (FIN) was reported out of Committee with a "no
recommendation" and with a new fiscal note by the Department
of Revenue.
AT EASE: 2:09 P.M.
RECONVENE: 2:17:38 PM.
HOUSE BILL NO. 421
"An Act making supplemental appropriations, capital
appropriations, and other appropriations; amending
appropriations; making appropriations to capitalize
funds; and providing for an effective date."
2:17:54 PM
CHERYL FRASCA, DIRECTOR, DIVISION OF MANAGEMENT & BUDGET,
OFFICE OF THE GOVERNOR, presented a brief overview of the
supplemental budget. She reminded members that the total was
$13.5 million. She stated that there were two types of
requests: one pertaining to available funding for
unanticipated requests, and the other projects that the
Administration would like to start early. She noted that
larger requests pertained to disasters, which were funded
after their occurrence; she noted that the second largest
area was for judgments and claims. The Administration
provided the Committee with an amendment, which would bring
the total for judgment and claims to $2.6 million. Judgment
and claims are not normally placed in the supplemental, but
were included in an attempt to save on interest payments.
Corrections health care is the second largest expenditure at
$2.7 million and is tied to an aging population in the
prisons. She added that $1.0 million would be appropriated
for the State phone system; the appropriation was included
as a FY 07 capital expenditure. She explained that there has
been an increase in phone failures, especially in Anchorage.
Ms. Frasca pointed out that two amendments have been
submitted since introduction: $1.5 million in federal funds
for a Kotzebue sand storage building and the Department of
Law's amendment to judgments and claims.
2:21:11 PM
DEPARTMENT OF LAW
Section 5 Law Civil Division,
Deputy Attorney General's Office
Judgments and Claims - actual amount is $2,621,985.48
KATHRYN DAUGHHETEE, DIRECTOR, ADMINISTRATIVE SERVICES
DIVISION, DEPARTMENT OF LAW, noted that with the new
interest rates of 8.25 percent a great deal of money would
be saved by appropriating funds for judgments and claims in
a timely fashion. The amendment would add $647 thousand for
a total of $3.269 million.
2:23:44 PM
Representative Kerttula asked for clarification on the
amendments.
CRIAG TILLERY, DEPUTY ATTORNEY GENERAL, DEPARTMENT OF LAW,
referred to a spreadsheet and noted that some cases were
more costsly than others (copy on file.) The Sponaugle case
($215 million) involved medical malpractice on an inmate.
Several cases relate to personal injury related to criminal
sexual assault and kidnapping charges brought against
Trooper Daniel L. Scott. There were settlements with a
number of women who were assaulted.
Mr. Tillery also referred to the Noon case ($284.5 thousand)
pertaining to a failure to assist those with disabilities
with the high school exit exam. He stated that the plaintiff
was awarded a substantial amount, and that the State felt it
was not prudent to pursue further consideration.
2:27:17 PM
Mr. Tillery reviewed the Bacolas case ($427 thousand)
relating to wrongful discharge of a whistle blower. The jury
found against the State resulting. The damages were reduced:
first by the court and subsequently through settlement.
2:28:17 PM
Mr. Tillery referred to the Bush vs. Kromer case ($350
thousand) as a difficult case involving a 5 year old child
in foster care who was bitten by a dog, resulting in severe
physical and emotional damage. He stated that there had been
evidence that the Agency had previous knowledge of the
situation, and the Department determined it would settle the
claim.
Representative Hawker referred to a trend analysis over the
past few years in terms of claims paid and questioned if the
current level was consistent with previous years.
2:29:58 PM
Mr. Tillery stated that he believed that the claims were
consistent over time, on an individual case level. The total
amount is higher than last year, but lower than other years.
Ms. Daughhetee added that a ten year analysis revealed that
the current year's claims were within the range of the long
term trend, despite a number of larger claims. Mr. Tillery
observed that there a number workers' compensation claims in
the supplemental request. Recent changes in workers'
compensation laws will make a difference in the future.
2:31:08 PM
In response to a question by Vice-Chair Meyer, Ms.
Daughhetee explained that the interest rate paid by the
State on judgments and claims is set out in statute as three
points above the Ninth Federal Reserve level. It is
recalculated by the Court every year. The interest rate
increased from 6.25 percent to 8.25 percent in the current
calendar year. She observed that the State could save 5
percent if the claims are paid (cost of the interest rate
over the average interest earning rate of the Permanent
Fund).
2:32:26 PM
DEPARTMENT OF ADMINISTRATION
Section 1 Admin Capital
Begin telephone system replacement and stabilization
phase 1 project in FY2006. The FY2007 capital project
request of $15 million for this project will be reduced
by $1 million. The State is facing serious issues on
the existing nearly 13-year-old Private Branch Exchange
(PBX) telephone switches in Juneau, Anchorage and
Fairbanks that support approximately 15,000 telephones
in those locations. The current provider will not
support the system after April 1, 2006.
Section 4(b) Fund Transfer
Information Services Fund
Capitalize Information Services Fund for FY06
implementation of the telephone system replacement and
stabilization phase 1 capital project.
ERIC SWANSON, DIRECTOR, DIVISION OF ADMINISTRATIVE SERVICES,
DEPARTMENT OF ADMINISTRATION, observed that the request was
initially included in the FY 07 capital request. The
Administration believes that the telephone system is not as
stable as it needs to be and should be addressed in the
supplemental budget.
STAN HERRARA, DIRECTOR, ENTERPRISE TECHNOLOGY SERVICES,
DEPARTMENT OF ADMINISTRATION, explained that Nortel Systems
informed the State that it would no longer be supporting its
phone systems in Juneau, Anchorage and Fairbanks, on April
1, 2006. There are 14,000 phones in these three communities.
2:35:04 PM
There have been recent outages in Anchorage. Due to the age
of the systems regaining service involved reassessments of
the phone systems themselves. The department would like to
migrate to a new system.
Representative Hawker asked whether spending the amount at
this time would obligate completion of the rest of the
funding in the capital budget request. Mr. Herrera could not
respond to the commitment of funds, but emphasized the need
for an immediate assessment to determine a course of action.
2:36:43 PM
Representative Hawker asked what specific process would be
followed.
In response to a question by Representative Hawker, Mr.
Herrara explained that current contracts were in place with
some agencies to establish building site assessments, to
substantiate the level of need and assist in a decision.
Representative Hawker summarized that the funds would be
used to define need.
2:38:34 PM
Co-Chair Meyer questioned if there were money in the
Information Fund. Mr. Swanson observed that the project
would use general funds. There is some funding from an FY 06
appropriation that would be added to the $1 million request.
There are no funds in the Information Services Fund (ISF) to
capitalize the appropriation. Vice-Chair Meyer questioned if
there were plans for a recovery fund to cover future costs.
Mr. Swanson observed that there were preliminary discussions
with the Legislative Finance Division regarding the issue.
Co-Chair Meyer asked if the type of system had been decided
upon. Mr. Herrara explained that the intent was to move to a
converged technology: combining the phone, data, and video
systems, which are currently maintained separately.
Converging the systems into one platform would result in
costs savings. Voice-over-Internet protocol technology would
be implemented. One of the components of the 2000 failed
contract with ACS was to deploy a voice over Internet
protocol system. The failure was not due to the technology,
but to the manner it was deployed. Large entities, all over
the world, use Voice-over-Internet technology. Mr. Swanson
noted that the costs would be spread among various
departments through charge backs.
2:42:11 PM
DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT
Sections 2(a) Commerce Office of Economic Development
$75 Statutory Designated Program Receipts
The Office of Economic Development is hosting an event
at the Boston International Seafood Show that promotes
the uniqueness of wild Alaska seafood on March 13,
2006.
2:43:02 PM
SAMUEL THOMAS, DIRECTOR, DIVISION OF ADMINISTRATIVE
SERVICES, COMMUNITY AND ECONOMIC DEVELOPMENT, discussed
trends in visitors to Alaska and its impact on the economy.
Mr. Thomas noted that the seafood industry brought in a
substantial amount of income to the State. He discussed the
effect of farmed salmon, and the number of Alaskan
fisheries.
Co-Chair Meyer noted that the request for the seafood show
was in the previous year's supplemental budget, and asked if
it would be a recurring expense. Mr. Thomas stated that
another source would need to be identified if it were not
included in the supplemental budget.
Section 2(b) Alaska Seafood Marketing Institute
$395 thousand receipt support services
Increase RSS match for the Alaska Seafood Marketing
Institute's export marketing program, which received a
federal increase in January 2006. Advance notification
to public relations contractors is required, therefore
March approval is requested.
Mr. Thomas observed that the request is for $395 thousand
receipt support services and would match $1.2 million USDA
federal funds, which have already been promised.
LAURA FLEMMING, COMMUNICATIONS DIRECTOR, ALASKA SEAFOOD
MARKETING INSTITUTE, DEPARTMENT OF COMMERCE, COMMUNITY AND
ECONOMIC DEVELOPMENT, explained that the request is for
authorization to spend money that has already been
collected. Seafood processors pay a seafood marketing
assessment for ASMI's operations. Authorization of these
funds would allow ASMI to expend federal dollars that have
also been allocated for the current fiscal year. Without the
authorization, ASMI would not be able to expend the
anticipated $800 - $900 thousand in federal funds.
Representative Hawker summarized that there was an
additional federal appropriation that was not anticipated in
the budget and asked why the expenditure needed to be
included in the fast track and not in the 2007 budget.
Ms. Flemming observed that additional authorization was also
being sought in the FY 07 budget. She explained that the
industry would benefit from immediate marketing efforts to
support sales efforts and to keep the momentum in the
international marketplace.
2:52:23 PM
DEPARTMENT OF CORRECTIONS
Section 3(a) Corrections Out-of-State Contractual
Timely payments are essential in complying with
contractual requirements agreed upon for housing Alaska
inmates. The increased prison population has mandated
the department obtain additional beds out-of-state, up
to a total of 1,000 prisoners by year-end. The current
contract is written for 760 beds while the department
estimates a need for 850 beds by March and 1,000 beds
by June 30.
SHARLEEN GRIFFIN, ACTING DIRECTOR, DIVISION OF
ADMINISTRATIVE SERVICES, DEPARTMENT OF CORRECTIONS, observed
that the Department is currently over their emergency
capacity of 3,206; there are currently 3,476 inmates. She
noted that the increment would increase the number of out of
state beds from 760 to 1,000 by June 1 and would be phased
in.
Responding to a question by Representative Hawker, Ms.
Griffin stated that the daily cost for beds was $58.90. She
explained that this did not include the medical services,
probation officers or transportation costs.
2:54:53 PM
Ms. Griffin thought that the in-state bed cost was $110.67.
Offenders with at least two years of service are generally
targeted and are sent out of state in large groups of up to
100 prisoners on U.S. Marshall Jets, or in some cases on a
Department of Public Safety jet and occasionally on
commercial airlines.
Responding to a question by Co-Chair Meyer, Ms. Griffin
stated that she did not know the frequency and timing of
transfer dates.
2:57:19 PM
Section 3(b) Corrections Inmate Health Care
The department is estimating that they will potentially
run out of funds available to pay contract and medical
providers as early as March, 2006. The additional
funding is needed to meet the medical obligations for
the aging and increased prison population and for the
sharp increase in the number of inmates needing
dialysis, cancer treatment, and treatment for other
life-threatening conditions, along with the increased
cost for providing those medical services.
Ms. Griffin referred to Section 3 (b), which would
appropriate $2.6 million for inmate health care. There has
been $1.9 million in catastrophic cases to date; the
Department anticipates that the number will be $2.6 million,
including general increased health care costs.
Representative Hawker observed that increased health care
costs affected many aspects of state government.
Responding to a question by Co-Chair Meyer, Ms. Griffin
explained the inmate co-pay system. Inmates are charged $4
per visit to the Department of Corrections' medical
practitioner. Co-pay is charged if they visit an outside
doctor. Altercations result in a disciplinary hearing, which
can result in the inmate reimbursing the State of Alaska.
Approximately $80 thousand a year is collected in inmate co-
pay.
Co-Chair Meyer asked how much was spent in 2006, and
budgeted in 2007.
Ms. Griffin noted that the catastrophic cases changed each
year, with this year's cases totaling $2.6 million. She
noted that the FY 07 budget contains an increment for $1.3
million for rising health care costs; this amount does not
account for future catastrophic cases.
3:00:21 PM
Section 3(c) Corrections Inmate Health Care
Funding is needed to pay three contractors and several
fee-for-service providers for services rendered prior
to 6/30/2005. These providers have not been paid and
are charging interest for non-payment. Prompt payment
would avoid further interest charges.
The appropriation would provide $755 thousand for Inmate
Health Care. Ms. Griffin acknowledged that the Department
received a FY 05 supplemental of $500 thousand, but
explained that remaining costs were not covered. There were
more catastrophic cases. The State of Alaska currently owes
the Alaska Regional Hospital $255 thousand. Other out-of-
state providers are owed $300 thousand and $120 thousand.
Other fees for service vendors are owed $80 thousand.
Co-Chair Meyer asked why these amounts were not included the
previous year's supplemental. Ms. Griffin stated that they
occurred after the appropriation. The State of Alaska is
paying $85 thousand in interest on the amount owed.
Representative Hawker questioned how a FY 05 supplemental
could be included in the FY 06 supplemental. Ms. Griffin
clarified that the requests had not yet been paid and could
not be included as a ratification.
3:02:35 PM
DEPARTMENT OF MILITARY & VETERANS AFFAIRS
Section 4(a) Fund Transfer Disaster
Relief Fund
Funding needed for:
1) 2002 Kenai Peninsula Flood shortfall $160.3
2) 2004 Bering Strait Sea Storm - additional federal
project funding was approved Jan. 2006, 25% match is
required $839.6
3) 2005 Spring Flood Funding (Emmonak, Alakanuk and
McGrath) shortfall $553.7
4) 2005 West Coast Storm (Nome area) $1,599.5
5) 2005 Southeast Storm $1,084.6
6) Less the unobligated balance of $93.9 in the fund
The department will be unable to continue meeting
disaster related expenditures until the supplemental is
approved.
JOHN CRAMER, DIRECTOR, ADMINISTRATION SERVICES DIVISION,
MILITARY AND VETERANS AFFAIRS, noted that the appropriation
of $4,143 million would be a fund transfer from the Disaster
Relief Fund. The request would cover disasters which had
taken place from 2002 to 2005. He observed that individuals
are eligible for up to $5 thousand from the Individual
Assistance Program if they can demonstrate damage through an
application to the Department. Some of the appropriations
are matched by the federal government. The Bering Strait sea
storm was declared a federal disaster relief site. Items
allocated under FEMA are funded at 75/25 percent
federal/state.
3:05:37 PM
DEPARTMENT OF NATURAL RESOURCES
Section 6(a) - (c) Natural
Resources
Parks Management
Parks revenue collection shortfall. Need by March 31, 2006
to maintain the planned service levels.
6(a) - (c) Natural Resources
State Historic Preservation Program
Change structure to put Parks components into Resource
RDU to help maintain the planned service levels in
State Parks. Need by March 31, 2006.
6(a) - (c) Natural Resources
Parks Management
Change structure to put Parks components into Resource
RDU to help maintain the planned service levels in
State Parks. Need by March 31, 2006.
6(a) - (c) Natural Resources
Parks and Recreation Access
Change structure to put Parks components into Resource
RDU to help maintain the planned service levels in
State Parks. Need by March 31, 2006.
NICO BUS, ACTING DIRECTOR, DIVISION OF ADMINISTRATIVE
SERVICES, DEPARTMENT OF NATURAL RESOURCES, explained that
the Division of Parks has a revenue shortfall. Their budget
required them to collect $2.3 million in parks receipts;
they are projected to collect $1.7 million. The Department
has worked to keep all the parks open. The request would
switch $350 thousand in receipts supported services to
general funds. The agency has implemented efficiency
measures. He observed that the request would allow them to
utilize any lapsed funds by changing appropriation lines.
3:07:53 PM
Representative Hawker asked which services would be reduced
if the supplemental was not approved. Mr. Bus responded that
the aim would to keep all parks open, but to reduce service
periods. Impacts would be spread throughout the State. He
spoke further of deferred financial losses and
reorganization. Service would be reduced in 26 parks and
limited in another 36 park units. Representative Hawker
requested a detailed description and accounting of specific
consequences. Mr. Bus noted that union requirements affected
their decisions.
Representative Hawker referred to the restructuring of the
RDU components. He questioned if it would be more
appropriate to request increments and decrements to shift
funds rather than restructuring the RDU component levels of
the budget. Mr. Bus observed that the issue would be
discussed in Subcommittee and explained the reasoning behind
the request. He observed that additional money could be
available in June. The Division of Parks was asked to
implement all the austerity measures possible without
reducing services. Representative Hawker said he would await
the subcommittee's opinion.
3:13:56 PM
DEPARTMENT OF PUBLIC SAFETY
Section Public Safety
Council on Domestic Violence and Sexual Assault
This request would provide funding to maintain the
operation of the Kotzebue domestic violence shelter.
Program previously funded by a HSS grant that has since
been determined to be an unallowable use of federal
funds.
DAN SPENCER, DIRECTOR, DIVISION OF ADMINISTRATIVE SERVICES,
DEPARTMENT OF PUBLIC SAFETY, explained that Section 7 would
appropriate $350 thousand in general funds to the Council on
Domestic Council on Domestic Violence and Sexual Assault for
the Kotzebue shelter. He explained that the Kotzebue shelter
was not eligible for pass through funding from Department of
Health and Social Services. This is a request for FY 06.
Funding is requested in the FY 07 budget. In FY 08, it would
roll into the competitive grants process.
In response to a question by Representative Stoltze, Mr.
Spencer responded that the figure may have been revised, but
that the figure is the estimated cost of running the
shelter.
Co-Chair Meyer asked if federal money is involved. Mr.
Spencer responded that this does not affect federal funding.
Representative Hawker questioned why the shelter fell
outside of the Health and Social Services grant. He
questioned the original intent for funding and asked if it
were a federal shift to general funds. Mr. Spencer was
unable to respond.
3:17:07 PM
Representative Joule observed that the intent is to prevent
a break in service.
3:17:33 PM
DEPARTMENT OF REVENUE
Section Revenue APFC Operations
Gas line Investment Determination Costs
BOB BARTHOLOMEW, CHIEF OPERATING OFFICER, ALASKA PERMANENT
FUND CORPORATION, DEPARTMENT OF REVENUE, spoke to the
request for $550 thousand in Permanent Fund Corporation
receipts for review and analysis of the gas line investment.
The Corporation has requested the funds, which would be paid
by income from the investments in the form of corporate
receipts. He acknowledged the difficulty in estimating the
cost of a complete analysis of a potential investment, since
no agreement has been reached between the State and the
producers. The estimate is based on two phases. Phase one
would provide education for the Board on infrastructure
investment. The Permanent Fund has not yet invested in this
asset class. The Department would like to hire an investment
advisor. This cost would be considerably less than $550
thousand, but additional funds would be required if an
agreement is reached, for cost estimates from contractors.
Part of this work would carry over into FY 07. Anything that
is not expended would remain in the Permanent Fund. The item
is in the fast track supplemental because in FY 06 there is
$300 thousand for pre-investment fiduciary work (to look at
the facts behind the investment). The Corporation has made
an offer on a large real estate operating company, which has
already expended the money in pre-investment analysis. The
$300,000 would be added to the cost of the investment and
freed up if the project goes through. It would then be
available for another due diligence project. However, the
Corporation wants the funds to be available before the end
of March so that the Board can begin its education.
3:23:11 PM
Representative Stoltze referred to legislation enacted in
the previous year, which removed limits on investment
opportunities. He questioned if the legislation was related
to the gas line investments. Mr. Bartholomew concluded that
the Corporation had sufficient authority to invest in the
gas pipeline prior to the enactment of the legislation,
which expanded their alternative investment authority. [The
gas pipe line project would falls into the alternative
investments category.] He explained that prior to the
legislation; the Corporation could invest up to 10 percent
in alternative investments, or $3 billion. At the time the
legislation was enacted 2 percent was invested. The
legislation regarding the gas pipeline provides for up to a
20 percent state investment, half of which would come from
the Permanent Fund, resulting in a $2.0 to $2.5 billion
investment. The cash portion of the Permanent Fund
investment would be $500 million or 1.5 - 2 percent of the
Fund, which falls within the previous authorization. The
Board felt it would be prudent to expand this authorization.
Expansion of the alternative investment authorization does
not have a direct effect on whether there is an investment
in a gas pipeline; it only determines the percentage that
can be invested. The current allocation, excluding the
pipeline, is 8 percent [in alternative investments]. The gas
pipeline would bring the total investment close to 10
percent. He estimated that the limit would not be reached
for several years.
3:27:25 PM
Representative Stoltze asked where the initiative came from.
Mr. Bartholomew replied that, while the Board has remained
neutral, there has been a general interest in owning
infrastructure. The Commissioner of Department of Revenue's
designee approached the Board with the issue of State
ownership of the gas pipe line.
Representative Weyhrauch noted that nothing will happen on
the gas pipeline negation unless the legislature makes a
change to the oil tax structure, which would not occur until
later in the session. He questioned why the item was placed
in the supplemental. Mr. Bartholomew responded that without
the supplemental an advisor to the Board would not be in
place and education of the Board would not begin.
Representative Hawker questioned if the Corporation is
looking for a courtesy legislative endorsement. Mr.
Bartholomew acknowledged that the Corporation does not
historically come to the legislature regarding investments,
but added that they would not want to take on an investment
if the budgetary resources to cover them did not exist. The
Board wants to mitigate the risk of entering into too many
contracts and is sensitive to the legislature's view on the
matter. Representative Hawker summarized that the Department
has the authority [to make the investment].
3:33:21 PM
Representative Hawker asked if the investment would be a
direct equity holding or be held in debt securities of the
entities that own the pipeline. Mr. Bartholomew responded
that there are many scenarios possible. He discussed a LLC
scenario. The ownership would be in a holding company, which
would own the pipeline. The Corporation could invest in the
entity or own a percentage of the company. It would probably
be a regulated investment and return. Representative Hawker
pointed out that there is a huge difference between an
equity investment and an investment in the debt of an entity
that has an equity investment. He inquired about the
downsize risks. Mr. Bartholomew explained that debt is more
secure and more set; equity ownership would contain greater
risks, while the return would be higher. He stressed the
desire to have an independent and experienced advisor look
at the risks.
3:36:41 PM
Representative Hawker questioned if all the components of
risk would be contemplated.
3:37:26 PM
Mr. Bartholomew affirmed and noted that the scope would be
indicated by the proposal. The advisor could provide support
in negotiation and drafting terms, but he assumed that the
investors would provide a proposal and the proposal would be
evaluated to see if it is an appropriate investment. The
bulk of the analysis would be the deal brought forward to
the legislature and evaluated by the Corporation.
Representative Hawker asked if the funding would be used to
evaluate a particular structure versus the Permanent Fund,
or strictly to evaluate one proposal.
3:39:04 PM
Mr. Bartholomew understood that there would be one proposal
put together, which the Corporation would evaluate from an
institutional fund perspective. The Corporation does not
intend to take a broader look.
3:39:46 PM
Representative Hawker thought the authorization would be
premature because the State does not know if there will be a
gas line proposal anytime in the near future.
Mr. Bartholomew agreed that they did not want to expend the
funds prematurely, but emphasized that they wanted to be
prepared for the education piece. The remaining funds would
not be spent until there was an agreement.
3:41:22 PM
Representative Weyhrauch commented that it does not take a
lot of money for a consultant to provide the information. He
thought the request was premature. He asked if there was
pressure from the Executive Branch.
Mr. Bartholomew replied that it is a "catch 22". If they do
not go forward with education on the asset class, they will
be under greater pressure when a proposal comes forth. He
emphasized that the education would be valuable regardless
of investment in a gas pipeline.
3:43:37 PM
ADJOURNMENT
The meeting was adjourned at 3:44 PM
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