Legislature(2013 - 2014)HOUSE FINANCE 519
04/08/2013 08:00 AM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB195 | |
| HB63 | |
| HB102 | |
| SB86 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 21 | TELECONFERENCED | |
| + | HB 63 | TELECONFERENCED | |
| + | SB 51 | TELECONFERENCED | |
| + | HB 102 | TELECONFERENCED | |
| + | SB 65 | TELECONFERENCED | |
| + | HB 134 | TELECONFERENCED | |
| *+ | HB 195 | TELECONFERENCED | |
| + | SB 95 | TELECONFERENCED | |
| + | SB 2 | TELECONFERENCED | |
| + | SB 16 | TELECONFERENCED | |
| + | SB 24 | TELECONFERENCED | |
| + | SB 37 | TELECONFERENCED | |
| + | SB 38 | TELECONFERENCED | |
| + | SB 86 | TELECONFERENCED | |
| + | SB 18 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
April 8, 2013
8:03 a.m.
8:03:38 AM
CALL TO ORDER
Co-Chair Stoltze called the House Finance Committee meeting
to order at 8:03 a.m.
MEMBERS PRESENT
Representative Alan Austerman, Co-Chair
Representative Bill Stoltze, Co-Chair
Representative Mark Neuman, Vice-Chair
Representative Mia Costello
Representative Bryce Edgmon
Representative Les Gara
Representative Lindsey Holmes
Representative Scott Kawasaki, Alternate
Representative Cathy Munoz
Representative Steve Thompson
Representative Tammie Wilson
MEMBERS ABSENT
Representative David Guttenberg
ALSO PRESENT
Becky Hultberg, Commissioner, Department of Administration;
Curtis Thayer, Deputy Commissioner, Department of
Administration; Nicki Neal, Director, Division of
Personnel, Department of Administration; Representative
Mike Hawker; Kris, Curtis, Legislative Budget and Audit;
Hanna Sebold, Alaska Bar Association; Representative Wes
Keller; Joe Balash, Deputy Commissioner, Department of
Natural Resources; Jeff Cook, Regional Director, External
Affairs, Flint Hills Resources, North Pole; Representative
Doug Isaacson.
PRESENT VIA TELECONFERENCE
Steve Van Goor, Alaska Bar Association, Anchorage; Tom
Obermeyer, Anchorage; Douglas Blattmachr, Alaska Trust
Company, Anchorage; Dave Shaftel, Sahftel Law Offices,
Anchorage.
SUMMARY
HB 63 EXTEND BAR ASS'N BOARD OF GOVERNORS
HB 63 was HEARD and HELD in committee for further
consideration.
HB 102 RETIREMENT PLANS; ROTH IRAS; PROBATE
HB 102 was HEARD and HELD in committee for
further consideration.
HB 134 MEDICAID PAYMENT FOR MEDISET PRESCRIPTION
HB 134 was SCHEDULED but not HEARD.
HB 195 STATE EMPLOYEE COMPENSATION AND BENEFITS
HB 195 was HEARD and HELD in committee for
further consideration.
SB 2 INTERSTATE MINING COMPACT & COMMISSION
SB 2 was SCHEDULED but not HEARD.
SB 16 BD OF ARCHITECTS, ENGINEERS, SURVEYORS
SB 16 was SCHEDULED but not HEARD.
SB 24 MARINE TRANSPORTATION ADVISORY BOARD
SB 24 was SCHEDULED but not HEARD.
SB 37 EXTEND SUICIDE PREVENTION COUNCIL
SB 37 was SCHEDULED but not HEARD.
SB 51 EXTEND BAR ASS'N BOARD OF GOVERNORS
SB 51 was SCHEDULED but not HEARD.
SB 65 RETIREMENT PLANS; ROTH IRAS; PROBATE
SB 65 was SCHEDULED but not HEARD.
SB 86 APPROVE FLINT HILLS ROYALTY OIL SALE
SB 86 was REPORTED out of committee with a "do
pass" recommendation and with one previously
published fiscal note: FN1 (DNR).
SB 95 STATE EMPLOYEE COMPENSATION AND BENEFITS
SB 95 was SCHEDULED but not HEARD.
8:05:05 AM
HOUSE BILL NO. 195
"An Act relating to the compensation, allowances,
geographic differentials in pay, and leave of certain
public officials, officers, and employees not covered
by collective bargaining agreements; relating to
certain petroleum engineers and petroleum geologists
employed by the Department of Natural Resources;
relating to increased pay for certain partially exempt
employees of the state in specific circumstances;
making conforming amendments; and providing for an
effective date."
8:06:19 AM
BECKY HULTBERG, COMMISSIONER, DEPARTMENT OF ADMINISTRATION,
explained that the legislation implemented the provisions
negotiated through bargaining agreements with the general
government and supervisor's unit and applied them to the
non-covered service. The change would provide the
department consistency with the cost of living, a reduction
of leave accrual, a cap on leave amount and decreases on
the pay increment. Regarding the pay increment, she noted
that employees above an "F" step would receive a raise of
3.75 percent every other year. The reduction in the pay
increment decreased the state's long term legacy costs.
Commissioner Hultberg noted several provisions in the bill
that enhanced the department ability to recruit and retain
high-quality skilled professionals. Finally, the bill would
provide implementation of the geographic pay differential
for one of the last phases of remaining employees. The
geographic pay study was provided in 2008 and the terms
were implemented in all collective bargaining agreements,
when applicable.
8:07:58 AM
CURTIS THAYER, DEPUTY COMMISSIONER, DEPARTMENT OF
ADMINISTRATION, provided a sectional analysis. He noted
that the new leave accrual rates were addressed in sections
one through four.
8:08:49 AM
AT EASE
8:12:17 AM
RECONVENED
Mr. Thayer presented his sectional analysis with the
PowerPoint presentation titled "Alaska Department of
Administration Overview of HB 195 and SB 95" (copy on
file).
Mr. Thayer began with slide 2: "What are HB 195 and SB 95
About?"
· Consistency with cost of living, reduction of leave
accrual, cap on leave amount and decreases in the pay
increment
· Enhance ability to recruit and retain highly-skilled
professionals
· Implementation of Geographical Pay Differential for
last phase of remaining employees
Mr. Thayer continued with slide 3: "Overview of the Bill
Sections."
· Section 1-4: Leave Accrual and Cap
· Section 5: Petroleum Engineers/Geologists
· Section 6-8: Cost of Living Increases
· Section 9: Pay Increments
· Section 10: Partially-Exempt Salaries
· Section 11-14: Geographic Pay Differentials
Representative Costello asked if the bill addressed the
ability of the employee to transfer leave.
Mr. Thayer replied that employees with over 1000 hours
would be grandfathered in. The new cap applied to employees
with less than 1000 hours. The estimate for cashing-out
leave for employees who had accrued greater than 1000 hours
in the fiscal note was approximately $40 million.
Co-Chair Stoltze suggested that the pain would be delayed
for future budgets.
8:14:45 AM
Representative Costello asked if an employee could transfer
leave to another employee.
Mr. Thayer replied in the affirmative.
Co-Chair Stoltze asked how the leave was valued among
different pay ranges.
NICKI NEAL, DIRECTOR, DIVISION OF PERSONNEL, DEPARTMENT OF
ADMINISTRATION, responded that the value of the leave donor
was converted to the value of the recipient.
Representative Costello asked if an employee could exceed
the cap set in the bill.
Ms. Neal stated that the donated leave was treated
differently, and was not subject to the cap.
Co-Chair Stoltze explained that legislators did not accrue
leave.
8:16:29 AM
Co-Chair Austerman asked about slide 4 and the statement
that "employees with a balance that exceeds 400 hours as of
12/16/2013 are exempt from the maximum accrual limit until
such time as his/her balance equals 400 hours or less." He
asked if employees with more than 400 hours would be
strategically ratcheted down.
Ms. Neal replied that the employees with over 400 hours
would be required to use 112.5 hours per year. The hope was
that the balance would be decreased by the mandate,
although some employees would be grandfathered in.
8:17:55 AM
Mr. Thayer discussed slide 5: "Petroleum
Engineers/Geologists."
· Removes exclusion of positions in Division of
Geological and Geophysical Surveys (DGGS)
· Only 1 position - DGGS, Energy Section Manager
(currently SU Geologist V) - vacant since March 17,
2012.
o Position requires complete understanding of
petroleum systems analysis and exploration that
is obtained primarily through industry experience
o Industry salaries are approximately 50 percent
higher than current authorized salary (data from
Assoc of Petroleum Geologists 2011 Survey)
o Two national searches failed - No qualified
applicants after 45 days of recruitment and
advertising in national trade publications
· Amendment applicable to DNR, DGGS only
8:18:59 AM
Mr. Thayer detailed slide 6: "Cost of Living Increases."
Sections 6-8
· Effective 7/1/13 - 1 percent
· Effective 7/1/14 - 1 percent
· Effective 7/1/15 - 2.5 percent
· Consistent with terms of recently negotiated
collective bargaining agreements
· Applies to noncovered classified and partially
exempt (PX) and many exempt employees of the
executive branch, employees of the legislature
(AS 24.10.011 and AS 24.10.210), and the judicial
branch
8:19:32 AM
Mr. Thayer discussed slide 7: "Pay Increments."
Section 9
· Effective 7/1/15 the percentage between pay
increments (J and above) will decrease from 3.75
percent to 3.25 percent
· Consistent with terms of recently negotiated
collective bargaining agreements
· Applies to noncovered classified and PX employees
- also applies to many exempt employees through
polity
· Applies to legislative branch if a policy has
been adopted (AS 39.27.011(j))
8:19:59 AM
Mr. Thayer discussed slide 8: "Partially Exempt Salaries."
Section 10
· Partially Exempt (PX) positions are subject to
classification and pay plans which limits
flexibility
· State often not competitive for top talent - need
some flexibility for mission critical positions
· Governor or designee on case-by-case basis:
o serves critical governmental interest of
state
o employee possesses exceptional
qualifications
o recruitment difficulties exist; or
o necessary to compete with labor market
· Applies to executive branch Partially Exempt (PX)
employees only
8:21:03 AM
Representative Costello asked about an employee's range and
step when initially hired by the state.
Mr. Thayer replied that the state was permitted to hire an
A through F step, but the governor was allowed, on a case-
by-case basis, to go beyond the F step for an exceptional
candidate, or when recruitment difficulties were faced.
Representative Kawasaki asked about how frequently the
partially-exempt salaries were used. He asked if the
legislature would review the issue.
Mr. Thayer replied that he had faced two instances
addressing partially-exempt salaries in the last 18 months.
The tool allowed for ease when hiring an attractive
candidate for a difficult position.
8:22:31 AM
Representative Gara wondered about section 3 and the use of
10 days of personal leave. He asked if a person was in a
specialty position and was seen as indispensable, would
they be allowed to take time off.
Mr. Thayer replied that provisions existed to waive the
mandatory usage with permission of the director or
immediate supervisor.
Representative Gara asked if a person was not able to use
the leave, would they lose it.
Mr. Thayer replied that a person would not lose the leave
if they had written permission. He clarified that if the
supervisor stated that they were not eligible to use the
leave then the waiver for mandatory usage would be
employed.
8:24:17 AM
Co-Chair Austerman asked how many state employees were in
the 10 year service.
Mr. Thayer replied that during negotiations the supervisory
unit (SU) displayed 1100 employees with over 1000 hours. He
noted that SU had one third of their 8200 employees with
more than 1000 hours. Only four legislative employees had
over 1000 hours. The 1000 hour cap was negotiated with the
unions as a break-even point.
8:26:01 AM
Mr. Thayer discussed slide 9 "Geographical Pay
Differentials." He noted that a report was produced by the
McDowell Group in Fall of 2008. The report was completed in
2009 and addressed geographical pay differentials. The
group used South Central Anchorage as the base and
implemented the geographical differential for other unions.
Anchorage was shown at zero percent above the base, while
Fairbanks was at 3, Juneau and Sitka at 5, and rural Alaska
would extend from 37 to 60 percent. He stated that the
executive branch saw 483 employees receive an increase, 122
with frozen pay, and 727 without change. For the
legislative branch, 145 employees would see an increase, 24
with frozen pay, and 204 without change.
8:27:32 AM
Representative Kawasaki recalled that the 2008 McDowell
study was controversial for Fairbanks, as it omitted the
cost component for energy. He asked when the survey would
be updated.
Mr. Thayer replied that the department planned to have the
study done every five years pending an appropriation from
the legislature.
Representative Kawasaki asked about the potential absence
of an appropriation from the legislature.
Mr. Thayer replied that the study would be maintained until
the department had an updated survey.
Co-Chair Stoltze explained that money would not be spent
unless appropriated by the legislature.
Representative Gara stated that OCS found it difficult to
attract social workers to Bethel. He asked how the 50
percent salary adjustment for Bethel compared to the
present figures.
Ms. Neal replied that the geographical differential for
Bethel was approximately 29.12 percent.
8:29:12 AM
Representative Edgmon asked why Nome would be categorized
in the 37 percent above-base category.
Mr. Thayer replied that he would contact the McDowell group
for an answer. He stated that the study included
information about housing, utilities, food and
transportation. He assumed that home prices affected the
percentage for Nome.
Representative Edgmon stated that the price of fuel in
Dillingham was much higher than that in Nome. He noted that
the cost of fuel was a significant piece of the rural
communities' cost of living.
8:30:32 AM
Co-Chair Stoltze understood that a lack of action on the
proposed legislation might lead to a detrimental fiscal
impact for the state. He requested elaboration on the issue
of accrued leave.
Mr. Thayer replied that the value of leave was a key point
in union negotiations. He stated the total leave value was
$164 million for all state employees. He stated that 10
employees with the greatest leave balances had
approximately 35 thousand hours of leave banked. The
department sought to find a cap for the leave to temper the
liability. He stated that the bill would cut the liability
by more than two thirds. He stated that the department
worked with the unions to decrease the leave accruals.
Mr. Thayer noted that the paid time off incorporated an
employee's sick leave. He pointed out that the 1000 hours
represented approximately six months' worth of leave. He
admitted that the leave amount was negotiated by the
unions. He stated that the union's leave was valued at the
union's current earnings. He noted that Alaska was the only
state in the nation lacking a cap on leave.
8:34:25 AM
Co-Chair Stoltze noted that a new type of unfunded
liability might result if the cap was not instituted.
Mr. Thayer agreed. He pointed out that the Department of
Administration (DOA) requested money from various
departments to pay for cashed-in leave. The hope was that
the caps combined with employee retirements would lead to a
decrease in the state's liability.
Co-Chair Stoltze asked if a senior engineer with the
Department of Transportation and Public Facilities (DOT/PF)
with a large amount of leave would compromise the state's
ability to hire social workers at lower entry levels.
Mr. Thayer agreed that some employees had banked up to 4000
hours of leave. He added that DOA must better explain
options other than banking leave, such as deferred
compensation, since the cashed-in leave presented a tax
liability for the employee.
8:36:46 AM
Representative Gara asked if a person who had accrued large
amounts of leave must relinquish it.
Co-Chair Stoltze noted that the bill was without
retroactive provisions.
Representative Gara understood that an employee accrued
approximately 5 weeks of leave per year.
Mr. Thayer replied that accrual rates would remain the
same. He clarified that the state did not have sick leave.
He stated that the cap applied to those employees with less
than 1000 hours of leave. The mandatory usage applied to
all employees upon passage of the legislation.
Representative Gara asked how much leave a new employee
would earn in three years.
Mr. Thayer moved to slide 4 and noted that the new scale
allowed for a slight reduction in leave.
8:39:22 AM
Representative Costello asked about the overall fiscal
impact of the bill.
Mr. Thayer offered to provide the calculations for the
committee.
Co-Chair Stoltze requested categorization of the potential
savings or mitigated losses.
Mr. Thayer replied that calculation were compiled for one
of the unions, and finding showed that leave owed to
employees with more than 1000 hours was $1.6 million. With
the 1000 hour cap, the liability would be $400 thousand.
8:41:28 AM
Representative Costello appreciated the department's offer
to educate employees.
Mr. Thayer replied that the proposed education would
benefit both the state and the employee.
Representative Kawasaki asked about section 10 and
partially-exempt salaries. He wondered if a person might
try to negotiate directly with the governor under this
term.
Mr. Thayer replied that the department would attempt to
attract people into state service for a particular
position. Only when a commissioner or director had a
difficult time filling a position, would they go to the
governor's office to ask for such a variance. The process
to achieve the variance would be long and rigorous.
8:43:45 AM
Representative Kawasaki asked about section 5 and DGGS. He
recalled that one position was more difficult to fill. He
asked if every DGGS Geologist 4 would encounter the same
challenges upon vacancy.
Mr. Thayer replied that the need was applicable to only one
position.
Vice-Chair Neuman asked about section 10 and the issues of
employee retire-rehire. He asked if an employee must
provide written proof that another applicant was not
capable of performing the tasks in the job.
Ms. Neal stated that the retire-rehire program sunset two
years ago. If position recruitment were present, the
employee could reenter a position and waive the retirement
contribution.
8:45:44 AM
Representative Edgmon MOVED Amendment 1. He stated that the
conceptual amendment would bring judges and justices into
the bill with a cap of $100 thousand. The change would
affect 23 positions throughout the state. He understood
that current law allowed judges and justices a geographical
pay differential, which was limited to $7 thousand.
Co-Chair Stoltze requested a written amendment.
Representative Edgmon apologized that the written amendment
was not in the hands of committee members.
8:47:56 AM
AT EASE
8:48:34 AM
RECONVENED
HB 195 was HEARD and HELD in committee for further
consideration.
HOUSE BILL NO. 63
"An Act extending the termination date of the Board of
Governors of the Alaska Bar Association; and providing
for an effective date."
8:49:47 AM
REPRESENTATIVE MIKE HAWKER presented the sunset bill. He
noted that the bill could be found on the Division of
Legislative Budget and Audit's (LB&A) website. The proposed
legislation extended the Alaska Bar Association's sunset
date from 2013 to 2021 in accordance with recommendations
made by the state's legislative auditor. The auditor
conducted an evaluation of the Board of Governors using
criteria under AS 44.66.050(c), which was summarized in the
report included in committee members' files.
Representative Hawker continued that all previous findings
from prior audits were resolved. The remaining issue stood
as a matter of judgment between the legal and legislative
profession regarding the mandatory continuing education for
attorneys. The auditor recommended that the Alaska Supreme
Court increase the mandatory education hours for attorneys.
8:51:52 AM
Representative Gara pointed out that the Alaska Bar
Association continued charging attorneys money despite an
inactive status. If the fee was not paid, an attorney must
take the bar exam a second time to practice law. He wished
to see an amendment preventing the practice.
Co-Chair Stoltze stated that he did not wish to regulate
the bar.
Representative Hawker referred to "Shakespeare's Council."
Co-Chair Stoltze suggested a subcommittee process for the
proposed amendment.
Representative Gara withdrew his request.
8:55:01 AM
KRIS, CURTIS, LEGISLATIVE BUDGET AND AUDIT, explained the
recommendation in prior sunsets that the board support an
increase to the mandatory continuing legal education
requirement. Current mandatory requirements were three
credits per year. She stated the board's voluntary
requirement of an additional nine credits, with 60 percent
of members meeting the requirement. She pointed out that
the board conducted a survey of their members to determine
whether they supported an increase; over 90 percent did
not. She stated that LB&A made the recommendation again.
STEVE VAN GOOR, ALASKA BAR ASSOCIATION, ANCHORAGE (via
teleconference), stated that he was available to answer
questions.
Representative Gara asked about the fairness of the Alaska
Bar Association's fee for inactive attorneys.
Mr. Van Goor replied that an inactive status with the bar
association was an option for members choosing not to
practice law. He stated that inactive members were charged
a fee to retain the structure, licensing and discipline
functions of the association. An inactive member supported
the infrastructure and ability to return to practice. A
failure to pay inactive dues did not require the member to
retake the bar exam, but instead subjected the member to
administrative suspension. The suspension could be cured by
paying the past due fees and a penalty.
Co-Chair Stoltze compared the fee to that of an automobile
registration fee.
Representative Gara suggested that inactive members must
pay for infrastructure supporting active members.
Mr. Van Goor replied that the Alaska Bar Association
supported the public service functions. Inactive members
were not charged the same amount as active members, but
they did have the ability to practice law again.
Representative Gara disagreed with the policy.
8:59:40 AM
Representative Holmes joked that Representative Gara's fees
helped to lower her own as an active member of the Alaska
Bar Association.
9:00:12 AM
HANNA SEBOLD, ALASKA BAR ASSOCIATION, was available for
questions.
Representative Gara expressed his opinion that the practice
of collecting fees from inactive members was not just and
reasonable. He asked that Ms. Sebold request that the
Alaska Bar Association change the rule.
Ms. Sebold answered that she would bring the matter to the
board.
Representative Holmes discussed current mandatory hours for
continued education. She stated that three hours of
mandatory ethics and an additional nine hours of
recommended hours of "other" continuing education credits.
She asked if the association had a position on the issue of
changing the policy.
Ms. Sebold deferred the question to Mr. Van Goor.
Mr. Van Goor replied that a rule proposal had been made to
the Alaska Supreme Court to clarify the mandatory
continuing education policy. He explained that the board
suggested a rule change while conducting a survey of its
membership and comments were collected before the rule was
submitted to the court. The court would then schedule an
administrative rules conference, which the association was
invited to attend. He suggested to LB&A that the audit was
the time to raise the concerns expressed in the House State
Affairs Committee. He stated that the court had the final
call about the number of hours required for members of the
bar. The court had the ability to increase the number of
hours and was in the decision making process.
9:04:34 AM
Representative Holmes asked for clarification on the
recommendation regarding an increase in the mandatory
number of continuing education hours. She asked if the
association had presented a recommendation about the
requirement.
Mr. Van Goor answered that the proposed rule clarified
portions of the mandatory continuing education requirements
without a specific recommendation for increasing the hours.
He hoped to discuss the audit's concerns at the rules
conference.
Co-Chair Stoltze thanked Mr. Van Goor for clarifying the
diminished relevance of the people's body in the process.
9:05:57 AM
Representative Munoz asked the number of active and
inactive bar members in Alaska.
Ms. Sebold replied approximately 4100 total members, with
2600 in active status.
9:06:32 AM
TOM OBERMEYER, ANCHORAGE (via teleconference), called
attention to the bar exam. He claimed that the Alaska Bar
Association had the ability to limit applicants who pass
the bar exam. He noted that Missouri implemented a state
practice portion for the exam. He stated that Alaska had
less than 100 applicants. He explained that he had paid and
studied for the bar exam for 29 years. He spoke to the debt
incurred in law school. He believed that the exam passage
rate was arbitrary. He disagreed with the audit's
recommendation of an 8 year extension.
9:11:57 AM
Co-Chair Stoltze CLOSED public testimony.
Representative Hawker understood the dilemma regarding the
separation of powers between the legislative, legal and
executive branches of government. He requested
consideration for a change in statute or letter of intent
accompanying the bill to provide the great impact of the
legislature's concern. He pointed out the committee's
tradition of separating policy calls from reauthorizations.
Co-Chair Stoltze stated that the audit recommendation was
also important.
HB 63 was HEARD and HELD in committee for further
consideration.
9:15:58 AM
AT EASE
9:19:32 AM
RECONVENED
HOUSE BILL NO. 102
"An Act relating to property exemptions for retirement
plans, individual retirement accounts, and Roth IRAs;
relating to transfers of individual retirement plans;
relating to the rights of judgment creditors of
members of limited liability companies and partners of
limited liability partnerships; relating to the
Uniform Probate Code, including pleadings, orders,
liability, and notices under the Uniform Probate Code
and the Alaska Principal and Income Act, the
appointment of trust property, the Alaska Uniform
Prudent Investor Act, co-trustees, trust protectors,
and trust advisors; relating to the Alaska Principal
and Income Act; relating to the Alaska Uniform
Transfers to Minors Act; relating to the disposition
of human remains; relating to the tax on insurers for
life insurance policies; relating to insurable
interests for certain insurance policies; relating to
restrictions on transfers of trust interests; relating
to discretionary interests in irrevocable trusts;
relating to the community property of married persons;
and amending Rule 64, Alaska Rules of Civil Procedure,
and Rule 301(a), Alaska Rules of Evidence."
9:19:40 AM
REPRESENTATIVE WES KELLER, stated that Alaska first
modernized trust in the state planning laws in 1997. He
noted recommendations from the trust were made for changes
in the law. He thought that the trust and estate planning
efforts led to some of the best applicable legislation in
the United States. The proposed legislation included many
of the recommendations including measures for retirement
plan assets.
DOUGLAS BLATTMACHR, ALASKA TRUST COMPANY, ANCHORAGE (via
teleconference), testified in support of the legislation.
Representative Costello asked if the bill addressed
revocable living trusts.
Mr. Blattmachr replied no, the bill dealt with IRAs and
other matters.
Co-Chair Stoltze wondered why the policy issues were
important.
Mr. Blattmachr replied that the Alaska Trust Company had
been working with the legislature to enhance Alaska's trust
legislation. He stated that Alaska had become a premier
location for estate and financial planning. The process
drew millions of dollars in revenue to the state.
DAVE SHAFTEL, SAHFTEL LAW OFFICES, ANCHORAGE (via
teleconference), stated that he worked with a group of
attorneys and trust officers since 1997 to assist in making
recommendations to the legislature for the improvement of
Alaska's laws regarding estate planning.
9:25:43 AM
Representative Holmes noticed that the bill was similar to
another seen last year. She asked about changes between the
two bills.
Mr. Shaftel responded that one position was added to assist
the Internal Revenue Service (IRS) in granting rulings for
non-grantor trusts. He noted that the IRS would grant the
rulings for lifetime's powers of appointment. He stated
that some of the statute's less applicable portions were
deleted. He noted the new provision that conformed to the
statute of limitations. He noted a provision that allowed
for transfers of individual retirement accounts to grantor
trusts for planning purposes. He stated that the other
provisions in the bill were reviewed in committee last
year.
9:27:44 AM
HB 102 was HEARD and HELD in committee for further
consideration.
9:28:49 AM
AT EASE
9:29:01 AM
RECONVENED
SENATE BILL NO. 86
"An Act approving and ratifying the sale of royalty
oil by the State of Alaska to Flint Hills Resources
Alaska, LLC; and providing for an effective date."
9:29:36 AM
JOE BALASH, DEPUTY COMMISSIONER, DEPARTMENT OF NATURAL
RESOURCES, provided a presentation for orientation. He
provided a PowerPoint presentation: "Royalty In-Kind (RIK)
Sale to Flint Hills Resources." He noted that the state's
interest was generally 12.5 percent at legacy fields and
the royalty could be collected in cash value or in physical
possession of the product produced. The statutes that
governed the sale of royalty were laid out in title 38,
with the presumption that taking royalty in-kind was in the
state's best interest. He discussed slide 2: "Royalty in-
Value versus Royalty in-Kind:"
The state has a choice to take its royalty in-value
(RIV) or in-kind (RIK).
· When the State takes its royalty as RIV, the
lessees who produce the oil also market the
State's share along with their own production and
pay the State the value of its royalty share.
· When the State takes its royalty share as RIK,
the State assumes ownership of the oil, and the
commissioner disposes of it through the sale
procedures prescribed by AS 38.05.183.
9:30:50 AM
Mr. Balash discussed slide 3: "Non-Competitive RIK Sale
Process." He noted that an informal letter of solicitation
led to two interested parties; one was Flint Hills and the
other Tesoro.
· Statute presumes State's Best Interest is met by
o Taking royalty in-king - AS 38.05.182(a)
o With sale to in-state buyer - AS 38.05.183(d)
o Accomplished through a competitive process - AS
38.05.183(a)
· August 13, 2012 Informal Solicitation of Interest sent
to:
o North Slope Producers
o In-state Refiners
o Industry specific & general media
9:32:21 AM
Mr. Balash discussed slide 4: "RIK contract terms."
· Proposed 2013 contract is similar to 2004 contract
ƒProposed 2013 contract, like 2004 contract,
does not directly reference RIV valuation in
RIK price calculations
· Key Contract provisions
o Price
o Quantity
o Term
o Special Commitments
o In-State Processing and Local Hire
Mr. Balash detailed slide 5: "RIK Contract Price."
ANS Spot Price - $2.15 - Tariff Allowance + Quality
Bank Adjustment - Line Loss
· ANS Spot Price = Average US West Coast Price for
Alaska North Slope oil.
o Reported by industry publications: Platts,
Telerate, Reuters
· $2.15 = RIK DIFFERENTIAL
o Destination - Marine Costs so RIK > RIV.
o Subject to a one-time adjustment of no more
than + $0.15 per barrel.
o This amount = $1.65 per barrel in the
current 2004 contract.
· Tariff Allowance = TAPS and Pipelines Upstream of
PS-1.
· Quality Bank Adjustment = as reported by the TAPS
Quality Bank Administrator
· Line Loss = 0.0009 times the netback price
Mr. Balash discussed slide 6, "2013 RIK Contract Quantity:"
· Initial Quantity Range
o 18,000-30,000 barrels per day
o May be adjusted after 12 months, with
Commissioner approval
· Termination of Contract
o No or zero nomination for 3 months terminates
contract
o Contract terms comparable to the private market
· Refinery Turnaround
o Contract allows FHR the flexibility to cease
royalty oil purchases during maintenance
· Guarantees, reserves and proration clauses included
o 24,000 barrels per day with 15 percent reserves
for other RIV or RIK interests
Mr. Balash discussed slide 7, "2013 RIK Contract Term:"
· FHR initially sought a ten-year contract
o Creates supply and price risk
o Increases counterparty risk
o Limits the State's ability to supply other RIK
buyers
· DNR negotiated a five year term
o April 1, 2014 to March 31, 2019
o Possible extension condition for:
ƒLarge capital improvement at the North Pole
Refinery
ƒBinding support for a North Slope natural
gas transportation system
9:35:34 AM
Mr. Balash discussed slide 8: "2013 RIK Contract Quantity."
The graph illustrated a 10-year royalty profile. He
explained that the total contract demand for Flint Hills
was less than half of the state's total royalty volume. The
percentage increased throughout the years with a projected
82.1 percent of royalty value accounted for in a single
sale. He mentioned that the seasonal variability on North
Slope production made the terms instituted by Flint Hills
difficult for the state to meet.
9:37:04 AM
Mr. Balash discussed slide 9: "Commissioner's Decision
Criteria."
AS 38.05.183(e) states that the commissioner must sell
the state's royalty oil to the buyer who offers
"maximum benefits to the citizens of the state." In
making this determination the commissioner must
consider:
1. The cash value offered
2. The projected effects of the sale on the economy
of the state
3. The projected benefits of refining or processing
the oil in state
4. The ability of the prospective buyer to provide
refined products for distribution and sale in the
state with price or supply benefits to the
citizens of the state
5. The eight criteria listed in AS 38.06.070(a), as
reviewed by the Royalty Board
Mr. Balash discussed slide 10: "Royalty Board's Decision
Criteria."
AS 38.06.070(a) states that the Alaska Royalty Oil and
Gas Development Advisory Board must consider:
1. The revenue needs and projected fiscal condition
of the state
2. The existence and extent of present and projected
local and regional needs for oil and gas products
3. The desirability of localized capital investment,
increased payroll, secondary development and
other possible effect of the sale
4. The projected social impacts of the transaction
5. The projected additional costs and
responsibilities which could be imposed upon the
state and affected political subdivisions by
development related to the transactions.
6. The existence of specific local or regional labor
or consumption markets or both which should be
met by the transaction
7. The projected positive or negative environmental
effects related to the transactions
8. The projected effects of the proposed transaction
upon existing private commercial enterprise and
patterns of investment
9:38:28 AM
Mr. Balash discussed slide 12: "Figure 1: Royalty In-Kind
Sales History." He stated that the refinery depicted had
purchased royalty oil from the state.
Mr. Balash discussed slide 13: "Best Interest of the State
Served by the RIK Contract with Flint Hills Resources
(FHR)."
· Cash Value Offered with Contract
Cash value of $3.5-5.9 Billion over 5 years
ƒAnalyzed for Consistent value between RIK
and RIV
ƒVolume weighted average of current reported
netback price (11 AAC 03.026(b))
Anticipated increases in marine transportation
allowance will favor RIK contract
· Positive effect on the State
Maintain stability in in-state refining and
distribution of refined products
Supports jobs and economy of Fairbanks North Star
Borough
Co-Chair Stoltze reflected on prior testimony about
pipeline physics and the importance of the facility.
Mr. Balash replied that the issue was discussed on slide
14.
9:39:55 AM
Mr. Balash discussed slide 14: "FHR's North Pole Refinery."
· Strategically located on Trans-Alaska Pipeline System
(TAPS)
· Current throughput of 82,000 - 84,000 barrels per day
of ANS crude
· Producing approximately 22,000 - 25,000 barrels of
refined product
· All crude and constituents that are not transformed
into refined product are injected back into TAPS (with
a penalty paid)
9:41:33 AM
Mr. Balash discussed slide 15: "FHR's North Pole Refinery."
· FHR produces approximately
o 672,000 gallons of jet fuel per day
o 143,000 gallons of gasoline per day
o 41,000 gallons of home heating fuel per day
o 68,000 to 194,000 gallons per day of product
consisting of HAGO, LAGO, naphtha, asphalt,
refining fuel, and a small volume of high-sulfur
diesel
· 680,000 gallons per day shipped to Anchorage via the
Alaska Railroad
· 230,000 gallons of ultra-low sulfur diesel and
gasoline on the backhaul to Fairbanks
· FHR owns 50 million gallons of storage facilities
o 30.7 million in Anchorage and 19.3 million in
Fairbanks
9:42:30 AM
Mr. Balash discussed slide 16: "Proposed Contract
Benefits."
· Proposed contract is expected to:
o Maintain status quo of in-state refining behavior
o Produce 330 million gallons of refined product or
18 percent of gasoline and 26 percent of jet fuel
consumed in Alaska
o Provide approximately $140 million per year in
gross regional product sales for the Fairbanks
North Star Borough (FNSB)
o Support 1,300 direct and indirect jobs in the
FNSB
o Sustain $100 million in annual earnings in FNSB
o Provide socio-economic stability against energy
costs
Mr. Balash discussed slide 17: "Projected Impacts if not
Approved."
· If FHR stops refining, anticipated effects include:
o Loss of approximately 1,300 direct and indirect
jobs in the Fairbanks North Star Borough
o State could experience increased utilization of
the social safety net
o Possibility of population redistribution
o Increased and decreased infrastructure
utilization and maintenance with population shift
o Impact to the fuel supply for the Fairbanks and
Anchorage airports, affecting trade and tourism
and the Alaska Railroad
o Loss of heat source for warming low flow in TAPS
9:44:02 AM
Representative Gara stated that the less oil in TAPS the
more expensive the tariff. The more expensive the tariff,
the less money the state received in taxes for the oil. He
asked if a discount for royalty in-kind oil would increase
the cost in taps and impact state revenue.
Mr. Balash replied that if the state received royalty in-
value and the current contract returned approximately $120
million more than the expected value. He stated that the
current terms in the contract would not achieve the same
monetary surplus or addition due to the short term and
small volume. The department was confident that they would
receive an increment of value for the state.
Representative Gara understood that taking less oil from
North Pole would increase the tariff south of North Pole.
If the oil was not purchased from the state, it would be
purchased from the oil companies, which would also increase
the tariff.
Mr. Balash concurred, if supply was available from another
source.
9:46:24 AM
Representative Gara noted evidence that refiners had
increased the mark-up for gas produced and sold by 100
percent in the last five or six years, which might be
responsible for the high cost of gas in Alaska. If the
state offered oil to the refinery, would the department
offer a return on limitation of markup for consumer gas?
Mr. Balash replied that investigations by the Department of
Law evaluated the market behavior of Alaska's refineries
and distributors. The conclusion of the investigation was
that collusion or anti-competitive behavior was not an
issue. The contract continued a term written in the
previous one. The term stated that when Flint Hills
produced and sold wholesale gasoline, they must offer a
price comparable to that sold in Anchorage. Anchorage was a
water-born market with an additional refinery.
9:48:53 AM
Representative Costello asked about the commissioner's
identification of the economic effect. She asked if the
department accounted for the 26 percent loss of avgas,
which was supplied through Flint Hills to the state's
economy.
Mr. Balash replied that the refinery produced a tremendous
amount of jet fuel, but he was unaware of the avgas
production.
9:50:28 AM
Co-Chair Stoltze asked the connection for defending the
army bases in Alaska.
Mr. Balash replied that Petro Star Inc. was owned by Arctic
Slope Regional Corporation (ASRC) and enjoyed certain
contracting preferences with the United States Department
of Defense. He stated that Petro Star Inc. supplied most of
the fuel for the military bases in the interior. He stated
that Flint Hills was supportive of the Interior community
at large. The families supported by their employment with
Flint Hills provided the backbone of the community.
Co-Chair Stoltze asked about the military facilities.
Mr. Balash replied that the military facilities must
consider the loss of Flint Hills as a back-up to the Petro
Star facility. He mentioned a provision in the contract
intended to enable Flint Hills to become a customer of the
North Slope Transportation Project. If natural gas was made
available to the Interior the cost of operating the bases
would be reduced. The contract could help with the
retention of those installations.
9:53:14 AM
Co-Chair Stoltze noted that an effect felt in one region of
the state impacted all of Alaska.
Representative Wilson stated that one tower was shut down
resulting in an unforeseen impact in her district. The fuel
provided allowed for electric energy for the district.
9:54:31 AM
Representative Kawasaki asked about the special commitment
contract extension on page 22. He noted that the special
commitment was tied as a reward for substantial investment.
He read about a request for an extension. He wondered if
the issue would be revisited with the royalty board.
9:55:11 AM
Mr. Balash replied that the initial step included
negotiations with the department. Upon conclusion of the
negotiation process, the royalty board and legislature
would provide the next steps. The provision was intended to
truncate the negotiation process. The terms would be agreed
upon and presented to both the board and the legislature in
five years.
9:56:04 AM
JEFF COOK, REGIONAL DIRECTOR, EXTERNAL AFFAIRS, FLINT HILLS
RESOURCES, NORTH POLE, spoke in support of SB 86. He
mentioned his productive negotiations with the Division of
Oil and Gas through the Department of Natural Resources. He
stated that he began working for the refinery in 1994 and
he had seen the oil enter the refinery at increasingly
lower temperatures. He explained the refinery's important
task of returning oil to TAPS. He pointed out that the
refinery had only one source of crude and electricity costs
were four times higher than refineries in the state of
Washington without the benefit of natural gas.
Mr. Cook continued that the five year contract would
provide the stability and certainty of crude oil at a fair
price with expansion as a result. Though the current
contract did not expire until April 1, 2014 the pressure to
pass the bill was strong this session. He discussed the
negotiation process regarding one-year supply contracts for
jet fuel and other projects.
9:59:01 AM
Representative Thompson understood that the refinery
produced 26 percent of the jet fuel consumed in Alaska. He
stated that the Anchorage port had storage tanks for the
import of jet fuel for Ted Stevens International Airport.
He asked about the change in competitiveness.
Mr. Cook replied that his refinery was limited to one
source of crude. He added that the change in energy costs
placed Flint Hills at a disadvantage.
Representative Thompson asked about the impact of the large
transportation cost required to bring jet fuel to Alaska
from Asia.
Mr. Cook replied that the differential in his refinery's
energy cost was $12 higher than the West Texas Intermediate
(WTI).
Representative Thompson asked if natural gas in the
Interior would help with competitiveness.
Mr. Cook replied yes. He hoped for projects that would
allow the company to enter the export business again and
expand for greater competitiveness in the jet fuel market.
10:01:02 AM
REPRESENTATIVE DOUG ISAACSON testified in support of the
legislation.
Co-Chair Stoltze CLOSED public testimony.
10:02:11 AM
Co-Chair Stoltze noted that he placed great emphasis on
Interior issues.
Representative Costello discussed the zero fiscal note.
Co-Chair Stoltze stated that the bill's fiscal terms were
best described in the contract.
Mr. Balash agreed.
10:03:24 AM
Representative Wilson MOVED to REPORT SB 86 out of
committee with individual recommendations and the
accompanying fiscal note.
SB 86 was REPORTED out of committee with a "do pass"
recommendation and with one previously published fiscal
note: FN1 (DNR).
CS FOR SENATE BILL NO. 21(FIN) am(efd fld)
"An Act relating to the interest rate applicable to
certain amounts due for fees, taxes, and payments made
and property delivered to the Department of Revenue;
providing a tax credit against the corporation income
tax for qualified oil and gas service industry
expenditures; relating to the oil and gas production
tax rate; relating to gas used in the state; relating
to monthly installment payments of the oil and gas
production tax; relating to oil and gas production tax
credits for certain losses and expenditures; relating
to oil and gas production tax credit certificates;
relating to nontransferable tax credits based on
production; relating to the oil and gas tax credit
fund; relating to annual statements by producers and
explorers; establishing the Oil and Gas
Competitiveness Review Board; and making conforming
amendments."
CSSB 21 (FIN) am(efd fld) was SCHEDULED but not HEARD.
SENATE BILL NO. 51
"An Act extending the termination date of the Board of
Governors of the Alaska Bar Association; and providing
for an effective date."
SB 51 was SCHEDULED but not HEARD.
SENATE BILL NO. 65
"An Act relating to property exemptions for retirement
plans, individual retirement accounts, and Roth IRAs;
relating to transfers of individual retirement plans;
relating to the rights of judgment creditors of
members of limited liability companies and partners of
limited liability partnerships; relating to the
Uniform Probate Code, including pleadings, orders,
liability, and notices under the Uniform Probate Code
and the Alaska Principal and Income Act, the
appointment of trust property, the Alaska Uniform
Prudent Investor Act, co-trustees, trust protectors,
and trust advisors; relating to the Alaska Principal
and Income Act; relating to the Alaska Uniform
Transfers to Minors Act; relating to the disposition
of human remains; relating to the tax on insurers for
life insurance policies; relating to insurable
interests for certain insurance policies; relating to
restrictions on transfers of trust interests; relating
to discretionary interests in irrevocable trusts;
relating to the community property of married persons;
and amending Rule 64, Alaska Rules of Civil Procedure,
and Rule 301(a), Alaska Rules of Evidence."
SB 65 was SCHEDULED but not HEARD.
HOUSE BILL NO. 134
"An Act requiring Medicaid payment for scheduled unit
dose prescription drug packaging and dispensing
services for specified recipients."
HB 134 was SCHEDULED but not HEARD.
SENATE BILL NO. 95
"An Act relating to the compensation, allowances,
geographic differentials in pay, and leave of certain
public officials, officers, and employees not covered
by collective bargaining agreements; relating to
certain petroleum engineers and petroleum geologists
employed by the Department of Natural Resources;
relating to increased pay for certain partially exempt
employees of the state in specific circumstances;
making conforming amendments; and providing for an
effective date."
SB 95 was SCHEDULED but not HEARD.
SENATE BILL NO. 2
"An Act enacting the Interstate Mining Compact and
relating to the compact; relating to the Interstate
Mining Commission; and providing for an effective
date."
SB 2 was SCHEDULED but not HEARD.
SENATE BILL NO. 16
"An Act relating to the Board of Registration for
Architects, Engineers, and Land Surveyors and to the
Department of Commerce, Community, and Economic
Development."
SB 16 was SCHEDULED but not HEARD.
SENATE BILL NO. 24
"An Act relating to the Alaska Marine Transportation
Advisory Board."
SB 24 was SCHEDULED but not HEARD.
SENATE BILL NO. 37
"An Act extending the termination date of the
Statewide Suicide Prevention Council; and providing
for an effective date."
SB 37 was SCHEDULED but not HEARD.
CS FOR SENATE BILL NO. 38(FIN)
"An Act extending the termination date of the State
Medical Board; relating to the executive secretary of
the State Medical Board; and providing for an
effective date."
SB 38 was SCHEDULED but not HEARD.
CS FOR SENATE BILL NO. 18(FIN) am
"An Act making, amending, and repealing
appropriations, including capital appropriations,
supplemental appropriations, reappropriations, and
other appropriations; making appropriations to
capitalize funds; and providing for an effective
date."
SB 18 was SCHEDULED but not HEARD.
ADJOURNMENT
10:04:43 AM
The meeting was adjourned at 10:04 a.m.