Legislature(2017 - 2018)HOUSE FINANCE 519
05/03/2017 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| Presentations: the Economy and Fiscal Policy Overview | |
| SB32 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | SB 32 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
May 3, 2017
1:36 p.m.
1:36:21 PM
CALL TO ORDER
Co-Chair Foster called the House Finance Committee meeting
to order at 1:36 p.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Paul Seaton, Co-Chair
Representative Les Gara, Vice-Chair
Representative Jason Grenn
Representative David Guttenberg
Representative Scott Kawasaki
Representative Dan Ortiz
Representative Lance Pruitt
Representative Steve Thompson
Representative Cathy Tilton
Representative Tammie Wilson
MEMBERS ABSENT
None
ALSO PRESENT
Joey Crum, President, Alaska Truckers Association,
President and CEO, Northern Industrial Training; Joe
Schierhorn, President and Chief Operating Officer, Northrim
Bank; Angie Newby, Homer Realty; Vince Beltrami, President,
Alaska American Federation of Labor/ Congress of Industrial
Organizations (AFL-CIO); Mike Navarre, Mayor, Kenai
Peninsula Borough; Senator Shelley Hughes, Sponsor; Janey
Hovenden, Director, Division of Corporations, Business and
Professional Licensing, Department of Commerce, Community
and Economic Development; Buddy Whitt, Staff, Senator
Shelley Hughes; Representative Bryce Edgmon; Representative
Louise Stutes; Representative Adam Wool; Representative
Chris Tuck; Representative Geran Tarr; Representative Zach
Fansler; Representative Gabrielle LeDoux.
PRESENT VIA TELECONFERENCE
Dr. Thomas Felix, Director, Medical Research, Amgen Inc.
SUMMARY
SB 32 PRESCRIPTIONS FOR BIOLOGICAL PRODUCTS
SB 32 was HEARD and HELD in committee for further
consideration.
PRESENTATIONS: THE ECONOMY AND FISCAL POLICY OVERVIEW
ALASKA TRUCKERS ASSOCIATION
NORTHRIM BANK AND ALASKA BANKERS ASSOCIATION
ALASKA AMERICAN FEDERATION OF LABOR/ CONGRESS OF
INDUSTRIAL ORGANIZATIONS (AFL-CIO)
KENAI PENINSULA BOROUGH
Co-Chair Foster reviewed the meeting agenda.
^PRESENTATIONS: THE ECONOMY AND FISCAL POLICY OVERVIEW
1:37:49 PM
Co-Chair Seaton spoke about the intent to hear an outside
perspective about what was currently taking place in the
state's economy.
1:39:01 PM
JOEY CRUM, PRESIDENT, ALASKA TRUCKERS ASSOCIATION,
PRESIDENT AND CEO, NORTHERN INDUSTRIAL TRAINING, read from
prepared remarks:
Good afternoon Co-Chairs Foster and Seaton and members
of the Committee. I am Joey Crum, President and CEO of
Northern Industrial Training and this year I am the
President of the Alaska Trucking Association. Thank
you for being invited to testify today.
Founded in 1958, The Alaska Trucking Association or
ATA represents roughly 200-member companies spanning
the entire state. Our members include not only
trucking companies, but container shippers, the
railroad, fuel barges and much more. From Ketchikan to
Barrow if you got it, one of our member companies
brought it.
In terms of employment, in 2015, the trucking industry
in Alaska provided 13, 700 jobs or 1 out of 19 in the
state. Total trucking industry wages paid in Alaska in
2015 exceeded $800 million, with an average annual
trucking industry salary of $56,283.
As far as a Small Business Emphasis, as of April 2015,
there were 2,710 trucking companies located in Alaska,
most of them small, locally owned businesses. These
companies are served by a wide range of supporting
businesses both large and small.
We transport essential products; trucks transported 60
percent of total manufactured tonnage in the state in
2012 or 17,647 tons per day. 94.3 percent of Alaska
communities depend exclusively on trucks to move their
goods.
As an Industry In 2014, the trucking industry in
Alaska paid approximately $69 million in federal and
state roadway taxes. The industry paid 51 percent of
all taxes owed by Alaska motorists, despite trucks
representing only 11 percent of vehicle miles traveled
in the state.
Individual Companies pay taxes, as of January 2016, a
typical five-axle tractor-semitrailer combination paid
$1,783 in state highway user fees and taxes in
addition to $8,906 in federal user fees and taxes.
These taxes were over and above the typical taxes paid
by businesses in Alaska.
Our member companies literally touch all of Alaska
giving us a unique perspective and a firsthand account
as to the effects of a down economy, which is very
clearly what we are experiencing now.
Business in 2014 and part of 2015 was good,
particularly on the North Slope. But then the slow
down began and in 2016 ATA member companies were down
nearly 40 percent over 2014.
The following chart will demonstrate the numbers
received from AK DOT Weigh in Motion device (Scales)
in Fox just outside of Fairbanks. This data is for
large Commercial Motor Vehicle i.e. trucks not pick-
ups or vans and reflects the number of loads headed
north on the Dalton highway toward Prudhoe Bay.
As you can see, the numbers are kind of staggering
when you have them represented in front of you. Where
the year-over-year difference of 9,984 loads fewer in
2016 than in 2015.
Co-Chair Foster noted that some committee members did not
have the document Mr. Crum was referencing. He relayed that
the document was being copied for the committee at present.
1:42:58 PM
AT EASE
1:47:29 PM
RECONVENED
Mr. Crum referenced a document he had provided to the
committee dated May 1, 2017 (copy on file). He pointed to a
table on page 2 and relayed that the data had been
collected by the scale house in Fox outside of Fairbanks
going north on the Dalton Highway. He clarified that he had
been referencing the year-over-year comparison between 2015
and 2016 that showed 9,984 fewer loads went north on the
Dalton Highway in 2016 compared to 2015. The 2017 data had
been received 1.5 days earlier and indicated that the
number of loads was down 19 percent in 2017 compared to
first quarter 2016. He read from page 2 the document:
The data clearly illustrates that we experienced a
precipitous drop in the number of loads and therefore
work occurring on the North Slope. A decline this
dramatic is felt by all of our member companies across
the entire state.
Mr. Crum turned to page 3 that referenced a survey of 10
Alaska Trucking Association motor carriers, which began to
show the depth and impact of the downturn in Alaska's
economy. He explained of the 10 members surveyed, the
lowest drop between 2014 and 2016 was 15 percent and the
highest drop was 60 percent. The fewest number of employees
laid off during the timeframe was 16 and the highest was
800. The right column included quotes from the companies
about their outlook on the Alaskan economy and the future
of their businesses. He read from the document:
As you can see, our outlook is not good. I'd like to
point out that too often when people hear of layoffs
as a result of reduced oil activity they associate
those layoffs with ConocoPhillips, BP or ExxonMobil
and somehow dismiss them or think of them as a
localized problem.
The fact is that our current situation affects many
more than just Fortune 500 companies. Every one of us
that get up in the morning with the desire to go to
work are affected, and work is getting harder and
harder to come by. The trucking industry directly
employs or supports not only truck drivers, but pilot
car drivers, engineers, welders, mechanics, fuel
delivery services, aviation, marine, truck dealers,
logistical support and the list goes on and on. Those
are the people we have been forced to lay off.
The motor carriers don't see much happening soon. Our
hope for the future relies on increased activity in
the oil patch and an improved economy that will result
from increased throughput and jobs. The oil patch is
very important to our industry. It is critical that
the budget issues be resolved without crushing our
natural resource extraction industries or the people
and companies that it employs.
The Senate Resources Committee made changes to HB 111,
the oil tax bill. The version passed by the House
significantly raised taxes on the industry when it is
trying to prevent further layoffs and bring new oil
reserves into production during a time of low oil
prices. Our goal should be to put more oil in the
pipeline, which the existing tax system does, because
that means more revenues, jobs and economic
opportunities for our state and its residents. The
Senate version of HB 111 eliminates cash credits in a
way that retains incentives for new production. It
does not make many significant tax changes to the SB
21 basic tax structure as did both House versions.
The ATA supports the Senate version of HB 111 dealing
with oil taxes. We believe that it achieves the policy
goal set by Governor Walker and his administration to
eliminate refundable cash credits, without
compromising Alaska's competiveness to attract future
investment. The Senate version of HB 111, through
modifications of the oil tax credits program,
significantly limits future financial exposure for the
State of Alaska while retaining important elements of
the current oil tax framework that enhanced Alaska's
competitive position in attracting future investment
to grow oil production, increase throughput in TAPS,
and strengthen the economy. ATA strongly supports the
Senate Version of HB 111.
1:52:43 PM
Mr. Crum concluded his prepared remarks:
In closing, ATA like most Alaskans have felt the
devastating effects of a decline in the oil industry.
It has impacted every decision we make from the kind
of coffee we use to the number and experience level of
employs we hire. We believe that passing the Senate
version of HB 111, will significantly improve our
economic outlook. As business managers and owners, we
know the importance of a sound and stable
economic/fiscal policy. We operate our companies with
long term visions and plan according to the policy
that the legislature sets. Our hundreds of members and
thousands of employees and their families want an
opportunity to work, and to have a purpose. We urge
you to give our companies the stability they need to
function by passing the Senate version of HB 111.
Thank you for your attention.
1:53:43 PM
Co-Chair Foster recognized Representatives Bryce Edgmon and
Louise Stutes in the audience.
Representative Thompson asked about the trucking
association's stance on the motor fuel tax.
Mr. Crum replied that as part of ATA's 2017 legislative
priorities, it had been willing to support an increase in
the motor fuel tax if it was a part of a comprehensive
fiscal plan and as long as the money would be considered a
user fee that would go towards highway maintenance.
Vice-Chair Gara asked if ATA had a position about whether
there should be a stable fiscal plan outside of oil. He
cited a broad-based tax or some use of Permanent Fund
earnings as examples.
Mr. Crum answered with the organization's priorities.
First, the ATA believed action was critical in the current
year. He spoke to the importance of implementing a plan
putting steps in place to get to a solution. The
organization wanted to see a series of annual reductions in
state spending. Once the reductions had been made, the ATA
wanted to see the development of a balanced, durable, long-
term fiscal plan for use of the Permanent Fund earnings and
taxes if required. The organization did not want the
legislature to destroy the state's resource industries by
uncompetitive taxes and regulations.
Vice-Chair Gara asked if ATA benefitted from construction
outside of the oil patch. Alternatively, he asked if the
oil patch was the big driver for jobs in the trucking
industry.
1:56:23 PM
Mr. Crum answered that the trucking industry worked
wherever work occurred in the state. The industry
benefitted from construction, but oil was the largest
driver for member companies.
Vice-Chair Gara remarked that with the downturn in oil
prices and the growing budget deficit, the state's
construction budget had gone from an average of $600
million per year to less than $100 million in the last
couple of years. He asked if raising revenue to have a
construction budget mattered to members.
Mr. Crum answered in the affirmative. He elaborated that
the ATA had long supported matching funds for federal
dollars to achieve the maximum benefit for the national
highway system. The organization believed raising revenue
needed to be part of a fiscal plan that included cuts.
Vice-Chair Gara asked Mr. Crum to consider the economy
outside the North Slope. He spoke to the difference in the
House and Senate versions of HB 111. The House version
allowed tax credits that accumulate to about $600 million
over the next 10 years. Whereas, the Senate version allowed
oil tax credits with interest that grew to $1.7 billion
over the next 10 years. He noted the Senate's version would
have an impact on what the state could invest in other
sectors such as construction. He wondered if ATA had looked
at the provisions to determine which would work better.
Mr. Crum responded that the organization believed the
priorities should be increasing investment and jobs and
providing people to work and provide for themselves. The
organization supported the Senate version of HB 111.
Vice-Chair Gara asked if he had looked at the credit
portions closely. He reiterated his previous question about
the cost differences between the House and Senate versions
of HB 111.
Mr. Crum answered that the association had compared the
bill versions when it made the decision to support the
Senate version.
1:59:52 PM
Vice-Chair Gara asked for verification that they had looked
at the tax credit portions. Mr. Crum answered that the
entire bill had been considered.
Vice-Chair Gara stated that the House version included a
profits-based tax, so companies would only pay the state
when profitable. The Senate version reduced the revenue the
state received below what it received under current law. He
asked for verification the ATA was amenable to the
provision.
Mr. Crum replied that the association believed the Senate
version gave the best opportunity to increase investment
and jobs.
Representative Grenn referred to page 3 of the document
provided by Mr. Crum that listed the top 10 motor carriers
that lost jobs - the total exceeded 1,000. He spoke to the
North Slope and job loss. He asked if the momentum
continued, how easy it would be for the industry to replace
the lost jobs. He wondered if the jobs would be filled by
Alaskans quickly.
Mr. Crum responded that the ATA had received the invitation
to testify to the committee late in the previous week. He
clarified that the list did not include the 10 top members,
but the 10 members who had responded to the survey first.
He acknowledged that it would be difficult to replace
skilled workers if they began leaving the state; however,
the ATA was seeing an increase in activity for out of state
carriers to hire Alaskans. Some of the companies were
rotating the drivers to the Lower 48 for work and back home
for their "R&R" time. He stated that on a limited basis, if
someone had an opportunity to work and live at home, those
would be easy to replace. He emphasized that Alaska had the
resources in-state to scale up the workforce quickly.
2:02:39 PM
Representative Grenn asked if there were training
opportunities for the workers. Mr. Crum answered that as
the president and CEO of Northern Industrial Training he
could say unequivocally "yes."
Representative Wilson asked if the association would be in
favor of taking money from the North Slope to place into
other jobs.
Mr. Crum answered that the association would have an issue
with taking money from just one industry.
Representative Wilson asked about Mr. Crum's perspective on
the economy from his perspective as the head of the
Northern Industrial Training organization.
Mr. Crum answered that the training school was run
differently in some ways - it did not offer a tremendous
number of training unless there were available jobs for
those skills. As a result, enrollment had decreased in the
past couple of years. The school believed that giving false
hope by training people for a job that no longer existed
was very destructive. The types of currently available jobs
seemed to deal more with attrition - Alaska had an aging
workforce, which did benefit new individuals getting into
an industry because regardless of the economy, people would
retire.
2:05:13 PM
Representative Wilson summarized her understanding of Mr.
Crum's testimony. She referred to individuals who had lost
trucking jobs due to the downturn on the North Slope. She
referenced Mr. Crum's testimony about scaling up the
workforce quickly and asked for verification that the
individuals most likely would be out of work until the jobs
grew in the industry.
Mr. Crum answered in the affirmative. He elaborated that
the individuals would either be out of work or would have
to take an opportunity. He specified that his agency had
placed 47 drivers with an out-of-state company that was
rotating them to the Lower 48 to drive and home for their
R&R.
Representative Wilson asked about other training schools
the organization competed with that had substantial state
funding. She asked whether the competitors only trained
people for existing jobs.
Mr. Crum replied there were many trainings offered in
fields that did not have jobs available.
Co-Chair Seaton referred to page 3 of the document provided
by Mr. Crum where several trucking companies stated they
expected further declines and needed projects. He furthered
that Mr. Crum had testified that he believed the state
should retract the economy with further cuts. He referenced
the proposed $185 million in cuts as an example. He was
trying to reconcile how the ATA supported additional cuts
and contraction in the economy, but also supported a larger
capital budget to provide new projects.
Mr. Crum responded that one of the ATA's priorities was to
look at areas where services could be offered at a lower
cost. One of the opportunities was privatization. He
organization was not to point the state into a recession,
but to create the same amount of services for a lower
expense, which ATA believed was possible.
Co-Chair Seaton asked Mr. Crum to send in specifics on how
the economics would work. He did not believe taking $185
million out of the economy would not result in new projects
going forward. He opined that it would result in a longer
recession. He was happy to look at a proposal for how to
expand the economy instead of doing a larger capital budget
as proposed by the House.
2:09:00 PM
Mr. Crum replied in the affirmative. The organization
believed quality services could be provided through the
private sector.
Representative Guttenberg recognized the problem with never
ending major maintenance on the Dalton Highway. He wondered
if the organization had discussed the major maintenance
problems on Alaska's roads.
Mr. Crum answered that the organization had discussed the
issue related to the Dalton Highway at length. He noted
that an executive director referred to the highway as "the
road to the bank." Maintenance along the highway was one of
the organization's legislative priorities.
Vice-Chair Gara referred to Mr. Crum's testimony that the
organization wanted to see more cuts before there was a
fiscal plan. He asked for detail. He relayed that the
legislature had been trying to find cuts and had cut $3.4
billion from the budget since 2013. He continued that the
House and the governor had found roughly $80 million in
cuts. The Senate was proposing an additional $70 million
cut to education and $21 million to the University. He
asked if those were the kind of cuts the organization was
looking for. He asked if the organization had a preference
on cuts.
Mr. Crum responded that cuts the ATA was asking for were
areas where cheaper and potentially private sector
solutions were available to provide the services. The
fiscal cuts were part of the overall fiscal plan.
Representative Wilson highlighted that there had been other
cuts proposed by the House Minority that had not related to
the University or education.
2:12:01 PM
JOE SCHIERHORN, PRESIDENT AND CHIEF OPERATING OFFICER,
NORTHRIM BANK, thanked committee members for the
opportunity to speak with them about the economy and
important issues facing the state. He shared that the past
and present bank chairman had testified to various
legislative committees in recent years about a long-term
fiscal plan for the state. The former chairman, Marc
Langland, had devoted the better part of his 50 years in
banking in Alaska to the subject at hand. The current
chairman Joe Beedle had also devoted a significant amount
of time to the topic. He personally had spoken to numerous
forums - the bank had most recently provided economic
summit meetings in Fairbanks, Anchorage, and Juneau; the
summit included discussion on the economy and the need for
a long-term fiscal plan.
Mr. Schierhorn explained that the topic was important to
the bank given it was proud to be 100 percent Alaskan. He
shared that he had grown up in Alaska and had worked for
the bank for the past 26 years. He relayed that the bank's
success was linked to the health of the state's economy.
The bank was a publicly traded institution, SEC registered
on the Nasdaq. The bank spent a significant amount of time
speaking to its investors - approximately 65 percent of the
bank was owned by institutional investors (i.e. mutual and
other investment funds) - and discussed the economy at
length. The investors had expressed concern about the long-
term viability of the Alaska economy. The issue impacted
customers in a significant way - it was a topic of
discussion almost daily with everyone he met with. He noted
that various customers were impacted in various ways.
Mr. Schierhorn communicated that the bank had consistently
advocated for a balanced approach to the issue. The bank
supported a fiscal plan reliant on continued efforts by the
legislature to reduce the cost of government, use of a
portion of the Permanent Fund earnings, and broad-based
taxes. The bank believed all three areas needed to be
addressed in the long-term plan for the state to have a
secure future for its customers. He continued that recently
economic activity was down. The primary indicator of the
bank's volume was loans. He detailed that loans were
currently down for the first time in recent memory; loans
had been down slightly the previous year and were down
again in the first quarter. The bank numbers were public
and were published quarterly. Loans were one indicator of
the status of economic activity in Alaska. He detailed
there was less building taking place on a commercial basis
- more projects had been completed and not near as many had
been started. The bank's structure included 14 branches
across the state including Fairbanks, Anchorage, Mat-Su,
Juneau, Ketchikan, and Sitka. Through its wholly owned
subsidiary, Residential Mortgage, it had another 14 offices
throughout the state. He relayed that loan volume at its
mortgage subsidiary was down substantially over the
previous year. The bank covered a broad spectrum of the
economy.
2:17:42 PM
Mr. Schierhorn continued to address the committee. He
specified that customers were impacted in different ways
due to the overall decrease in the economy. Customers who
were more dependent on the North Slope oil industry, had
seen revenue decreases of 30-plus percent over the last
year. Customers in the medical profession and tourism
industry had not seen comparable decreases - in some cases
their revenues were up slightly over the previous year. The
employment numbers were up for the healthcare industry, and
the tourism industry remained strong. The construction
industry was down significantly. He shared that residential
activity varied from market to market, but year over year
prices were fairly consistent. Residential construction
activity had decreased over the last several years. The
bank remained cautiously optimistic about the state's long-
term prospects given recent discoveries on the North Slope
and the prospect of future development. However, the
overarching concern from the business community was the
viability of its economy, the possibility of having to
continually deal with deficits at a state level, and
failing to address the long-term needs of the state in the
process.
Mr. Schierhorn emphasized the importance of a long-term
fiscal plan that addressed the state's issues, paid for its
current obligations, and kept its natural resources
industry (oil in particular) viable and competitive on an
international basis. He continued that if it was not done,
the oil industry would not have incentive to make
investments that were critical to move the economy forward.
2:20:41 PM
Representative Wilson referred to Mr. Schierhorn's comments
about the positive nature of discoveries on the North
Slope. She asked how the House's version of HB 111 could
impact the discoveries and projects going forward into
production.
Mr. Schierhorn answered that he was not well versed in the
specifics of the bill. He believed it was critical to have
policies in place to encourage future development. He
opined that without the policies, the economy's critical
driver would go away. There was a prospect of very large
discoveries that could produce additional employment and
revenues to the state in the form of royalty and production
taxes. He supported consistency in the approach to the
industry. He wondered how the oil industry could make long-
term investment decisions if the state continued to change
its tax policies.
Co-Chair Seaton discussed that there were a couple of
different models, one model was to maintain structural
deficits going forward (about $500 million per year would
be removed from savings and capital budgets would be small
- enough to maintain federal matching funds) or instituting
a broad-based tax that would allow for larger capital
budgets and not pulling money out of the economy. He asked
whether one of the models fit under the banking industry's
ideology.
Mr. Schierhorn returned to his statement about the
necessity for a long-term fiscal plan that addressed the
issue facing the state. The bank felt that the plan needed
to contain three components: continual efforts to reduce
the cost of government, the use of a portion of the
Permanent Fund earnings, and broad-based taxes. He believed
a solution was needed to have cash flow to pay for
obligations and to prevent a deficit going forward. He
continued it was incumbent on "us" to continue to find
efficiencies in government and to decrease the overall
cost. He referred to the previous testimony from the Alaska
Trucking Association. He continued that "you're talking
about" taking money out of the economy. He suggested there
may be ways to provide services to government that saved
government money and transferred money from a government
worker to a non-government worker instead of taking money
out of the economy. He underscored the necessity of
developing a plan to ensure obligations were fully paid
going forward. He noted that the state did not have
substantial savings any longer. He remarked that the state
was getting dangerously close to the point where it would
not have much maneuverable room because it was about out of
savings. He reiterated the support of the use of a portion
of the Permanent Fund earnings.
2:25:53 PM
Co-Chair Seaton discussed that a cut of $185 million would
mean removing money from the economy and not investing it.
He continued that if the money was spent on supplying the
services the government spend would not be reduced. He
stated that if the money was cut but money was used from a
different source, it would not be a cut. He asked for
clarification.
Mr. Schierhorn replied that they were arguing at the margin
in terms of cost savings. He continued that the state was
trying to arrive at a sustainable level of spending given
its resources. He commended the legislature for trying to
do that. The bank believed the efforts to increase
government efficiency continued to need attention. The bank
also believed additional sources of revenue were necessary
to cover government expenses, primarily through Permanent
Fund earnings, a broad-based tax, and continued efforts to
cut the cost of government where possible. He did not
recommend a specific figure in terms of the amount to cut.
Co-Chair Foster recognized Representative Adam Wool in the
audience.
2:28:23 PM
Representative Grenn referred to residential loans and
construction that Mr. Schierhorn had testified had remained
stable compared to other construction loans. He asked about
the takeaway.
Mr. Schierhorn answered that the housing prices were
relatively stable across the various markets. The volume of
mortgage originations was down substantially in its
subsidiary Residential Mortgage and through overall
mortgage originations in the state. The third component was
the financing for residential construction itself. He
relayed that the bank's builders were down a bit in their
residential construction building activity year-over-year.
2:30:26 PM
Representative Guttenberg addressed new home construction
and originations and the state running at a deficit and
running with a stable economy. He stated that an entity
providing loans for heavy equipment or construction
operations gave a longer perspective on where the industry
thought it was going. He asked how a continued structural
state deficit would impact a stable economy at present and
into the future.
Mr. Schierhorn answered that the bank was seeing
significantly fewer long-term projects. As larger
commercial real estate construction projects had been
completed, there had been much less replacement activity.
General building activity it was down substantially in
major markets. Projects, by industries requiring long-term
investment for equipment (e.g. road construction businesses
and others) reliant on state and federal funds, were down
in general. There would be an increase in activity related
to military construction of F35s in the Fairbanks area. He
continued that projects in the greater Anchorage area had
been affected. He addressed a scenario where state funding
financed obligations completely and savings were not used.
He spoke to the need for sufficient funds for government
operating costs and an adequate capital budget. Industries
relying on capital funding from state government were down
significantly and had been impacted.
2:34:08 PM
Representative Guttenberg had met with CEOs who were
concerned about the state's economy. He shared that the
individuals had expressed that there was currently
hesitancy towards investing in the state's economy. He
wondered if the banking and business communities that there
was a sense waiting for the state to "get its act
together."
Mr. Schierhorn believed it was a constant topic of
conversation and it was witnessed in the actions of the
business community. Businesses were hesitant to make long-
term commitments when the frontline news coming out of
Juneau was consistently negative. It was impinging the
development plans of numerous businesses going forward; it
was a source of great concern.
2:35:51 PM
Vice-Chair Gara relayed that the state's average capital
construction budget over the past ten years had been about
$600 million. The past few years had been a "bare bones"
capital budget, which only included matching funds for
federal money. He wondered if a full revenue plan that
would allow for larger capital budgets would have a
positive impact on an economy fighting recession.
Mr. Schierhorn answered that the bank had written on the
subject most recently in an Alaska Business Monthly
article. The bank believed that enacting a long-term fiscal
plan with all three components (he had previously listed)
could have some negative short-term effects, but positive
long-term effects. He elaborated that negative short-term
effects would include people adjusting to less money in
some form (e.g. from a decreased dividend or a tax
increase). However, in the long-term, providing a sense
that the state was addressing its needs and balancing its
own budget, would give confidence to the business community
and foster more investment.
Vice-Chair Gara stated that the dividend had been about
$1,000 the previous fall and the Senate's plan was for a
$1,000 dividend in the coming fall. A plan by the House
could bring the dividend up to $1,250, which would add
about $170 million into the economy. He asked if raising
the dividend to $1,250 would have a positive impact on the
economy.
Mr. Schierhorn answered that if the issue was considered in
isolation it would have a positive impact on the economy;
however, he believed it was necessary to look at everything
together. He questioned whether increasing the dividend
meant taking away from someone else or another industry to
balance the budget. Ultimately the issue rested upon the
ability to have a long-term, sustainable, and balanced
[fiscal] plan. He reiterated that an increased dividend
would be positive if it did not remove money from another
sector. He concluded that a balanced approach was needed.
2:39:25 PM
Vice-Chair Gara stated that some of the individuals opposed
to the fiscal plan counted Permanent Fund earnings as
savings and viewed using the reserve as a viable option to
solve the state's fiscal problems. He was concerned that
spending down the earnings reserve would jeopardize the
dividend and the money that could be spun off for a payout.
He asked if the bank had concern about merely spending the
reserve versus coming up with a payout formula.
Mr. Schierhorn responded that the bank had been consistent
with its message about the importance of addressing the
issue at present. He shared that a delay put the state in
further danger by decreasing the cushion. He addressed the
legislature's discussion about using a portion of the
Permanent Fund earnings as a percent of market value
(POMV). He stated the markets would go up and down going
forward. He stated that it was dangerous for Alaska if
savings were used and the state's ability to cushion the
effects of down markets was eliminated.
Vice-Chair Gara discussed that some individuals proposed
significant cuts to education and continued cuts into the
future. He had heard from friends, neighbors, and
constituents that they would close their businesses and
leave the state if there was no long-term commitment to
public schools. He wondered if the bank believed continued
cuts to school funding may have a negative impact on
businesses.
2:41:44 PM
Mr. Schierhorn replied that fundamentally a viable,
vibrant, and responsive education system was critical to
the state's long-term future. He shared that he had three
sons in the school system and he had personally benefitted
from a good education in the Fairbanks School District. He
had not had any conversations with businesses that were
considering leaving because of cuts to education. He
believed in the importance of education. The bank had
strong partnerships with K-12 schools and the University
system; the bank had benefitted as an institution from
University system graduates. He furthered that the bank
intended to maintain and support its long-term relationship
with the University.
Representative Pruitt asked how many members were on the
bank's board of directors. Mr. Schierhorn answered that
there were twelve.
Representative Pruitt asked if the members always agreed.
Mr. Schierhorn responded that the bank prided itself on
having a diverse board with varying backgrounds, skills,
and opinions. The bank encouraged board members and
employees to bring in their own viewpoints. The bank felt
that through a concerted effort and open and honest
discourse the best solution was achieved on a long-term
basis. Once a decision was made, the bank moved forward as
a unified organization.
2:44:57 PM
Representative Pruitt surmised it was appropriate to say
that all twelve members did not get 100 percent of what
they wanted on every issue.
Mr. Schierhorn answered that like any organization there
was compromise involved.
Representative Pruitt remarked on the diverse group of
legislators. He believed that some legislators were
confident that one direction going forward was the only
viable option. He asked if Mr. Schierhorn believed
legislators should come to a compromise where members got
80 percent of what they wanted versus waiting until next
year with a hope of getting 100 percent.
Mr. Schierhorn replied that taking action at present was
critical to address the long-term fiscal plan for the
state; it involved all three components he had spoken to.
The bank was encouraged that the legislature had made
significant progress on all three fronts. The bank wanted
the legislature to get 100 percent of the way there in the
current year. He furthered that if 100 percent was not
accomplished, the bank would be supportive if the majority
of a balanced fiscal plan was achieved. The bank wanted a
full fiscal plan and it believed the legislature had the
ability to accomplish the goal; it believed the state and
business community would be best served by a comprehensive,
complete, balanced solution going forward.
Representative Pruitt asked if Mr. Schierhorn feared 70 to
80 percent of a solution versus zero.
Mr. Schierhorn answered it was critical to avoid using more
of the state's savings. The legislature's ability as a body
to enact a solution that achieved 75 to 80 percent of the
goal would help avoid using the state's remaining savings.
He believed it would be positive. However, the bank
supported a comprehensive, all inclusive plan. He continued
that 75 or 80 percent would be significant progress, but
ultimately the industry wanted 100 percent.
2:48:36 PM
Representative Pruitt thought there was a significant
amount of agreement with both sides [in the legislature].
His biggest concern was that no fiscal plan would be
achieved because of the "add-ons" that some legislators
were concerned about.
2:49:26 PM
ANGIE NEWBY, HOMER REALTY, shared her intent to provide
detail about the current real estate market. She was happy
to follow Mr. Shierhorn's testimony because she could speak
to some of the cautious optimism he had expressed for the
long-term. She reported that the Kenai Peninsula was
experiencing a vibrant and robust real estate market, which
was surprising in some ways given the overall state
economy. The region was benefitting from low interest rates
(and the concern of buyers that the low rates may go away)
and the return of the Lower 48 investor due to financial
and economic recovery in the Lower 48. an optimistic
outlook in the real estate market presently. She relayed
that the Kenai Peninsula was a bit of an anomaly and had
always been independent of the Fairbanks and Anchorage
markets. She reported very limited low inventory. She
thought a portion of the trend could be attributed to
people purchasing second homes in the region. Additionally,
there had been an increase in residential construction
after a hiatus of about seven or eight years; the increase
was a direct result of declining inventory. She continued
that there had been sellers who had lost their job on the
North Slope or in other oil related industries, but instead
of facing foreclosure, the homes had sold by buyers ready
to absorb the inventory. She relayed that foreclosures were
minimal.
Ms. Newby continued that at the upper end of the market
there were more sophisticated buyers, particularly Alaskan
buyers, who were concerned about the overall state economy.
The peninsula had seen numerous professional relocations
due to the South Peninsula and Central Peninsula Hospitals
aggressively expanding and recruiting new positions in
health-related industries. A strong real estate market
provides for a strong property tax base, which acted as the
base for local government spending. The real estate
industry was only as strong as the overall vibrancy of the
state. She encouraged the development of a long-term fiscal
plan to maintain the vitality. Her local and broader-based
clients saw that buyers and sellers understood something
needed to happen on the revenue side of the state budget.
Numerous people had expressed to her that they were
prepared to take a larger role in supporting government
such as via an income tax. Individuals she had spoken with
were open to an income tax because it was one way to
capture the out-of-state residents who work in all segments
of Alaska's economy. She cited fishermen coming in from the
Lower 48 to work as an example. Out-of-state workers took
all their money home; Alaska was one of the few states
without an income tax.
Ms. Newby relayed that the peninsula had good success with
local sales tax. She suggested reconsidering a statewide
sales tax that could be tailored to individual purchasers
of larger goods (e.g. items exceeding $1,000 or $2,500).
She explained that it would tap into the large trading
center in Anchorage where many people went for larger
purchases. That particular sales tax revenue had left the
peninsula and was not impacting the state either. She
thanked the committee for its time and hoped her report had
been good news.
2:55:32 PM
Representative Wilson mentioned hearing about layoffs in
the private sector prior to layoffs taking place in the
government sector. She wondered if some of the real estate
activity taking place in the peninsula was due to a private
sector rebound that could be taking place earlier because
they had seen the downturn sooner.
Ms. Newby answered that she had been in the private sector
business in Alaska since 1983. She recalled the state
budget being cut down to nothing in the late 1980s. She
believed there had been an opportunity for businesses in
the private sector to retool themselves and to think more
conservatively. She stated that the region was fortunate
because it benefitted from fisheries, tourism, and
government [jobs]. There was concern in the community about
drastic state cutbacks especially in education. She
elaborated that the University's Kachemak Bay campus was
important to the community. The community was also
concerned about a lack of funding for state parks that
could result in a loss of ecotourism.
2:57:03 PM
Representative Guttenberg appreciated the unique set of
factors Ms. Newby brought forward. He listed second homes,
outside recovery money, the healthcare industry, and other
items mentioned by Ms. Newby as contributing to the real
estate market.
Ms. Newby appreciated the hard work of the legislature.
2:58:07 PM
VINCE BELTRAMI, PRESIDENT, ALASKA AMERICAN FEDERATION OF
LABOR/ CONGRESS OF INDUSTRIAL ORGANIZATIONS (AFL-CIO), read
from prepared remarks:
The AFL-CIO is the state's largest labor organization,
representing somewhere in the neighborhood of 52,000
members currently. Just a year and a half ago that
number was a little north of 55,000. So, in that same
timeframe the state has lost about 9,000 jobs - about
one-third of those came out of our ranks - fairly
evenly split between public sector and private sector
workers in nearly every field imaginable around the
state. We're currently suffering through the highest
unemployment rate in the country and the highest that
we've had in at least two full decades in the state.
As you know all too well, we have an approximately $3
billion budget deficit. The AFL-CIO has been involved
in an effort over the past year and a half called the
Alaska's Future Coalition. I'm not here representing
the coalition; however, I'd like to read the mission
statement of that group which includes Alaska's
largest businesses, Native corporations, unions, and
former elected officials from both parties:
The mission of Alaska's future is to support the
development of a stable and sustainable fiscal
plan that will allow the Alaska economy to grow
and thrive. Use of Permanent Fund earnings
starting this year is the cornerstone of a fiscal
plan that will significantly reduce the deficit,
support essential public services, and maintain a
sustainable dividend and a healthy Permanent
Fund. This plan must also include specific
policies allowing for responsible budget cuts and
new revenue generation, and lead to a fully
balanced budget. A resolution of Alaska's fiscal
uncertainty will lead to new jobs, increased
investment, and a growing economy.
While I'm not speaking on behalf of that group, this
mission statement embodies what the AFL-CIO supports.
I commend the House of Representatives in debating and
passing bills this session that meet all of those
criteria. Of course, one important point of contention
is if enough has been cut, and where anywhere in the
neighborhood of having a right-sized budget. Several
legislators have said they have trouble rationalizing
new revenues when they don't think enough has been
cut. I read in Bradner's Legislative Digest a couple
of days ago, where Brian Fetcher, OMB policy analyst
attempted to grapple with the size of Alaska's
government. He came up with figures that considered
state-only spending and landed on a number that stated
we're approximately 7 percent higher than the U.S.
average. His conclusion after considering inflation,
population growth, and the special circumstances, the
size and cost of Alaska's state government is not
disproportionate to other states, nor has it changed
significantly since before oil began to flow.
Some of you may recall that I ran for state Senate in
this most recent election. My opponent stated over and
over on the campaign trail that the legislature had
cut 40 percent of the state budget over the past
couple of years back to 2006 levels. Continual cuts
won't cause prosperity, but instead, puts us on a path
of anemic growth and unnecessary uncertainty. I would
offer that we're in the neighborhood of a right-sized
government budget at this point. Of course, this is
without a decent capital budget to speak of. On that
note, we have lots of members in the building trades
who have left their families behind to work outside
until work picks up in Alaska.
3:02:21 PM
Mr. Beltrami continued with prepared remarks:
I'd like to move on to addressing components of a
comprehensive fiscal plan and just how to meet the
needs of an approximate $5 billion budget. We
absolutely need, in our opinion, to diversify our
revenue stream. Oil has been great for Alaska's
economy and I'm hopeful it will continue to be.
However, to be reliant on just one volatile revenue
stream is no way to pursue a sustainable plan and it
has created an environment where many of our citizens
don't believe they have any obligation to personally
contribute to support the government services they
receive. I've actually never seen anything quite like
it. I moved to Alaska 29 years ago from a state just
like most others that has both a state income tax and
a state sales tax. When it comes to taxation Alaskans
enjoy the lowest individual tax burden of any citizens
in any state. Only six other states have no income
tax. Only four other states have no state sales tax.
Only one state in the entire United States has
neither, and that's us of course. We also happen to
have the lowest gasoline tax of any state in the
country.
Of course, some chime in that we have extraordinarily
high property taxes and I don't think that's exactly
the case. According to the Tax Foundation, Alaska's
property taxes on average as a percent of home values
ranks as 23rd highest - right about in the middle of
the pack. For over 30 years Alaskans haven't been
asked to chip in to support their state government.
The only state citizens in the entire U.S. who
haven't. On top of that, for the same period of time,
the state has cut every man, woman, and child a check
in the neighborhood of $1,000 a year. Not only have we
paid zero state taxes we've essentially had a net
negative contribution to state finances. We've been
extremely lucky.
Thanks to the oil that has been pumped out of our oil
fields, we haven't had to pay one thin dime to the
state treasury except for the lowest gasoline tax in
the entire country. Every other time in our short
state history when we've had fiscal challenges like
this we've been saved by rebounding oil prices. But
nearly every economic analyst out there that I've
heard from is saying that's not going to happen this
time. But even if oil were to rebound significantly,
it shouldn't be something that is the primary
component of fiscal planning because basing an economy
primarily on one volatile commodity is not sound
fiscal planning. That's not to say that the oil
industry should be let off the hook. There are some
serious unsustainable provisions in our current oil
tax policy, but I'm confident that the House and the
Senate can find some sensible compromise.
I'm not going to take a position on that because
amongst our membership we are split - we have folks on
both sides of the debate and I need to respect those
boundaries. But, I do applaud the House's effort to
offer up a complete plan. A plan that is forward
looking that will take Alaska away from this volatile,
unpredictable roller coaster that has worked only due
to luck. A balanced, diverse plan is predictable and
responsible, it will allow the credit rating agencies
to restore our previously gold standard credit rating,
and it won't be dependent on a fluctuating,
unpredictable commodity. Implementing a broad-based
revenue such as a progressive income tax, doesn't make
us socialist. People who argue that we are slipping
into a socialist state while they happily cash their
annual government distribution of wealth don't seem to
grasp the irony. In fact, the reddest of the red
states besides Texas and Wyoming have both state
income taxes and state sales taxes. Of course, no one
wants to or should pay more taxes than is reasonable.
To those who argue that it's ridiculous to continue to
give us a government check while looking to taxes are
not acknowledging the $2.7 billion in income earned by
nonresidents last year who get no PFD. So instituting
an income tax while distributing a $1,250 or higher
dividend is a way to reimburse Alaskans for the taxes
paid. To me it makes complete sense.
To those who fear Alaskans will leave if a broad-based
tax such as an income tax is passed, which I've heard,
I have one simple question: where are you going to go?
Very few wealthy folks may leave, but where exactly
will the average citizen go to be less burdened by
taxes. If SB 26 passes, if HB 115 passes, if HB 60
(the motor fuel tax) passes, we will still be the
lowest taxed citizens in the entire country. Now you
may say that's not true - maybe Wyoming will be a
little lower or maybe New Hampshire, or maybe the
Dakotas somewhere. However, the average family of four
in Alaska will receive $5,000 in Permanent Fund
Dividends.
3:07:10 PM
Mr. Beltrami continued to read prepared remarks:
However, the average family of four in Alaska will
receive $5,000 in Permanent Fund Dividends. Those
other states won't. So if you factor that into the
equation, average Alaskans will still be taking less
out of their pockets than any other citizens in any
other state and yet we still have the most expensive
state in which to deliver services. But all in all, it
will still be a better deal to live in Alaska than
anywhere else in the U.S. Remember those building
trades workers I mentioned who are traveling to other
states to look for work. You know where they're going?
To states like California, Oregon, Montana, some in
the Midwest, most are headed to places that have
higher personal taxes. Why are they going there?
Because that's where the work is. They'll come back to
Alaska if the work is here. We need a sustainable
economy to do it.
Continuing to push towards a budget with a structural
deficit foretells more Alaskans losing their jobs.
We've already lost over 9,000 jobs in the past year
and a half. How many more jobs do we have to lose? A
budget plan that calls for another $750 million in
cuts and leaves us with an ongoing structural deficit
is simply a recipe for more job loss in all sectors
and its completely antithetical to an economic
recovery. So what kind of Alaska do you want to leave
for your children and your grandchildren? I know what
I want or what we want. We want a plan that takes into
consideration the needs of our senior citizens, not
one that leaves them on the margins. We want a plan
that considers the needs of our children and
adequately prepares them for careers here in Alaska. A
plan that doesn't force our kids to go to college or
trade schools outside because we've gutted our
University and vocational schools. We want a plan that
has enough resources to keep our citizens safe and our
roads plowed. We want a plan that helps to grow our
economy, not one that causes a mass exodus. We want
good jobs with decent benefits that support families.
Personally, what I want, I want to go fly fishing, all
of the time. In a few years, with my wife, daughters,
grandkids, and friends, without wondering if I could
have done more or more importantly, if you could have
done more. I hear from opponents of a comprehensive
fiscal plan that it's too much to try and tackle all
at once. No, it isn't. It's certainly not a hard math
problem. The solutions are right in front of you. I
do, however, know the politics of it are hard. But
that's exactly why you were elected. I always remember
a somewhat crotchety old electrical contractor that I
had to deal with when I was a brand-new business agent
for the IBEW nearly 20 years ago. He has since passed,
but his sons continue to run one of the largest, most
successful electrical contractors in the state. We
used to fight and argue, usually respectfully, mostly.
We were always on the opposite side of the negotiating
table, but both of us cared deeply about the success
of the electrical industry. He used to always tell me
this one phrase: "Just do the right thing kid and
things will work out fine." Now, I appreciate the
sometimes-thankless job you've all signed up to do and
I know you have the best interest of the state in mind
and I know it's not easy. So, just do the right thing,
and do it now. We can't afford to wait. And in the
end, you'll be able to say that you were the ones that
finally fixed the state and put us on a sustainable
path to economic prosperity and Alaskans will thank
you. Thank you for listening.
3:10:37 PM
Co-Chair Foster recognized Representatives Chris Tuck,
Geran Tarr, and Zach Fansler in the audience.
Representative Guttenberg referred to comments that a whole
solution could not be implemented in the current year. He
opined that if a solution was broken up into taking action
in a few years, the practicality of it becoming a reality
was slim. He stated that mostly everything on the table at
present would have been a special session several years
earlier. The legislature had been dealing with the topic
for a long time. He asked for Mr. Beltrami's perspective
about whether anything would be accomplished if action was
put off until the following year.
Mr. Beltrami answered it was déjà vu all over again. He
discussed the situation had occurred in the previous year
as well. He stated that the previous year the solution had
been to take $3.5 billion out of savings. He feared doing
the same thing again in the current year and explained that
it would impact the ability to implement a responsible,
balanced fiscal plan. He did not believe they should kick
the can down the road. He continued that the excuse the
preceding year had been that it was an election year. He
surmised it would be the same excuse in the coming year. He
underscored that the tools were available, and the timing
was right. He stressed it was not a math problem, it was a
political problem. He supported tackling the situation at
present, which would restore the state's credit rating and
put money back and jobs back into the economy.
3:13:06 PM
Representative Grenn spoke to Mr. Beltrami's testimony
about the loss of 3,000 jobs in the past year, probably
split between private and public sectors. He asked if it
had also been split between different industries and
membership groups.
Mr. Beltrami replied the organization had numerous members
in the oil industry, individuals working in the building
trades construction outside of the oil field, and other
individuals in retail and private sector businesses, and
the lion's share of public employees. He relayed that the
organization had lost membership across the board.
Vice-Chair Gara shared a story about fishing and Mr.
Beltrami. He stated that people came before the legislature
and discussed things that were most important to their
given industry. He referred to Mr. Beltrami's comments
about wanting a state where children and seniors are
protected. He asked why, as a union representative, Mr.
Beltrami was testifying to that desire.
Mr. Beltrami answered that many of the union's members were
retired and had worked hard for the state or the private
sector. He continued that the individuals were on a fixed
income once they retired. He specified that the individuals
were put into the margins if there were programs that
impacted seniors. He relayed that education was the
future's workforce; if the education system (for
traditional careers or building trades) was underfunded it
harmed the future of the state.
3:16:00 PM
Vice-Chair Gara noted there had only been a bare bones
construction budget. He detailed that the state was about
$1 billion behind on maintenance at the University and
another $1 billion behind on maintenance of state
buildings. He asked what a more reasonable, vibrant
construction budget would mean for union members and the
economy.
Mr. Beltrami answered it was the crux of the matter for
most building trades individuals. He stated that capital
budgets had been $2 billion or more a few years earlier and
they were around $100 million to $200 million at present.
He stated that if it was not for some of the federal
construction dollars on bases and other locations, it would
be a "death nail" to many building trades members.
Vice-Chair Gara noted that he would never be in favor of
the Knik Arm Bridge or Susitna Dam projects or other, but
he asked what kind of projects a better construction budget
would lead to for union members. He added that the state
could not afford a $2 billion capital budget.
Mr. Beltrami replied that when it came to deferred
maintenance the state was $1.6 billion behind as of January
[2017]. Infrastructure in the state was potentially falling
apart and there were insufficient funds to get to it. He
noted that the capital budget under discussion was $50
million or so for deferred maintenance. He believed that a
budget of that amount would never address the backlog,
infrastructure would continue to fall apart, and union
members would not have opportunities to work. The union
liked building projects. He shared that from the beginning
of his career until present there had hardly ever been
members out of work. There were currently members leaving
the state to find jobs. He concluded that a reasonably
sized capital budget was essential for the livelihoods of
members.
3:18:39 PM
Vice-Chair Gara referred to various proposed fiscal plans.
He spoke to a plan that included a small income tax, oil
tax and credit reform, and a $1,250 dividend. He stated
that the plan did not cut schools, the University, or
senior and children services. There was one option that was
a partial plan, left a remaining deficit, and cut those
items. He stated that Mr. Beltrami had testified in support
of the first option. He wondered why and noted it may cost
some money for the union's members - larger dividend, but
an income tax.
Mr. Beltrami answered that there had been a free ride for a
long time. He stated that no one wanted to take more money
out of their pocket, but he would prefer to have a job and
pay some taxes, than have no job at all. Currently, the
austerity-type approach did not do anything to encourage a
thriving economy.
Representative Wilson referred to a statement by Mr.
Beltrami about the PFD. She asked if union members really
believed that the dividend was a government check. Her
constituents believed it was a resources development check
for their share of the state's oil.
Mr. Beltrami replied that when he received the PFD it was
from the State of Alaska.
Representative Wilson countered there had to be a way to
pay the PFD. She believed "we trade that for our subsurface
rights to our properties," so everyone received a share -
the government took its share first. She believed it was
different than a government share - an agreement had been
made for it. She spoke to her concern related to education
and University cuts. She stated that Alaska spent more on
education than most other states and had some of the worst
results. She asked what the issue would be with revamping
the education system versus only putting more money into
the system.
Mr. Beltrami answered that he was not an expert in the
education budget, although he could speculate. The state
had greater challenges to delivering education in Alaska
than anywhere in the country. The state had 585,000 square
miles to cover, rural Alaskan villages, and a
constitutional requirement for the state to provide
education. He believed it was difficult to be competitive
on a per capita basis with states that were smaller and
easier to get around. Everyone wanted better outcomes. He
shared that as the former director of the Alaska Joint
Electrical Apprenticeship (IBEW's apprenticeship program),
the program had always had qualified applicants who had all
been Alaska high school graduates. He had put three
daughters through the Anchorage School District who were
smart and had received a good education. He emphasized that
the state could never stop working towards improving the
education system.
Representative Wilson thought the state's responsibility
was more than financial. She believed it was also the
education level for all the state's students. She noted
that someone had brought up the University and decreases.
She asked if in times of decreased funding whether
businesses ever became more innovative and able to change
the way they operate, resulting in a positive outcome.
Mr. Beltrami answered he was sure it was possible. However,
he shared that his wife was a CPA working as an adjunct
professor at the University because the university could
not afford to keep more professors around. He continued
that it was increasingly common for professors to be laid
off and adjuncts were hired. The quality of education at
the University would not result in more innovative
approaches if funds continued to be cut.
3:23:40 PM
Representative Wilson did not know why the University was
cutting professor positions when it had a bloated statewide
system with high-costs. She stressed the need to be
competitive. She referenced Mr. Beltrami's testimony about
individuals moving to other states because of jobs. She
commented on taxes being related to the issue. She asked
for verification that the overall income and the cost of
food, gas, and other things were also factored into a
person's decision to move to another state. She surmised
that the tax level in a state was not the only thing a
person considered when contemplating a move to that
location.
Mr. Beltrami agreed that it came into play. However, when
the state had a $3 billion deficit and the ability to solve
the problem easily except for politics and jobs were drying
up, it was not that individuals were going to places with
better tax treatments, it was that people were going to
places with higher taxes.
Representative Wilson remarked that the state paid the most
in gasoline, healthcare, education, and financially
overall. She believed that politically the state needed to
talk about revamping its systems and not merely adding
money because it did not solve the problem.
Representative Guttenberg stated that the union had members
on the University campus including United Academics,
support staff, and other groups. He asked what Mr. Beltrami
was hearing from the groups regarding the state of the
University.
Mr. Beltrami answered there was significant disappointment
or fear of uncertainty regarding the future. He believed
there was significant anxiety among members that were still
employed. He specified that programs were being cut left
and right. He stated that the mood on campus was not good
and it did not lend itself to higher morale.
Vice-Chair Gara stated that he would love to be able to
magically achieve better education with fewer professors.
He noted that it was no longer possible to obtain a
chemistry degree in Anchorage. He remarked that numerous
programs had been eliminated in the University and he did
not consider them efficiencies. He remarked that the
University was the biggest job training institute in the
state. He asked in recent years with funding cuts if any
union members had reported that the University was becoming
a more attractive place to go.
Mr. Beltrami replied in the negative.
3:27:35 PM
MIKE NAVARRE, MAYOR, KENAI PENINSULA BOROUGH, spoke about
the Alaska Municipal League (AML) and what it would like to
see as a plan. He was currently on the executive committee
of the Conference of Mayors and had served as president
twice in the past. He was also a current member of AML. He
shared that the league had passed priorities for a fiscal
plan including a comprehensive approach that should include
responsible budget cuts, oil tax reform, broad-based taxes,
and use of Permanent Fund earnings. He stated there was no
consensus within AML about the appropriate broad-based tax,
but he believed the majority realized a progressive income
tax worked better for municipalities, simply because many
municipalities already used sales taxes as a way of funding
local budgets. While a broad-based sales tax at the state
level may work, AML wanted to know what it looked like and
the impact it would have. He noted there were 100 or so
different sales tax jurisdictions in the state. The league
wanted a comprehensive plan because experiencing budget
cuts annually without knowing what the cuts would be, made
it very difficult for municipalities to plan.
Mr. Navarre relayed that the previous evening his
administration had introduced the budget to the Kenai
Peninsula Borough. The borough was looking at increasing
some taxes. He stressed there had been cuts at the local
level. The general government administrative portion of the
budget had decreased in the past two years because of the
elimination of some positions in capital projects. Fewer
project managers were needed, therefore, two departments
had been combined. He continued that solid waste facilities
had been closed for one day per week to try to effect some
changes where increases had been seen. The increases were
driving the borough's overall budget - just like at the
state level with education - education was the biggest
expenditure and responsibility.
Mr. Navarre addressed struggles at the local level. He
appreciated being invited to present to the House Finance
Committee on a couple of occasions because when he had been
a mayor in the 1990s the Conference of Mayors had asked to
be engaged in the discussion. He stressed that local
government officials could help the legislature convey the
message. He detailed that local mayors were closer to the
population daily and were willing to help. The Kenai
Peninsula Borough had seen a reduction in revenue sharing
of about $2 million over the past four or so years, which
was equivalent to about $250,000 in taxes. Additionally,
due to a contracting economy, the community was seeing its
sales tax revenue decline; the revenue had declined by over
2 percent in the first two quarters, which could be as much
as $3 million on an annual basis.
3:32:45 PM
Mr. Navarre continued to address how cuts were impacting
boroughs. He discussed that the Department of Public Safety
(DPS) had closed the Girdwood trooper station. He explained
that the Kenai Peninsula Borough had a dispatch center that
dispatched on behalf of the troopers. He detailed that the
closure of the Girdwood station meant the troopers in
Seward or Soldotna responded to public safety events in
different communities. For example, there had been a
domestic violence call to the Kenai dispatch center from
Girdwood and the dispatchers had to remain on the phone
line for more than two hours to get the response from
Soldotna (the trooper in Seward had been off duty). The
Kenai Borough was very concerned about what would happen in
the coming summer on the roadway. Troopers intended to have
federal money used for traffic enforcement, but they would
not have other troopers responding in that area. He
explained it was concerning because there was only one
highway between the Kenai Peninsula and the rest of Alaska.
There had been a couple of events in the last month that
involved active shooters on the highway.
Mr. Navarre continued to discuss the impacts the borough
had seen on public safety - it was a statewide concern. He
stressed the importance of healthcare and education. He
knew some reform in Medicaid was needed, but he was
cautious about cuts to the program, in part due to the
50/50 federal match for every state dollar spent. He
appreciated the focus on the overall economy and believed
it was critically important. He remarked that the economic
indicators impacting the state were happening at the Kenai
Peninsula level as well. For example, the borough had a
couple of hospital projects - it had bid one of the
projects and had an engineering team that had informed the
borough it could not add on contract administration to the
contract because the firm had laid off some of its
engineers. The borough was currently searching to find some
assistance overseeing the project. His primary concern was
what the economy would look like. He acknowledged that
economies are resilient and vibrant, but fragile. He
explained that the last time the state had gone through a
similar downturn it had some of the same components. He
shared that he had been elected to the legislature in 1984
and recalled serving right when the price of oil had
dropped from $26 per barrel to $9 per barrel.
3:36:30 PM
Mr. Navarre continued that the economy and state budgets
had been smaller at the time, but the loss of revenue had
impacted the state. The first thing that happened was a cut
to the state capital budget while industry was cutting its
employment and contracting work. He detailed that industry
had cut jobs due to lower cash flow and because the North
Slope had been ramped up to full production and there was
not much additional investment to be made; it had been
almost a perfect storm. He shared that his business had
lost 50 percent in some of its stores. He detailed there
had been numerous home foreclosures and other because the
funding had been turned off. He spoke to things that had
pulled the state out of recession at the end of the 1980s.
The price of oil had ticked back up, which helped from the
state standpoint. Additionally, there had been a massive
injection of spending into the economy in 1989; it had been
an environmental disaster, but an economic saving grace for
the state. Several billions of dollars had been injected
into the economy in a very short timeframe, which helped
pull Alaska's economy out.
Mr. Navarre highlighted where to go from the current point.
He believed the paradigm had shifted in oil and gas. He
specified that oil and gas competition was not only coming
from overseas, but from the Lower 48 where there were
massive fields. He stated that a person could blame the
companies for not investing in Alaska; however, the
companies had a fiduciary responsibility to their
shareholders to get the best return on investment. He
underscored that the state had to be able to compete. He
argued in favor of a stable oil tax policy because
companies needed to be able to make investment and get a
return for the long-term.
Mr. Navarre discussed the disconnect between government
services and the cost of the services. At the local level
taxes were paid, but at the state level Alaska had been
living off its natural resources, primarily oil. He
addressed why he believed a comprehensive plan for local
governments was important. He explained that local
governments did not know where the next cut would be. He
questioned whether additional cost shifting would occur
because of Public Employees' Retirement System (PERS) and
Teachers' Retirement System (TRS). He questioned whether
reductions in education would occur. Most of the education
budget went to people - teachers and support staff. He
stressed that when education was cut, people's jobs were
cut. He elucidated that when cuts were made to education in
a contracting economy, the economic downturn was
exacerbated. He believed a partial plan changed the dynamic
of the debate. He thought it may be possible for the
legislature to implement part of the plan in the current
year, but he stressed the importance of identifying the
remainder of the components, so everyone would be aware of
them. He stated that if the legislature only passed SB 26
or some similar rendition with the percent of market value
(POMV) it would get part of the way there. He opined there
was no responsible economic plan that worked without
earnings of the Permanent Fund. He noted he had taken grief
from some of his constituents over the belief, but he did
not believe there was a plan that would work without it.
Budget cuts was another option the legislature had tried to
focus on - he commented on the different opinions and
perspectives on what could be cut or should be cut.
3:41:10 PM
Mr. Navarre asked what would happen in the following year
if only a partial plan was implemented in the current year.
He stated that the debate would change, and the option
would be down to budget cuts, potentially going after more
of the PFD, or implementing broad-based taxes. He believed
it would change the debate the following year. It would
mean losing one of the elements in the debate because the
legislature would have taken a big piece of it off the
table, which was fine. However, if it was budget cuts, many
local governments (those with tax bases in particular)
could absorb additional cuts. He elaborated that
municipalities would have to accept the consequences or
raise taxes at the local level. He furthered that it could
be done, but it would take time. Municipalities were not
all situated similarly - some had sales taxes, property
taxes (or a combination of the two), fish taxes, or tax
caps. He stressed that the response by municipalities could
not be done quickly, which was the reason a long-term plan
was necessary. He referred to conversation in the
legislature about reducing education funding. He stated it
was fine if the legislature was planning to cut education
if it could own up to the consequences and communicate what
the cuts would be. He believed people were willing to pay
for education. He recalled when he was a child that his
mother had always argued about the cost of education with a
good friend/teacher. He did not believe the debate over the
cost of education would end in the current year.
Mr. Navarre stated that there was no perfect plan. Whatever
happened in the current year would be modified over time.
He believed a plan premised on the rising price of oil was
not sufficient. He observed that currently all pressure on
oil and gas was downward pressure. He had read articles in
the past couple of days specifying that the price of oil
was dropping and that compliance with quotas for Oil
Producing and Exporting Countries (OPEC) had gone from 95
percent to the upper 70s, which meant that they were
cheating. When there was cheating it increased the glut on
the market and drove down prices.
3:44:22 PM
Mr. Navarre did not think the differences [of opinion] in
the legislature were that great. He noted that sometimes
people polarized one another or issues. He did not believe
legislators were that far apart. He believed everyone in
the legislature wanted a strong Alaskan economy and
everyone supported education. He reasoned there were
differences of opinion about the level of support, but
everyone ultimately supported education. He believed some
of the differences at present were being driven by
politics. There were some individuals who would never
support any tax and others believed there were no more
reductions to be made in the budget. He opined that
establishing a plan that maintained some reserves, left
opportunity to inject spending into the economy in the
future. He reasoned that an economic contraction could not
be avoided, but if the situation was handled well, a full
blown economic crisis could be avoided. He hoped a budget
crisis would not be turned into an economic crisis.
Mr. Navarre stressed that the last economic downturn in the
1980s had been very bad, which he believed could be
avoided. He thought deferred maintenance should be
addressed prior to the construction of any new buildings.
He remarked that every time the state got some money it
built new facilities and continued to defer maintenance on
other facilities. Local governments would also be impacted
by the school bond debt reimbursement program that had been
changed because of a commitment that local governments were
adding to the state budget. He shared that the last time
the Kenai Peninsula Borough had done a bond issue it had
been almost $20 million ($18.5 million had been for roof
repairs and replacement for energy efficiency savings). The
community received 70 percent reimbursement from the state.
The other bond issue had been for a turf field - two had
been funded by capital grants and the community had bonded
for the third.
3:48:22 PM
Vice-Chair Gara stated that the legislature was either
going to do a fiscal plan or not. He was not willing to get
reelected by telling people the state could get away with
no fiscal plan and that everything would be okay. He
believed that would result in a deep recession. He spoke
about the concept of a partial fiscal plan. For example,
only cutting the dividend to $1,000 and doing nothing else.
He stated a partial plan would not solve the deficit -
there would still be pressure to cut schools. He did not
foresee solving the entire budget gap the coming year as it
was an election year. He reasoned that action taken in 2019
would mean it could probably not be implemented until 2020
or 2021. He asked if there was concern that the problem
would not be solved for years if the can was kicked down
the road.
Mr. Navarre replied in the affirmative. He reasoned that a
plan could include some trigger points. He stated there was
substantial talk about additional budget cuts and the price
of oil going up. He questioned what would occur if those
things did not happen. He recalled his legislative
experience where statements had been made that if one party
agreed to do something one year, the other party would
agree to doing something else in the next year. He remarked
that it did not really work that way. He elaborated that
"whatever happened last year, happened last year"; it
changed the dynamic of the debate.
Vice-Chair Gara stated he could claim that cutting hundreds
of millions of dollars from the budget would not have an
impact on the economy. However, he knew and had read the
studies showing that major budget cuts did have an impact
on the economy. He asked how further large cuts (such as a
proposal to cut another $200 million per year) would impact
the economy. He asked if it would support a stable economy
or would cause the economy to continue to contract.
Mr. Navarre answered that the economy would continue to
contract if that was done. He shared that his company had
sold some property and had some cash it would be willing to
invest. He stated it was not currently a good environment
for investment because there was way too much uncertainty
in the state at present due to the lack of a plan. There
was no certainty for the oil and gas industry, private
investment, or for funding and passthrough funding for
local governments. The uncertainty was already putting a
damper on investment. He compared the situation to a
snowball rolling downhill - it would pick up momentum and
would be unstoppable when it became large enough. He had
shared the concern with the shareholders of his company.
The company was preserving cash because he believed it
would be needed. He reiterated his earlier testimony that
the company had gone through 50 percent loss of sales in
the 1980s. He was cautiously optimistic it would not
happen, but it was a concern. He concluded there was
significant anxiety over the economic outlook - all the
indicators were going the wrong way except for healthcare,
which was dependent on a strong economy. He believed
healthcare would eventually turn as well.
3:53:33 PM
Co-Chair Seaton provided a scenario where the legislature
was looking at 5 percent cuts to education, $20 million to
the University, and $40 million to the Department of Health
and Social Services with a $500 million deficit the
following year. He asked if there was some other place
where similar cuts could be achieved or if the same items
would continue to be cut.
Mr. Navarre answered that education and health and social
services used most of the budget resources and both were
critically important. He believed that at some point the
state would return to a stable economy and spending. In the
short-term with education cuts, children currently in
school were the ones who would be negatively impacted. He
furthered that those children did not get to make the time
up. He shared that he had been recently speaking to a young
man who was thinking about starting a family and had
graduated five years earlier. The individual had said that
five years earlier, many graduates of Nikiski High School
had the opportunity to go to work in the oil and gas
industry or a support industry due to an aging workforce.
The individual had been concerned and was asking for
assurance there would be opportunity for his family in
Alaska. He had told the individual yes, because he believed
in the long-term the state would get through the problem,
but short-term there would be struggle.
Representative Grenn referred to Mr. Navarre's testimony
about a reduction in revenue sharing, decreasing sales tax
revenue, and impacts to public safety. Mr. Navarre had also
discussed speaking to various groups about the immediate
need for a fiscal plan. He asked about the public's
reaction.
Mr. Navarre replied it had been favorably received and many
people had stated they had not considered the issue in that
way previously. In terms of economic development, there was
a state cost (for things like public safety and education)
for every person who moved to Alaska. Part of the problem
was that disconnect in the past two generations.
3:57:20 PM
Representative Grenn provided a scenario where a company
offering 5,000 jobs moved into the Kenai region. He
surmised it would be a benefit to the Kenai region, but the
cost to the state would be a negative impact.
Mr. Navarre answered in the affirmative. He relayed that he
had been consistent with that perspective since he had
chaired the committee in 1991 and 1992. The state could not
afford economic development in Alaska - it was a net loss
to the state - unless it was in oil and gas.
Representative Wilson asked whether development of newly
discovered oil projects would positively impact Kenai.
Mr. Navarre answered that oil and gas development started
on the Kenai Peninsula and had given Congress confidence
that Alaska could pay some of the cost to provide services
to residents. There was significant oil and gas industry
based on the peninsula that provided services to the North
Slope. There were many residents in Kenai who worked on the
slope and many service companies working in Cook Inlet and
on the slope.
Representative Wilson thought it appeared that getting HB
111 correct would be very important to Kenai for
development to continue.
Mr. Navarre replied in the affirmative. He believed there
would continue to be and should be oil and gas investment
in Alaska. He believed a stable tax policy was necessary,
but he also believed the state needed a fair share. He
recognized the realities of trying to ensure the state
could encourage the investment it needed to get production
in place and receive royalty revenues and production taxes.
Representative Wilson imagined Kenai would benefit as much
as Fairbanks. She remarked that the last time the
legislature had gotten oil taxes wrong, it had devastated
Fairbanks. However, when the legislature had gotten oil
taxes right, it had been a turnaround for Fairbanks.
4:00:19 PM
Co-Chair Foster recognized Representative Gabrielle LeDoux
in the audience.
SENATE BILL NO. 32
"An Act relating to biological products; relating to
the practice of pharmacy; relating to the Board of
Pharmacy; and providing for an effective date."
4:01:01 PM
SENATOR SHELLEY HUGHES, SPONSOR, asked for direction on the
bill presentation.
Co-Chair Foster answered that a brief overview would
suffice.
Senator Hughes complied. She explained that the bill would
update statutes to allow pharmacists to substitute a new
category of medicines called interchangeable biologic
products. The medicines were life-changing for people with
debilitating diseases and could make the difference between
being bed-ridden or up and functional. The drugs were not
the same as generics. She detailed that a biologic is made
from a living cell and is a complicated molecular
structure. Whereas, a generic drug copies a recipe. She
furthered that a biosimilar or interchangeable biologic was
trying to replicate a complex cell and the items would not
be identical. The bill maintained the physician's control -
if the doctor did not want a substitution they could write
"dispense as written (DAW)." If the doctor wanted to know
whether an interchangeable was available, they could ask
the pharmacist to call if it was available. A pharmacist
could do the substitution if it was not written on the
script pad, but they would be required to communicate the
substitution to the physician. The bill also required the
pharmacist to receive the patient's consent prior to making
a substitution.
Representative Wilson asked if the bill pertained to
compound prescriptions.
Senator Hughes replied in the negative. She stated there
were entrepreneurs, small companies, and large
pharmaceutical companies who were currently working to make
more affordable biologic products as biosimilars and to
raise them to the standard where there would be no
different clinical reaction for the patient. She relayed
that 33 states had passed similar legislation and 7 others
had pending legislation. The states had done analysis and
had determined there should be some savings to Medicaid
budgets because biologics were expensive. Interchangeable
biosimilars should help the budget. She did not want to
make a claim about what the savings may be, but some states
had done so. She continued that the Centers for Medicare
and Medicaid Services (CMS) believed interchangeable
biosimilars should bring down the cost for Medicaid.
Representative Wilson referred to the fiscal note that
included the following language: "in addition this bill
requires the Board of Pharmacy to post and maintain a link
to the U.S. Food and Drug Administration's list of
currently approved interchangeable biological products on
the board's website." She asked if the board already had to
post medications and how much the bill would cost
pharmacies.
4:06:49 PM
Senator Hughes answered that pharmacists could choose
whether to carry interchangeable biological products. Most
pharmacists had automated systems to contact physicians.
She did not know whether there was a current link to post
medications. She thought it was a simple thing. She
believed the fiscal note was related to the requirement for
the board to send something out by mail to pharmacists
around the state. She thought the legislature may want to
consider why the information was not being sent
electronically.
Representative Wilson explained that her question was not
related to the fiscal note because the state did not
normally care about the cost for the private sector - it
only cared about the cost to the state. She asked for
follow up on whether there would be a cost to pharmacies or
whether it was something the pharmacies already did. She
asked about the fiscal note and the legal costs to amend
the regulation and printing and postage in the first year.
She noted the funding source was receipt services. She
asked if all business licenses would pay. She wondered why
it was a receipt service "for this area." She reasoned
bill's goal was to make things easier for Alaskans. She
wondered if the Board of Pharmacy would be solely
responsible for paying or whether all corporate licensing
would pay a portion for the writing of regulations.
Senator Hughes replied that she would follow up. She
reiterated that pharmacists could choose whether to carry
interchangeable biological products. She specified that not
all pharmacists would carry the products that were highly
specialized. She deferred to the department for further
detail.
JANEY HOVENDEN, DIRECTOR, DIVISION OF CORPORATIONS,
BUSINESS AND PROFESSIONAL LICENSING, DEPARTMENT OF
COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT, answered that
they were receipt supported services and the pharmacy
program would pay through licensing fees. She could not
imagine the cost impacting every licensee. It was a nominal
one-time cost to do the regulation project.
4:09:44 PM
Representative Wilson asked if pharmacists had asked for
the bill. She surmised it appeared to be an improvement
over what could be given to Alaskans. She was trying to
determine why the fiscal note would not come out of general
funds versus being charged back to the pharmacist. She
stated the situation was unique - typically items were more
closely related to the board when they were paid for by the
board. She observed that the bill was different because it
was trying to do something positive for Alaskans by making
medication more affordable and did not necessarily fall
under the board's responsibility.
Ms. Hovenden replied that the changes would impact the
statutes of the pharmacy program; the Board of Pharmacy
members would help design the regulations to implement the
legislation.
Representative Kawasaki asked for verification that a
biosimilar was not identical to another product. He asked
for the difference between a biosimilar and an
interchangeable.
Senator Hughes answered that a generic is a duplicate of a
medicine made of various chemicals and ingredients - there
was no requirement to communicate between the pharmacist
and the doctor. A complicated biologic called a biosimilar
was made from living cells (e.g. Insulin and Humira).
Companies were trying to develop a product that would have
the same clinical impact. The companies were using the same
basic thing, but because they were using living cells the
product would never be 100 percent identical. The
interchangeable biosimilar or interchangeable biologic
product was the gold standard of the biosimilar. She
detailed that the FDA would test and approve the product as
interchangeable because if administered to a patient, the
patient would have to have the same clinical results
whether they were taking the original biologic, were
alternating between the original biologic and the
interchangeable, or were only taking the interchangeable.
There would be no difference in the clinical results. She
continued that biosimilars would not all fit within the
interchangeable category. She clarified that the doctor
would have to specify on a script when a biosimilar was not
categorized as interchangeable. It was a new category that
would be somewhat like a generic, but not identical (it
would be clinically similar, but the genetic makeup would
be different).
Representative Kawasaki shared that he took fish oil for
cholesterol for triglycerides. He detailed that
prescription fish oils were ten times the price of non-
prescription fish oils. He asked if a fish oil was
considered biosimilar.
DR. THOMAS FELIX, DIRECTOR, MEDICAL RESEARCH, AMGEN INC.
(via teleconference), communicated that he had worked with
the coalition of organizations to present coalition
language included in the bill. He replied that a fish oil
was not considered a biosimilar product. A biosimilar was
something that took a very specific regulatory pathway for
approval by the FDA to try to create and reference an
existing biologic. A fish oil was not as closely regulated
as a biologic and another fish oil from a different
manufacturer would not be considered a biosimilar. It was
necessary to take the 351(k) pathway to be considered a
biosimilar.
Representative Kawasaki asked if fish oil would be
considered a biosimilar product if it was regulated as
other specific drugs.
Mr. Felix believed the question was whether fish oil would
be considered a biologic because it was derived from living
tissues. He relayed that it could be considered a biologic
in a very technical definition, but for regulatory purposes
it was not considered like or governed like biologics would
be. However, in a technical term, because it was derived
from living tissues or living cells, it was possible to say
that it was a derivative of a biologic entity.
Representative Kawasaki asked for verification that the
point was for a biosimilar to mimic the exact same thing
that an interchangeable would do.
Mr. Felix replied it was important to understand why a new
industry had been built around the development of
biosimilars. He explained that biologic drugs had been on
the market for over 40-plus years and intellectual
properties around long-existing biologics were coming off
patent. He furthered that biosimilars or versions of the
older products coming off patent were intended to create
competition to lower healthcare costs and the analog was
generics. Biosimilars were coming to the market to do what
generics have done, but with a different scientific
framework and expectation financially.
Representative Kawasaki relayed that the bill packet
included a letter of opposition from the Board of Pharmacy.
He thought the board may support a bill like the one under
consideration. He asked for comment.
Senator Hughes answered that there were some pharmacists in
support of the bill. She explained that pharmacists would
prefer having the ability to substitute [drugs] without
making the communication. Physicians would probably prefer
total control and that substitutions could not be made. She
detailed that because of the ability for physicians to
specify "dispense as written" they ultimately had full
control. She furthered that the change the bill would
implement would be best for the patient in terms of
affordability. The extra step was communication - something
pharmacists did not have to do with generics. Her
understanding was that the pharmacies - the number would be
relatively low because there were a limited number of
individuals with applicable diseases - would probably have
the automated system set up, meaning it would not be
burdensome. She relayed that the State Medical Association,
Alaska State Hospital and Nursing Home Association
(ASHNHA), the Alaska Commission on Aging, and the Alaska
Cancer Action Network were all in support of the
legislation.
Senator Hughes corrected her earlier example of biosimilar
drugs and clarified she had been referring to the drug
Humira for rheumatoid arthritis. She shared an example of a
Vietnam veteran from Wasilla named Cajun Bob. She detailed
he had been featured in Life or Time Magazine in the 1960s.
He had been bed-ridden, and the use of a biologic drug had
given him a new lease on life. She stressed the importance
of the drugs for Alaskans with debilitating diseases. She
discussed that sometimes the effectiveness of a medication
wore off for an individual, making it necessary to switch
to a new medicine. The goal was to ensure individuals would
have immediate access to all options.
4:20:15 PM
Representative Kawasaki referred to a letter of opposition
from the Alaska Rheumatology Alliance in the packet. He
added that members' packets were very comprehensive with
letters of support.
Senator Hughes replied that her office had worked with the
group and it had been helpful for them to learn that they
could specify to dispense as written and maintain control.
Representative Kawasaki provided a scenario of the receipt
of a prescription. He thought in the past he had been asked
by the pharmacist whether he wanted the cheaper generic
prescription. He asked how it would work with a biosimilar.
Senator Hughes answered that the physician would prescribe
the biologic. When the patient went to the pharmacy to pick
up the prescription the pharmacist would notice there was
an interchangeable and would ask the patient if they wanted
the interchangeable. She noted that the interchangeable was
the FDA approved gold standard. If the patient selected the
interchangeable, the pharmacist would be required to inform
the physician within three business days that the
substitution had been made. She stated that with most
pharmacies the information would be instantaneously
communicated as the medicine was processed and provided to
the patient.
BUDDY WHITT, STAFF, SENATOR SHELLEY HUGHES, referred to an
earlier question by Representative Wilson and wanted to
ensure he understood the question. He noted she had been
speaking about links to the FDA's list. He thought he had
heard her ask if the pharmacist had to post links. He
clarified that the Board of Pharmacy had to post the link
to the FDA website with a list of all the interchangeable
biological products approved by the FDA. The bill did not
require individual pharmacists to provide the information.
4:22:42 PM
Representative Ortiz asked how long the term biosimilar had
existed.
Senator Hughes deferred the question to Dr. Felix.
Mr. Felix responded that the term biosimilar had existed
since the early 2000s when Europe had been first
considering development and existence of a pathway forward
for biosimilars. The issue had arisen because their
intellectual properties were expiring [audio
indecipherable].
Representative Ortiz surmised that the movement towards
biosimilars was based on similar motivations of movement
towards generics, which had probably taken place in the
1970s or 1980s. He believed the motivation was about trying
to provide medications that were equally as effective at a
lower price.
Senator Hughes replied in the affirmative. The intent was
to increase access and affordability.
Representative Ortiz referred to a letter of opposition
from the Board of Pharmacy dated March 6, 2017. He asked
for verification that the group was still in opposition to
the bill.
Senator Hughes replied that the board had not submitted a
letter of support, but individual pharmacists and a
national pharmacy association had vocalized support for the
bill. The individuals understood the importance of access
to the medicines. She stated that the Board of Pharmacy
retained its position.
4:25:12 PM
Representative Guttenberg believed the biosimilars were a
good thing. He referred to letter from the Board of
Pharmacy. He believed one of the problems was related to
who was paying the bill and who had the burden of
fulfilling the legislative requirements for reporting by
doctors and pharmacies. He thought the issue of payment may
mean large-scale pharmacies would be supportive, but smal1-
scale pharmacists may feel burdened. He referred to the
last few lines of the letter - the board believed the bill
would create an unintended barrier to access. The letter
also stated there were currently no available
interchangeable biosimilar medications on the market. The
board did not see the need for legislation regarding
biosimilars, but wanted the legislation to follow the BPCI
Act of 2009 [Biologics Price Competition and Innovation
Act] and its intent of increasing access to medication. He
asked if any changes had happened in the bill regarding
some of the board's position on the bill. He did not know
what the BPCI Act was. He asked for detail about the act
and about the bill's conflict with the act.
Senator Hughes deferred the question to Dr. Felix.
Mr. Felix replied that the BPCI Act allowed the FDA to
create regulatory pathways for approval for biosimilars and
interchangeable biologic products. The act had been passed
in March 2010 as part of the Affordable Care Act (ACA); it
was one of the few portions of the ACA with bipartisan
support. He believed the most important recent development
was that, at the beginning of the year, the
interchangeability designation finally had a draft guidance
released by the FDA. The guidance provided transparency to
the community in terms of what was required to obtain
interchangeability. He spoke to the importance of
understanding that for companies that were not developing
biosimilars or interchangeables, the area had previously
not been clear. However, for developers of biosimilars or
interchangeables, the FDA had been transparent in terms of
providing direction for the development of clinical trials
and data requirements. There had been companies that had
completed clinical trials that may satisfy the requirements
for an interchangeability designation. Additionally,
companies had announced starting clinical trials to pursue
an interchangeability designation. He stated that sometimes
there was a description that the only reason the
legislation was needed was to ensure the facilitation of
interchangeability and that substitutions could be made by
pharmacists. In general, the community was not aware of
what biosimilars were as compared to generics. He shared
that five biosimilars had been approved to date [audio
indecipherable]. He noted they were awaiting an approval of
an interchangeable in the future. People typically thought
of biosimilars as generics - most generics were
substitutable - but biosimilars were not substitutable.
Another reason to pass legislation was to clearly
communicate how to use the products when they were approved
under different designations.
Co-Chair Foster passed the gavel to Vice-Chair Gara.
Vice-Chair Gara remarked that some of Dr. Felix's testimony
had been difficult to hear.
Mr. Felix apologized and reiterated his previous remarks.
He restated his previous testimony related to the creation
of the BPCI Act and draft guidance released by the FDA in
January on the path to obtaining the interchangeability
designation. He explained that were companies that had
completed trials to try to achieve an interchangeability
designation. When they would be approved was currently
unknown. Companies had also announced they would be
interchangeability trials to pursue the designation. He
underscored the importance of the legislation because it
would facilitate substitution of an interchangeable by a
pharmacist.
4:32:18 PM
Mr. Felix reiterated that the legislation clearly
communicated how to use biosimilars and interchangeables
when they were approved under different designations. The
five biosimilars approved to date were only biosimilars and
did not have the FDA designation that would allow
substitution by a pharmacist. He explained that the
products were very different than how generics were viewed.
If the community was uneducated and began to think of
biosimilars as approved and immediately used their closest
analog, which was generic approval, the community may think
the biosimilars were substitutable unless clear terms of
use were in place. He stated that every aspect of
healthcare was trying to increase communication between
members of the healthcare team. The bill would allow
transparency for a prescriber to know what was ultimately
dispensed to the patient for the prescriber to be on top of
their care. If there was any change in a patient's response
to a medication the prescriber would know exactly what
medication the patient was on.
Representative Guttenberg spoke to who was paying the bill.
He observed that Dr. Felix had not stated whether any of
the products were approved by the FDA. He referred to Dr.
Felix's testimony about clarity and transparency. He
wondered why the decision would not be handled in the
doctor's office instead of at the pharmacy. He continued
that patients were often in a hurry at the pharmacy and
were amenable to whatever was given to them. Alternatively,
he thought it made sense to have the physician tell
patients what they would receive. He referred to Dr.
Felix's earlier testimony that many practitioners and
people were not up on the issue. He thought the doctor's
office was the best place to do prescribing. He continued
that the doctor could specify for a pharmacist to only
prescribe a prescription as written.
Mr. Felix answered that biologics were distributed through
either a medical benefit (administered by a healthcare
professional) or were self-administered (pharmacy benefit).
The legislation pertained to biologics that were self-
administered. The medications would not be dispensed in a
physician's office. Often the pharmacist would be the first
to become aware, especially when an interchangeable was
approved in the marketplace. He explained that medical
benefit biologics were typically administered by a
healthcare professional in a clinic, hospital, or office
setting. Whereas self-administered biologics meant a
patient self-injected the medication. The physician or
their delegate would not be directly administering the
product to the patient. The method of facilitation of
substitution by a pharmacist had worked well for generics
and had worked to lower cost and facilitate access.
4:38:02 PM
Senator Hughes referenced Representative Guttenberg's
comments about the letter from the Board of Pharmacy. She
agreed there were not any [interchangeables] on the market;
the products were in the testing phases. There had been a
projection that the products could be out within a month to
a year. The primary issue was that they did not want to
wait an extra year to provide the products (if they became
available) to Alaskans suffering from diseases such as
lupus, multiple sclerosis, and rheumatoid arthritis. She
reiterated her earlier testimony that pharmacists did not
have to carry the products. She relayed that if the
communication requirement was not included, it would be bad
for patients - patients wanted the substitution listed in
their medical records; doctors needed the information
because they were not 100 percent identical like a generic.
Representative Wilson asked who had requested the bill.
Senator Hughes replied it had been a combination of patient
groups and companies developing the products. The companies
were spending millions on product development; if statutes
were not set up, patients would not have access to the
products. The individuals suffering, who had tried a
biologic, wanted continued access.
Representative Wilson stated it had been her understanding
that a pharmacist would have to call the physician prior to
giving the product to a patient; however, that was not the
case. She summarized that there was discussion between the
pharmacist and the patient, the patient made the
determination, and the doctor may not know what happened
for three days. She was uncomfortable with that process.
She referred to a letter in members' packets from a
physician specifying their practice would be in harm's way
because they were not notified right away. She requested to
hear from the Board of Pharmacy at a future hearing. She
remarked that the bill would charge pharmacists and they
had not asked for it. She asked for additional information
at a future hearing.
Senator Hughes reiterated that the State Medical
Association supported the bill. She explained that a
physician could retain control by specifying a prescription
was to be dispensed as written. She added that the products
were FDA approved and clinical results would be no
different than the original reference product.
Representative Wilson understood, but she surmised it could
constitute a significant medical change. She wanted to be
very careful. She surmised there could be a change from
what the physician wanted. She wanted to ensure all parties
were involved, not only groups or outside entities.
4:42:45 PM
Mr. Whitt pointed to Section 4 of the bill that specified a
pharmacist who substituted a biologic in compliance with
the section did not incur any greater liability than would
be incurred in filling the original prescription. The
section also specified the dispense as written provision.
Representative Wilson noted that her concern was with
Section 5 related to the three-day timeframe a pharmacist
had to communicate a prescription to a physician. She was
concerned about the liability to the physician. She was
certain that if a person had side effects it would be the
physician who was accountable. She stated that prescribing
was a physician's duty. She was concerned that the Board of
Pharmacy would have to pay for something it was not in
favor of. She had not understood earlier that the pharmacy
would be telling a physician what prescription was
dispensed without obtaining approval from the physician.
Senator Hughes noted that the process for medication to be
approved by the FDA was incredibly rigorous. She furthered
that if a medication was categorized as interchangeable,
there was a high assurance level, which was the reason for
the State Medical Association's support of the bill.
Representative Wilson clarified her concern was that
pharmacists were not doctors. She stated that a patient
could receive a doctor prescription, but then go to a
pharmacy and get something that was slightly different. She
was concerned that the doctor would not know for up to
three days what prescription had been dispensed. She spoke
to the liability to the physician. She believed the bill
would allow a medical decision to be made by the pharmacist
and patient. She had initially believed the doctor would
know about the prescription before it had been dispensed.
Senator Hughes answered that the types of pharmacies that
would be handling the expensive medication would more than
likely have instantaneous notification to the physician.
She reasoned that the FDA's rigorous process had been
trusted with great success and savings.
SB 32 was HEARD and HELD in committee for further
consideration.
Co-Chair Foster addressed the schedule for the following
day.
ADJOURNMENT
4:46:30 PM
The meeting was adjourned at 4:46 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB032 Opposing Document-Opposition Letters 04.17.17.pdf |
HFIN 5/3/2017 1:30:00 PM |
SB 32 |
| SB032 Sectional Analysis ver J 04.17.17.pdf |
HFIN 5/3/2017 1:30:00 PM |
SB 32 |
| SB032 Sponsor Statement 04.17.17.pdf |
HFIN 5/3/2017 1:30:00 PM |
SB 32 |
| SB032 Supporting Documents-Support Letters 04.17.17.pdf |
HFIN 5/3/2017 1:30:00 PM |
SB 32 |
| SB32_Support_050317.pdf |
HFIN 5/3/2017 1:30:00 PM |
SB 32 |
| HFIN Crum ATA.pdf |
HFIN 5/3/2017 1:30:00 PM |