Legislature(2019 - 2020)ADAMS ROOM 519
02/11/2020 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB205 || HB206 | |
| Fy 21 Budget Overview: Department of Law | |
| Fy 21 Budget Overview: Department of Commerce, Community and Economic Development | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 205 | TELECONFERENCED | |
| += | HB 206 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
February 11, 2020
1:31 p.m.
1:31:58 PM
CALL TO ORDER
Co-Chair Foster called the House Finance Committee meeting
to order at 1:31 p.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Jennifer Johnston, Co-Chair
Representative Dan Ortiz, Vice-Chair
Representative Ben Carpenter
Representative Andy Josephson
Representative Gary Knopp
Representative Bart LeBon
Representative Kelly Merrick
Representative Cathy Tilton
Representative Adam Wool
MEMBERS ABSENT
Representative Colleen Sullivan-Leonard
ALSO PRESENT
Ed Sniffen, Deputy Attorney General, Department of Law;
John Skidmore, Deputy Attorney General, Criminal Division,
Department of Law; Valerie Rose, Administrative Services
Director, Department of Law, Office of Management and
Budget, Office of the Governor; Julie Anderson,
Commissioner, Department of Commerce, Community and
Economic Development; Micaela Fowler, Administrative
Services Director, Department of Commerce, Community and
Economic Development, Office of Management and Budget,
Office of the Governor; Jim Andersen, Deputy Director,
Division of Economic Development, Department of Commerce,
Community and Economic Development; Tom Boutin, Executive
Director, Alaska Industrial Development and Export
Authority.
PRESENT VIA TELECONFERENCE
SUMMARY
HB 205 APPROP: OPERATING BUDGET/LOANS/FUNDS
HB 205 was HEARD and HELD in committee for
further consideration.
HB 206 APPROP: MENTAL HEALTH BUDGET
HB 206 was HEARD and HELD in committee for
further consideration.
FY 21 BUDGET OVERVIEW: DEPARTMENT OF LAW
FY 21 BUDGET OVERVIEW: DEPARTMENT OF COMMERCE, COMMUNITY
AND ECONOMIC DEVELOPMENT
Co-Chair Foster reviewed the agenda for the meeting.
HOUSE BILL NO. 205
"An Act making appropriations for the operating and
loan program expenses of state government and for
certain programs; capitalizing funds; making
appropriations under art. IX, sec. 17(c), Constitution
of the State of Alaska, from the constitutional budget
reserve fund; and providing for an effective date."
HOUSE BILL NO. 206
"An Act making appropriations for the operating and
capital expenses of the state's integrated
comprehensive mental health program; and providing for
an effective date."
1:33:01 PM
^FY 21 BUDGET OVERVIEW: DEPARTMENT OF LAW
1:33:09 PM
ED SNIFFEN, DEPUTY ATTORNEY GENERAL, DEPARTMENT OF LAW,
introduced himself. He was pleased to provide the committee
with an overview of the responsibilities of the Department
of Law. He provided a brief introduction of himself. He had
been with the state for over 20 years. He came to the
department in 2000 to enforce Alaskas consumer protection
and trust laws. He was in that position for 15 years before
moving into his current position. He had testified before
the legislature numerous times. He began the PowerPoint
Presentation: "Department of Law: Budget Overview" (copy on
file) with discussing the mission of the department. He
turned to slide 2.
Mr. Sniffen reviewed the mission of the Department of Law
on slide 2. The departments mission was to provide legal
services to state government and prosecute crime for the
protection and benefit of Alaskas citizens. The department
was responsible for providing legal advice and legal
services to all state agencies. The department had two
operating divisions, the Criminal Division and the Civil
Division. The department also had an administrative
services division.
Mr. Sniffen moved to slide 3 which showed the core services
of the Civil Division. The division protected Alaskans
safety and financial well-being, fostered conditions for
responsible development of Alaskas natural resources,
protected the fiscal integrity of the state, and promoted
good governance. He would discuss each of the items as he
reviewed the slides.
Mr. Sniffen elaborated that the Civil Division had 14
different sections that provided legal services to every
executive branch agency, public corporation, and board and
commission with the exception of the railroad and the
university system which had their own legal counsel. The
services fell into two basic buckets. First, the division
had a litigation side where it defended cases and pursued
claims. Second, the division provided transaction advice to
all of the state agencies.
Mr. Sniffen moved to slide 4 which detailed the services
provided by the Civil Division relating to protecting
Alaskans and included four of the sections within the
division: the Commercial and Fair Business Section; the
Human Services Section; the Opinions, Appeals and Ethics
Section; and the Child Protection Section. The four
sections absorbed the bulk of the divisions undesignated
general fund (UGF) budget. The funds were used to protect
children and vulnerable adults. He relayed that the
Commercial and Fair Business Section provided legal
services and advice to agencies that monitored insurance
companies and licensees, charitable gaming, public
utilities, banks, securities, corporations, mortgage
brokers, payday lenders, and 20 different professional
licensing boards and commissions. The section was
responsible for a broad bucket of things.
Mr. Sniffen continued to the Human Services Section which
provided advice to the Department of Health and Social
Services (DHSS) on all of its legal matters. The section
protected vulnerable adults in commitment proceedings or
who had guardians or conservators appointed to them and who
were unable to represent themselves. The Civil Division
also had an Opinions, Appeals, and Ethics Section which was
the appellate section. The section handled all types of
appeals including the states child-in-need-of-aid appeals
and appeals to the U.S. Supreme Court which the state had
done a couple of times in the last few years. The section
also handled a variety of other work including ethics and
Indian Law advice.
Mr. Sniffen discussed the last section on the slide, the
divisions Child Protective Section which represented the
Office of Children's Services and Child in Need of Aid
(CINA) proceedings statewide. He reported that about
one-third of the departments UGF budget was used to
support the child protection activities that it engaged in.
1:37:47 PM
Mr. Sniffen moved to slide 5 which discussed the sections
of the division related to protecting fiscal integrity and
fostering economic development. They included the
Regulatory Affairs and Public Advocacy (RAPA) Section and
the Special Litigation Section. He explained that RAPA
represented the publics interest in proceedings before the
Regulatory Commission of Alaska. The Regulatory Affairs and
Public Advocacy Section argued on behalf of Alaskans to
ensure that utility rates were just and reasonable. In
FY 19 RAPAs efforts resulted in saving consumers
approximately $17 million in the form of reduced utility
rates.
Mr. Sniffen continued that the Special Litigation Section
handled the states high-profile, expedited, and complex
litigation. He referred to the group as the Litigation
S.W.A.T. Team. The group was often assigned to cases
addressing important constitutional challenges and election
matters. Most of the states high-profile, larger
litigation was assigned to the section.
Mr. Sniffen reviewed the Natural Resources and Oil and Gas
sections within the division turning to slide 6. Both
sections protected the states natural resources and the
states revenues from oil and gas activities. The Oil and
Gas Section protected state revenue streams in three large
areas including production taxes, corporate income taxes,
and royalties. They protected the state from improper
refund demands, pursued collections of unpaid or underpaid
taxes and royalties, and ensured that tariff rates on the
Trans Alaska Pipeline System (TAPS) pipeline were
reasonable. In calendar year 2019 the Oil and Gas Section
represented the state in a confidential tax and royalty
dispute which netted the state over $300 million in
additional revenue.
Co-Chair Foster recognized Representative Carpenter.
Mr. Sniffen advanced to the pictures on slide 7 indicating
he would talk about the responsibilities of the Natural
Resources Section. The section represented the states
interest in statehood defense which included ensuring
access to responsible resource development and protection
of state sovereignty. Some examples of the accomplishments
within the section included achieving the land exchange
through the Izembek National Wildlife Refuge to connect
King Cove and Cold Bay. The section also litigated against
the roadless rule trying to open up Southeast Alaska for
additional timber activity the efforts were ongoing. The
section was also responsible for ensuring access to
easements, known as RS2477s, including a number of
easements that traversed wild and scenic river corridors.
The section also litigated to defend against federal
overreach in fish and game management and against federal
overreach in Endangered Species Act cases. He provided the
example of the over-designation of critical habitat that
prevented responsible resource development in certain
areas.
Mr. Sniffen continued to slide 8 indicating that the
Environmental Law Section, Transportation Section, and
Torts and Workers' Compensation Section also protected the
states fiscal integrity and fostered economic development.
The divisions Environmental Law Section represented the
Department of Environmental Conservation in clean water and
air matters and hazardous waste discharge cases. They
recovered state costs and penalties related to violations
of state environmental law every year. In FY 19 the section
recovered about $2.5 million for state costs and penalties
related to violations of state environmental laws. It was a
section that provided revenue to the state in a number of
areas.
Mr. Sniffen conveyed that the Transportation section
represented the Department of Transportation and Public
Facilities (DOT) in all of its work. The section also
represented other agencies that involved construction and
operation of the states public facilities, the Alaska
Marine Highway System, and airports. He continued that the
Torts and Workers Compensation Section defended the state
in tort cases and suits. It also defended the state as an
employer in Workers Compensation cases. The section
defended the state in a wide range of tort claims and also
defended the state as an employer. The section handled
prisoner litigation, construction litigation, and a host of
different lawsuits directed at the state.
Mr. Sniffen advanced to slide 9 showing the last 3 sections
within the department including the Labor and State Affairs
Section, the Legislation and Regulations Section, and the
Information Project Support Section. The sections provided
fundamental support in state government in the areas
mentioned. He elaborated that the Labor and State Affairs
Section ensured compliance with state employment,
procurement, contracting, occupational safety, employment
security, and workers compensation laws. The section also
represented the Department of Education and Early
Development (DEED), the Department of Administration (DOA),
the Department of Military and Veterans Affairs (DMVA),
Alaska Industrial Development and Export Authority (AIDEA),
and Alaska Energy Authority (AEA).
Mr. Sniffen continued that the Legislation and Regulation
Section was currently very busy. The section housed a
statutorily required regulations attorney and oversaw all
legislation drafting and regulation projects for the
executive branch. He relayed that the Information and
Project Support Section was often overlooked. However, the
section provided a critical function advising all state
agencies on Alaska Public Records Act and record retention
requirements. The section advised what was protected
information and on legal issues involving the use of social
media. The section was very busy with public information
requests in the age of social media, emails and other
digital data platforms. The section also provided
litigation and project support. He cited a couple of
examples. He concluded the brief overview of the Department
of Laws Civil Division. He deferred to Mr. Skidmore to
review the Criminal Division.
1:44:25 PM
JOHN SKIDMORE, DEPUTY ATTORNEY GENERAL, CRIMINAL DIVISION,
DEPARTMENT OF LAW, reviewed the mission of the Criminal
Division on slide 10. He indicated that the Criminal
Division was where the third bucket of general funds came
into play. Mr. Sniffen had talked about the first two
buckets found in the Civil Division. The main mission of
the Criminal Division was to prosecute crime with the goal
of seeking justice. The divisions mission was to seek
justice, promote public safety, and ensure that the
criminal justice system functioned appropriately. He
clarified that the division tried to make things move
through in a timely fashion, help manage costs associated
with the criminal justice system, and ensure that the
constitutional and legal rights were protected for
witnesses, victims, and the accused.
Mr. Skidmore moved to slide 11 to discuss the duty of a
prosecutor. Prosecutors were unlike any other lawyers in
the legal system. In the Alaska Rules of Professional
Conduct (3.8) there was one rule of professional conduct
that applied only to prosecutors. It stated that
prosecutors had the responsibility of a minister of
justice, not simply that of an advocate. He highlighted the
two quotes on the slide. The first came from the Canons of
Professional Ethics from the American Bar Association in
1908 where it discussed the primary duty of a lawyer
engaged in public prosecution. It was not to convict but to
ensure that justice was done. The second quote by Justice
Southerland from a famous case in 1935 talked about a
prosecutor being able to strike vigorous or hard blows but
not foul blows regarding liberty. He continued that a
prosecutor did not simply represent a client, rather, they
represented the public - the communities at large. The
prosecutors goal could not and should not only be driven
by seeking convictions. A prosecutors goal was public
safety and justice for the public, the victim, and the
accused.
Mr. Skidmore turned to a map on slide 12. He indicated that
the Criminal Division was broken into regional district
attorneys offices. There were nine district attorneys
represented on the left-hand side and the bottom of the
slide. The slide showed the faces and the names of the
district attorneys and the locations of the offices
throughout the state. The attorneys listed supervised and
managed the offices that handled anything from criminal
trespass to a murder prosecution. He pointed to the upper
right-hand corner showing the head of the Criminal Appeals
Section, Tamara DeLucia, and the head of the Special
Prosecutions Section, Jack McKenna. The Criminal Appeals
Section handled all of the criminal appeals and post-
conviction relief for cases that went to federal court or
habeas cases. The Special Prosecutions Section handled what
he called boutique cases. In other words, the section
focused on certain types of cases related to issues such as
child welfare, environmental crimes, and a number of
different crimes. The section also housed prosecutors that
provided support to the other offices. For instance, there
were prosecutors that generally provided support for
Western Alaska and Northern Alaska some of the states
smaller offices. All of the state prosecutors were on call
365 days per year, 24-hours per day. They were available to
help law enforcement with a charging decision, obtaining a
search warrant, a decision related to a homicide, or any
other law-related query. The prosecutor's office was
available to responded.
Mr. Skidmore indicated slide 13 provided more detail about
the core services the Criminal Division provided. The
division frequently provided investigation assistance. For
example, in Anchorage the division had prosecutors assigned
to respond to murder scenes. Prosecutors went out with law
enforcement to crime scenes at the start of an
investigation which helped to build better cases. He noted
informal referrals, informal referrals, and screenings. He
reiterated the prosecutors office helped provide
assistance to law enforcement. He noted the importance of
the support staff to prosecutors in the processing of
cases. For example, support staff in the prosecutors
office contacted victims to update them on the status of
their cases. They also helped to gather all appropriate
documentation and made related filings with the court. The
support staff provided core services 8:00 a.m. to 5:00
p.m., Monday through Friday. However, in every one of the
prosecutors offices someone typically worked on the
weekends as well. Charges had to be filled quickly, as
crime did not stop on the weekends. He argued that the work
did not stop at the point of conviction.
Mr. Skidmore reported that the office also handled the
appellate process, post-conviction release, and petitions
to revoke probation. All work required the resources of the
divisions people. Recruitment and retention were areas the
division was focusing on more. The division had filed a
report with the legislature earlier in February 2020 which
highlighted some of the challenges the department faced
particularly in the Criminal Division. The report laid out
national trends, Alaska trends, and how the department was
trying to respond to the trends. He was happy to address
any questions legislators might have about the report or
the Criminal Division. He would be deferring to the
administrative services director to address the last two
slides that show the departments overall budget.
1:51:30 PM
Representative Carpenter asked which section within the
Criminal Division handled public corruption cases. Mr.
Skidmore responded that public corruption cases were
typically handled by the Special Prosecutions Office, as
they required intensive investigation. The cases were
usually related to persons in a public office requiring
more resources in their prosecution.
1:52:10 PM
VALERIE ROSE, ADMINISTRATIVE SERVICES DIRECTOR, DEPARTMENT
OF LAW, OFFICE OF MANAGEMENT AND BUDGET, OFFICE OF THE
GOVERNOR, introduced herself and indicated it was her first
time testifying before the committee. She had been employed
with the department for more than 5 years as the budget
analyst. She reviewed slide 14 showing the FY 19 - FY 20
operating budget comparison. She reported that during
FY 16, FY 17, and FY 18 the department took significant
reductions but had remained fairly flat over the previous
several years. Some of the major changes that affected the
departments FY 20 budget were in the Criminal Division.
She relayed that with the passage of HB 49 [Legislation
passed in 2019 Short Title: Crimes; Sentencing; Drugs;
Theft; Reports] there was an increase to the designated
general funds (DGF) in the FY 20 management plan column
that was fairly significant but dropped back down in the
FY 21 governors request. The change was from the Power
Cost Equalization (PCE) funding that was funded as part of
HB 49 to UGF.
Ms. Rose highlighted that between FY 19 and FY 20 there was
not a full difference in UGF because the Civil Division had
a fund source change of $750,000. The Civil Divisions UGF
appropriation was reduced by $750,000 and the divisions
interagency receipt authority was increased by the same
amount. She pointed out there was a request before the
legislature to increase the departments federal receipt
authority for the Criminal Division. Currently, the
department had a federal grant for its Medicaid Fraud
Control Unit that investigated welfare, fraud, and abuse.
The department also had a request in the FY 21 budget for
an increase to accommodate a grant from the federal
government, commonly referred to as the AG Barr Grant, to
expand rural prosecutions in Alaska. The request included 2
prosecutors and 1 support staff to focus on sexual assault,
domestic violence, and violent felonies in rural areas.
Representative Carpenter asked about the grant for the
rural law enforcement activities. He queried the length of
the grant. Ms. Rose responded that the grant was
approximately 3 years. However, in the departments initial
discussions with the U.S. Department of Justice, they
indicated a willingness to be flexible with the timeline
extending it if necessary and beginning the grant once the
state had authority.
Co-Chair Johnston asked if most of the departments other
funds were interagency receipts. Ms. Rose responded that
she was correct.
Co-Chair Johnston pointed to the increase of about $1
million. She asked what drove the increase. Ms. Rose
responded that the majority of the amount, $750,000, was an
increase to the department's interagency receipt authority
during FY 20. The department also had additional authority
for the statutory designated program receipts (SDPR)
related to the Criminal Division in the amount of $300,000.
The department would be able to take in money from the
North Slope Borough to help support the cost of re-opening
nd
the Utqiagvik office in the 2 Judicial District.
Co-Chair Johnston asked about the increased receipt
authority for the $750,000 and whether it was a budget
phenomenon or something else. Ms. Rose replied that the
interagency receipt increase was related to a fund source
change she had mentioned. The department took a reduction
in its UGF appropriation within the Civil Division and an
equal amount of interagency receipt authority so the
department could bill client agencies for the departments
legal services.
1:56:54 PM
Representative Wool asked about an increased request in
federal funds for welfare fraud investigations. He asked
Ms. Rose to elaborate. Ms. Rose responded that the increase
was not for Medicaid fraud but, it was what the existing
federal authority was for. She further explained that the
increase was for a different federal grant. Representative
Wool asked for specifics. Ms. Rose responded that it was
for the AG BARR Grant.
Co-Chair Foster asked Ms. Rose to expand on the positions
that would be funded. Ms. Rose responded that the funding
would pay for 2 prosecutors and 1 support staff. They would
be focused on sexual assault and domestic violence as well
as violent felonies.
Co-Chair Foster asked where the additional position would
be posted. Ms. Rose thought the positions would be based in
Anchorage. She also thought the positions would be cross-
deputized with the U.S. District Attorneys office. Mr.
Skidmore added that the 2 positions would be in Anchorage
within the special prosecutor's office. He reiterated that
the special prosecutors office focused on support for
other area, particularly rural locations. Co-Chair Foster
was just curious.
Representative Josephson noted that just over half of the
operating year had transpired and, the department had about
the same number of vacant attorney positions as the prior
year. The state had a vacancy factor for FY19 and FY 20 of
about 4 percent. However, the departments actual vacancies
were about 12 percent. He wondered how much in general
funds would the department be likely to spend on personal
services.
Mr. Sniffen answered that it was difficult to predict, as
the department was actively trying to recruit for all of
the vacant positions. He continued that the timing of
hiring the vacant positions would determine how much of the
vacancy monies would be used for a particular year. He
relayed that the Criminal Divisions recruitment and
retention issues were important and were a focus. He
indicated the Civil Division was experiencing the same
challenges and was trying to fill its current vacancies. He
hoped the departments renewed efforts would help fill the
positions quickly avoiding the vacancy rate into the
future. He reported active recruitments for six positions
presently within the Civil Division.
2:00:41 PM
Representative Josephson suggested that relative to
retention and recruitment, he had engaged in long
conversations in the finance subcommittee meetings about
the difficulty of adjusting pay scales because of built-in
statutory rules that required a process be followed for
partially exempt personnel and the like, for example. The
subcommittee had talked about creating an incentive related
to the paydown of student loans. He asked if such an
incentive would be an effective tool to help in the
departments recruitment efforts.
Mr. Sniffen gave credit to Mr. Skidmore who had suggested
the idea to him earlier in the year when they were
brainstorming on ways to incentivize people to work in the
departments rural offices. He recalled, when going to
college, that if a person took out student loans to attend
college and upon completion wanted to work in a rural area,
Alaska student loans could be forgiven up to a certain
amount. He was unsure if the program still existed. He and
Mr. Skidmore were thinking of a similar incentive to get
lawyers to work in areas such as Bethel and other rural
areas. He had not spent time looking into the legality of
such and incentive but thought it was worth exploring.
Representative Josephson asked about the upcoming
supplemental. The legislature was always looking for
offsets because of increases to Medicaid. The state
experienced fires and other things as well. He suggested
that the department had used the vacancy factor opportunity
to hire expensive outside contractors. He asked about the
terms of the Consovoy contract that was signed in early
January. He also queried the negative impact of using it as
an offset.
Mr. Sniffen responded that the contract was issued in
January. The department was not far into the contract
presently, just over a month. The work for the contract was
not particularly active currently. He was unsure how much
of the contract would be spent, it depended on litigation
in the year. In terms of adjusting the budget in a way that
might inhibit the departments ability to pay the contract,
he was unclear what the Attorney General would do. He
suggested that if the department had a general fund
reduction, the reductions might have to come from some
other places so that it could continue to pursue the
matters the Attorney General felt were most important. The
department would have to look at its overall budget picture
and decide where its priorities were and how it would spend
its money going forward.
2:04:40 PM
Co-Chair Johnston asked how much of the department's budget
was wrapped up in contract services. Mr. Sniffen thought
the outside counsel contracts for the Department of Law was
about 1 percent of the Civil Divisions Budget.
Co-Chair Johnston asked if the rate was fairly stable from
year-to-year. Mr. Sniffen responded that looking back 5 or
6 years the department used to spend much more money on
outside counsel contracts when it was litigating large oil
and gas cases. The return on that money was significant.
Such matters had gone away resulting in a dramatic drop in
outside counsel spending over the prior 5 years. He
suggested that at any point an unanticipated case could
come along. He reminded members of the BP corrosion case
that had arisen a few years prior where outside counsel
assistance was needed, as it was too large to handle in-
house. Other cases arose that the Attorney General felt
were important to pursue. Overall, the departments outside
counsel spend had decreased and, the department was very
judicial about the use of outside counsel. Even when it
used outside counsel, the in-house lawyers did as much of
the work as possible saving the billing rates for outside
counsel for only necessary things.
Co-Chair Johnston noticed earlier in the week a case
between the legislature and the governor that would be
going on to the Supreme Court. She asked if the accounting
for such a case involved interagency receipts or whether it
would be assumed by the department. Mr. Sniffen believed
all of the money was assumed in the department as part of
its general fund spending.
Representative Carpenter asked about current vacancy rates
and how they compared to the previous 5 years. Mr. Sniffen
was aware that the department sent out a recruitment for 3
positions in the Natural Resources Section and was waiting
for the recruitment to run its course. The department also
had recruitments posted in the Environmental Conservation
Section to replace some individuals who had left, and also
for a paraprofessional in the same section. There was a
recruitment out for the Transportation Section for someone
who had left recently to assist with airport work. He noted
the department recently filling 2 positions in the CINA
Section, a section which now had a full slate of lawyers.
It was one of the most difficult sections to keep staffed.
He thought the department had recently filled a position in
the Labor and State Affairs Section. He was unsure if that
recruitment was still active. There were recruitments in
various sections and in different stages of process.
Representative Carpenter thought that Mr. Sniffen had
talked about approximately 8 positions. He asked if those
were the only vacancies. Mr. Sniffen responded that there
were about 10 vacancies in the Civil Division.
Ms. Rose turned to the final slide of the presentation,
slide 15, which showed a breakdown of the departments fund
sources by fund category. She highlighted the more detailed
listing of the fund sources within the department on the
bottom left of the slide. She relayed that there were
significant changes as a result of the passage of HB 49:
the federal grant for the AG Barr expansion of prosecution
in rural Alaska and the reopening of the Utqiagvik Office
nd
in the 2 Judicial District. Both items were related to the
Criminal Division and, the changes could be seen across
FY 20 and FY 21. She also indicated that overall, the
department had a variety of different fund sources. She
noted the department having a significant amount of
interagency receipt authority, most of which resided within
the Civil Division to allow for interagency receipt
billings for its client agencies. The remainder of the
funding was most significantly unrestricted general funds.
^FY 21 BUDGET OVERVIEW: DEPARTMENT OF COMMERCE, COMMUNITY
AND ECONOMIC DEVELOPMENT
2:10:06 PM
Co-Chair Foster invited testifiers from the Department of
Commerce, Community and Economic Development to the table.
JULIE ANDERSON, COMMISSIONER, DEPARTMENT OF COMMERCE,
COMMUNITY AND ECONOMIC DEVELOPMENT, introduced herself and
thanked members for the opportunity to come before the
committee. She began with the PowerPoint Presentation:
"FY2021 Department and Budget Overview" (copy on file). She
turned to slide 2 to discuss the mission and core services
of the department. She began that the Department of
Commerce, Community, and Economic Development (DCCED) was a
small but diverse department comprised of 6 core divisions
and 7 corporations. The departments functions touched the
lives of Alaskans in more ways than most people realized.
The department handled day-to-day functions like ensuring
that physicians were licensed through the Corporations,
Business, and Professional Licensing Division, examining
financial institutions to large scale activities regulating
the price of power and utilities through RCA and providing
loan financing for the local hydroelectric project through
the Alaska Industrial Development and Export Authority
(AIDEA).
Commissioner Anderson continued that while the department
put each of its programs into buckets including economic
growth, affordable energy, strong communities, or consumer
protection, most of its agencies would fall into several of
the buckets. One of the highlights of serving as
commissioner was seeing how all of the agencies worked
together towards their common goals and seeing the passion
people had in providing services to the residents of
Alaska.
Commissioner Anderson moved to slide 3 which provided an
overview of the department's organization. She relayed the
6 core divisions within the department: Administrative
Services; Banking and Securities; Community and Regional
Affairs; Corporations, Business, and Professional
Licensing; Economic Development; and Insurance. The
department also had 7 corporations within the department:
the Alaska Energy Authority (AEA), the Alaska Industrial
Development and Export Authority (AIDEA), the Alaska
Gasline Development Corporation (AGDC), the Alaska Oil and
Gas Conservation Commission (AOGCC), the Alaska Seafood
Marketing Institute (ASMI), the Alcohol and Marijuana
Control Office (AMCO), and the Regulatory Commission of
Alaska(RCA). The Alaska Railroad Corporation was housed
within the department but was exempt from the Executive
Budget Act. She would turn the presentation over to the
Administrative Services Director, Michaela Fowler.
2:13:27 PM
MICAELA FOWLER, ADMINISTRATIVE SERVICES DIRECTOR,
DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT,
OFFICE OF MANAGEMENT AND BUDGET, OFFICE OF THE GOVERNOR,
turned to slide 4, which showed the changes in the
departments budget from FY 19 to FY 21. She pointed out
that the department's unrestricted general fund budget had
steadily decreased. In FY 20 there was a $1 million
reduction in the Community and Regional Affairs Division as
well as in the Economic Development Division. The Community
and Regional Affairs Division reduction was made up of
entirely general funds. The Reduction to the Division of
Economic Development was a mix of fund sources. She
indicated that when she got to the division slides, she
would go into additional detail about how the reductions
had been managed internally.
Ms. Fowler continued that the increase seen in DGF was
primarily the result of AOGCC having moved to DCCED from
the Department of Administration. The significant reduction
in Other funds for FY 21 was the AGDC $6.2 million
decrease proposed in the governors budget. She also
highlighted the significant bump in federal funding in
FY 20. The Alaska Seafood Marketing Institute was awarded a
$7.5 million USDA foreign agricultural grant for FY 19
through FY 23. The grant was booked in FY 20 and was a
multi-year appropriation. Multi-year appropriations showed
up in year one but not in the out years.
Ms. Fowler moved to slide 5 which provided a deeper look
into the fund sources within the department. The department
had 4 formula programs, the largest of which was the PCE
Program. The three revenue sharing programs that were run
through the Division of Community and Regional Affairs -
payment in lieu of taxes, national forest receipts, and
shared fisheries taxes made up the other and federal
line. She reported that the department received over 50
percent of its funding through DGF. She pointed out that
the slide reflected the departments contributions to the
general fund through program receipts, third party
collections, fines and forfeitures, settlements, and
insurance premium taxes. In FY 19 the department deposited
more than $102 million into the general fund not including
the AIDEA dividend. The department had been diligent in
identifying areas where it could gain efficiencies but had
been cautious to avoid areas that would have an adverse
effect on its contributions to the general fund. For
example, if resources were reduced in the Division of
Banking and Securities, they could not conduct the
examinations that would result in program receipts which
contributed approximately $15 million into the general fund
purse per year.
2:16:33 PM
Representative Knopp referenced slide 4 and asked about the
AGDC reduction of $6.2 million. He wanted to better
understand how the funding for AGDC worked and asked for
clarification around the reduction. He wondered if the
money was ghost money. Ms. Fowler responded that the
decrease was a reduction to AGDCs operating costs. She
reported that AGDC anticipated needing significantly less
staff in FY 21. There would be less funding drawn from the
AGDC fund. It was effectively a slowing down of a draw from
AGDCs fund. The money would remain in the fund.
Representative Knopp clarified that the money would remain
in the fund but, AGDC would not be spending it. Ms. Fowler
responded, "That's correct." Representative Knopp suggested
that they were not UGF dollars, they just stayed in the
fund. Ms. Fowler responded affirmatively.
Vice-Chair Ortiz referred to slide 4. He asked if he would
see a larger reduction in UGF if the chart went as far back
as FY 16, compared to what he was seeing between FY 19 and
FY 21. Ms. Fowler responded affirmatively. She offered that
a significant reduction would be seen over the years
Representative Ortiz specified. The departments UGF budget
had been reduced approximately 30 percent to 40 percent.
She could get back to the committee with an exact
percentage at a later time.
Vice-Chair Ortiz asked about opportunity costs resulting
from the previous reductions. Ms. Fowler responded that
there used to be grants to the Alaska Regional Development
Organizations (ARDOR) program that came through the
department that were no longer being given to the program.
She noted that the Division of Economic Development had
been reduced from an agency that, in FY 16, was a $3
million agency. However, currently, they were a $564,000
agency. The department had had significant reductions in
the area being discussed. The department had also seen
significant reductions in the Division of Administrative
Services. The division used to have general funds which
were presently interagency receipt authority. She gave
credit to the previous Administrative Services Director,
Catherine Reardon, for managing the reductions with minimal
impact to the public.
Vice-Chair Ortiz referred to the organizational chart on
slide 3. He asked about ASMIs connection with DCCED. Ms.
Fowler responded that ASMI was housed within DCCED for
administrative purposes. She noted she had been remiss when
speaking to significant areas of reductions. The Alaska
Seafood Marketing Institute no longer had any general fund
dollars contributed to its agency they were entirely
funded through receipts.
Vice-Chair Ortiz thought that at one point, ASMI received
about $3 million in UGF dollars. He was uncertain of the
amount but was aware of a significant contribution of UGF
dollars towards the ASMI program. Ms. Fowler concurred.
2:22:08 PM
Representative Josephson noted that the department used to
have oversight over random grants like Legal Services. He
asked if DCCED still housed and administered those grants.
Ms. Fowler responded that the grant to Alaska Legal
Services was still in the departments operating budget and
the department still administered the grants. She mentioned
that on the capital side there were significantly fewer
grants being administered than there were some years ago
when the department had more robust capital programs. The
operating grants remained.
Representative Josephson asked if the grants would have
been previously identified as being under the departments
prevue. He asked if he was accurate. Ms. Fowler replied
that the Alaska Legal Services grant was operating. There
were some grants that were operating grants and some grants
that were capital grants. She restated that the Alaska
Legal Services grant was an operating grant. Whereas, the
other grants were identified within the department under
the capital budget.
Ms. Fowler continued to slide 6 which showed a visual of
the budget by fund source. She highlighted that a
significant portion of the departments budget was DGF and,
a very small portion was UGF.
Ms. Fowler advanced to the pie chart on slide 7 which
showed the budget by line item. In response to
Representative Josephsons questions regarding grants, she
pointed out that grants made up almost 30 percent of the
departments budget. She added that Personal Services was
the bulk of the remainder of the departments budget.
Ms. Fowler advanced to slide 8 regarding noteworthy changes
made to the FY 20 operating budget. She reported that
during the previous budget cycle the budget for the
Division of Community and Regional Affairs was reduced by
$1 million. The division had been active in reorganizing
its local government staff and had established a central
resource desk to improve responsiveness to local
governments in order to manage the reduction. She indicated
that when the decrement was before the legislature in the
FY 20 budget cycle, the division anticipated approximately
$450,000 of the reduction would apply to personal services.
However, the reduction was closer to $650,000 for personal
services based on where the division had been able to save
money. The Division of Community and Regional Affairs had
experienced significant attrition over the prior year and
had been managing within that attrition in order to achieve
the budget decrement without impacting services to local
communities to the greatest extent possible. She noted that
in FY 21 there was a request to delete 6 positions that
were currently vacant in order to align the personal
services with the divisions funding level.
Ms. Fowler addressed the reduction of $239,500 UGF in the
Division of Economic Development. In FY 20 all other fund
sources for the division were deleted. The division use to
receive funds related to vehicle rental taxes as well as
having some empty federal authority. Currently, the
Division of Economic Developments budget was $546,600. As
part of the reduction, 3 of 5 economic development
positions were deleted. The Division of Economic
Development currently had 2 positions as well as a shared
director position. She reported that the investments and
the economic development components were both housed within
the Division of Economic development. The Division of
Economic Development director position was shared between
the two.
2:27:29 PM
Ms. Fowler explained the notable changes to DCCED's FY 21
operating budget on slide 9. She explained that the Kawerak
Inc. named recipient grant was eliminated in the proposed
budget. It was a grant for federal DOT essential air
service that used to require the state to provide matching
funds. The federal government had revised its essential air
service listing and had added Diomede to that listing
negating the need for the grant. The federal government
would be paying for 100 percent of the service without any
match requirement.
Ms. Fowler continued that there was a proposal to eliminate
the economic development funding and to replace it with the
Alaska Development Team, a multi-year pilot program to
establish a 501(c)(3) or an alternative structure to
outsource economic development functions and to design a
new model for economic development in the state. The
commissioner would speak to the idea in greater detail in
the near future. She reported that there was also a
proposal to eliminate the Capstone Avionics Revolving Loan
Fund, a loan fund that would be sunsetting. As a result of
the sunset it would no longer be necessary for the
operating funds to continue in FY 21.
Representative LeBon asked Ms. Fowler to explain the
Capstone Avionics Loan Fund. He wondered how it worked. Ms.
Fowler responded that it was a loan fund for pilots to
comply with new federal requirements for their navigation
systems. Pilots had several years to upgrade their
aircrafts to comply with the new federal standards which
took effect on January 1, 2020, the same time of the
program sunset.
Representative LeBon noted that the aviation community met
the expectations of the revolving loan fund. He wondered if
providing financial assistance was no longer required. Ms.
Fowler replied that the aviation community had made some
use of the program. However, the program had not been used
heavily. The deputy director of the division reached out to
the aviation community to make sure there was no concern
with the program being allowed to sunset. Representative
LeBon commented that his interest was perked anytime he saw
the term revolving loan fund used.
Representative Josephson noted Ms. Fowler had indicated the
commissioner would go into further detail about what was
meant by outsourcing economic development functions. He was
open to hearing about the topic. However, he thought the
committee would be looking at HB 205 (the operating budget
legislation) in earnest within 2 weeks. He wanted to better
understand what she meant in terms of a timeline. Ms.
Fowler clarified she meant in a couple of slides.
Ms. Fowler continued to review the changes to the
department's FY 21 operating budget on slide 10. She
relayed that there was a proposal to reduce AGDCs
operating expenditures by $6.2 million which would result
in the deletion of 10 full-time positions and 1 non-
permanent position within AGDC. The objective of the
reduction was to align with AGDCs expectations for the
level of service necessary after the completion of Federal
Energy Regulatory Commission (FERC) licensing. There was
also a proposal to reduce PCE endowment funding in order to
align it with historic actuals. It would not have a
material impact on the program. Rather, it would reduce
excess authority in the PCE appropriation.
2:32:48 PM
Representative Carpenter asked how many positions would be
left with the reduction of 11 positions within AGDC. Ms.
Fowler responded that 9 full-time positions and 6 part-time
positions would remain with an operating budget of $3.4
million.
Co-Chair Foster clarified that the PCE Program would be
fully funded according to the formula that had existed for
many years. He explained that the earnings from the fund
would first go to pay for PCE and, the remaining funds
would go towards community assistance. If additional funds
were left over, they would fund renewable energy. He
reassured the public that there was no funding reduction to
the PCE program.
Commissioner Anderson addressed the state's economic growth
on slide 11 and slide 12. She would be discussing some of
the divisions within the department. She indicated that the
department focused many of its activities on economic
growth. The Division of Economic Development with the
investment component was a great job creator for the state.
The revolving loan funds were keeping Alaskans and Alaskan
fisheries as its permit holders and supporting
entrepreneurs throughout the state. She continued that
while talking about economic development in rural Alaska,
it was important to note that the Division of Economic
Development and the Division of Investments had
administrated dozens of loan funds over the previous 50
years. In FY 19, the loan funds created or retained 731
jobs through new loan requests, assumptions, and extensions
and had created or retained over 21,000 jobs since the
department started tracking employment beginning in FY 96.
The jobs were created from small business startups,
expansion, or diversification. There were currently active
loans in 132 communities across Alaska. The department had
9 revolving loan programs.
Representative LeBon commented that many years ago the
division engaged in direct lending to small Alaska
businesses. He asked what type of activities the department
was engaged in currently. He wondered if the state was
involved in any direct lending programs to small Alaska
businesses.
Commissioner Anderson spoke to the departments revolving
loan funds. In addition to Capstone Avionics, which would
be sunsetting, there was the bulk fuel revolving loan fund
that provided loan funds to communities within Alaska and
other entities for fuel. She noted several other funds
including the Commercial Charter Fishery Loan Fund, the
Commercial Fishing Revolving Loan Fund, the Fisheries
Enhancements Fund, the Mariculture Fund, the Alaska Micro
Loan, the Rural Development Initiative Fund, and the Small
Business Economic Development Fund.
Representative LeBon asked if any of the loan funds
required bank participation. Commissioner Anderson wanted a
lifeline.
2:37:15 PM
JIM ANDERSEN, DEPUTY DIRECTOR, DIVISION OF ECONOMIC
DEVELOPMENT, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC
DEVELOPMENT, introduced himself. He responded that all of
the loan funds had a bank denial requirement on them other
than the Rural Development Initiative Fund. The Rural
Development Initiative Fund was a direct lending program
only in rural communities with 2,500 people, in communities
connected by rail or road to Anchorage or Fairbanks with
2,500 people, or communities not connected by rail or road
to Anchorage or Fairbanks with 5,000 people.
Representative Knopp was not sure to whom he should direct
his question. He was confused about the multi-year pilot
program establishing a 501(c)(3) that was discussed
earlier. He thought the money from the Capstone project was
being funneled to the pilot program. He asked if he was
correct. He queried who was putting the program together.
He wanted additional details.
Commissioner Anderson was happy to discuss the Alaska
Development Team next. She wondered if there were any
further questions for the deputy director. Representative
Knopp asked for further information regarding the
development team and the $200 million for in-state projects
through McKinley Capital and other organizations. He
wondered if there were any interties.
Commissioner Anderson responded that the Alaska Development
Team was the economic development component of the Division
of Economic Development. The department was proposing for
the Alaska Development Team to focus on doing new business,
investing in Alaska, and working with private industries to
help grow Alaska. The funding proposal was to take money
from the Capstone Aviation Fund and use $2.8 million to
fund a 3-year pilot program for the Alaska Development Team
to pursue different opportunities and models to provide
long-term economic development through in the state. The
department was contemplating whether the pilot program
should be done through a public/private partnership with
the potential of creating a 501(c)(3) non-profit entity.
The model was being carried out in other states. One of the
things the department had started doing was benchmarking
what other states had done. She was a part of the State
Economic Executives Network, an organization of statewide
economic development professionals who were benchmarking
the current practices of other states. She wanted to find
out what the best model would be for Alaska. She
anticipated that the $2.8 million would be used for the
3-year pilot program continuing current economic
development activities and looking at what model would be
best for Alaska into the future. She would bring the
information back to the legislature for a robust
conversation. She explained that some states had a
partnership with private industry similar to the Alaska
Travel Industry Association. Her goal for the department
was to look at long-term economic development efforts.
Representative Knopp noted the commissioner's comments
about remaining politically neutral. He commented that
politics accompanied any appropriation. He asked if the
department was simply in the exploratory stages relating to
the development team. Commissioner Anderson replied that
the department was in the exploratory stages of the Alaska
Development Team. She noted a chart that showed the
department in the planning stages. The department was
currently looking at all of the possible options. She
welcomed any input from legislators.
2:43:17 PM
Co-Chair Johnston understood the department was in the
exploratory stage. She was familiar with what some other
states did such as a co-investment. She asked for
clarification as to how the department intended for
companies to move in. Commissioner Anderson explained what
she meant by co-investment. It was possible that a private
501(c)(3) organization could be funded partially by private
money and partially with state funding to provide economic
development efforts. The entity would be looking at the
different available incentive programs the state could use
to attract investment. Currently, she was talking about the
initial organization model for the delivery of economic
development programs in Alaska.
Co-Chair Johnston highlighted the Alaska Industrial
Development and Export Authority (AIDEA) and the Alaska
Housing Finance Corporation (AHFC) both doing various parts
of economic development. She also mentioned the Alaska
Regional Development Organizations (ARDORS) still being in
existence but no longer affiliated with the state without
funding. She suggested that while it was always good for
the state to be open for business and to always be looking
into further economic development, she thought the
department seemed to be in the planning stages. She asked
why the state would be looking at a 3-year pilot program
outside of the department. She thought it might be best to
do the planning and vetting in-house.
Commissioner Anderson responded that AIDEA was doing one
piece. Both of the funds the department was requesting was
to fund the team the department was proposing to continue
to work with industry to find out Alaskas competitive
advantages. The team was currently working towards such
efforts in addition to looking at a model for the future.
The reason the department was calling the project a pilot
program was because the intent was to continue with its
current economic development efforts working with all
entities at the state, federal, and local levels and to
find the best model of delivery into the future. The
department would continue on its current path while looking
for alternatives for the future.
2:47:00 PM
Co-Chair Johnston indicated there were a couple of aspects
that gave her pause. First, she noted the disfunction of
the state and the many silos within government. She
wondered how the project would not be just another silo.
She mentioned economic development within the University
and in communities. She reiterated her question about what
made the pilot project different.
Commissioner Anderson responded that what made the
particular team different was that the department was
already working with all of the entities. She talked about
working with ARDORS Program which was moved under the
Division of Community and Regional Affairs in order to have
a closer connection to knowing what was going on in all of
Alaska. It was important to her that the department was
growing the economy in all regions of Alaska. She mentioned
that the Alaska Development Team was working closely with
the Division of Community and Regional Affairs. They were
finding tools and ways to bring the whole picture of the
state into one area to maximize on what people had to
contribute. She noted working with the Department of
Natural Resources (DNR), the Department of Fish and Game
(DFG), and all of the economic agencies within the state.
She noted that one of the departments development
executives was working with the University regarding what
it could do to spur economic development. The University
was looking at the programs it provided to coalesce some
capitalization of its resources and assets to attract more
research and industry to the state. She thought the
difference of the team was that it was working to knock
down the silos by working together. She provided an example
regarding the mariculture industry. There had been
difficulties obtaining permits. The department intervened
by meeting with the taskforce and other entities to figure
out how to resolve the issue. The group was able to
streamline the process and added 2 additional positions to
move permitting forward. She also noted working closely
with AIDEA and all entities collaboratively.
Representative Josephson appreciated the commissioner's
comments. He had met with members of the mariculture
industry earlier in the day. They had indicated that they
needed additional financial help in the amount of $500,000
for their shellfish poisoning testing. They did not have
any other request. The aide would help to grow their
business.
2:51:12 PM
Representative Knopp appreciated what the commissioner and
the department were trying to do. However, he thought there
was a communication discrepancy. He mentioned that within
the budget documents he noticed that the Department of
Environmental Conservation (DEC), for example, was scaling
back its budget trying to eliminate federal mandates for
PSP testing of shellfish. Otherwise, they would not get to
move anything to market. There were about 400 seasonal
workers and 26 farms in the industry. He thought that if
Alaska was open for business, the state was going in the
wrong direction. He had had problems in communications with
DEC trying to kill the dairy program rather than trying to
incentivize it to expand and capture a larger share of the
market. He suggested that the actions of eliminating 1
position, putting a dozen people out of work, and closing 3
businesses were not helping Alaska stay open for business.
He continued that DNR had a request for about $300,000 to
add additional people to process permits for the farms
while other agencies were trying to kill the industry. He
wondered if the departments were really communicating. He
was dumbfounded as to what the state was doing.
Commissioner Anderson understood and would take the issues
Representative Knopp had mentioned back to the agencies to
see about coordinating efforts. She thought that although
the lift was heavy, it was worth pursuing.
Commissioner Anderson continued to discuss economic
development turning to slide 13. She would talk about some
of the corporations within the economic development bucket.
The Alaska Industrial Development and Export Authority
financed and developed commercial, industrial, and
infrastructure projects that created jobs and grew Alaskas
economy. One of the states stellar examples was the Red
Dog Mine infrastructure which continued to provide revenue
and was a good model for how AIDEA could invest in the
states infrastructure for future projects. She also noted
that ASMI was another successful model.
Representative LeBon asked if AIDEA had any granting
authority or just lending authority. Ms. Fowler responded
that AIDEA was not a granting entity.
Representative LeBon asked if AIDEA could only make direct
loans. He wondered if it could do participation loans with
banks. Ms. Fowler asked Representative LeBon to repeat his
question.
Representative LeBon indicated AIDEAs primary activity was
direct lending. They could initiate loans on their own.
They also had a loan participation program with Alaska
banks. Ms. Fowler responded in the affirmative.
Representative LeBon asked that between the 2 components
whether most of AIDEAs activity was participation loans
with banks. Ms. Fowler believed the answer was yes but
deferred to Mr. Boutin of AIDEA.
2:55:22 PM
TOM BOUTIN, EXECUTIVE DIRECTOR, ALASKA INDUSTRIAL
DEVELOPMENT AND EXPORT AUTHORITY, introduced himself. He
agreed with Ms. Fowler's response. He elaborated that AIDEA
did not have any grant programs. The entity had the loan
participation program where every loan was brought to AIDEA
by a bank and the bank participated. He continued that
AIDEA did up to 90 percent, both banks and credit unions.
It was a program of about $400 million, as AIDEA did a loan
about every 10 days including refinances. The program did
not own any real estate and was a very low risk program for
AIDEA, which was reflected by the interest rates. He
reported AIDEA having a number of other loan programs. It
also took equity positions. The Alaska Industrial and
Export Authority owned the Skagway Ore Terminal, the
Ketchikan Shipyard, the Federal Express Hanger, and the
DeLong Mountain Transportation Project Road and Port at Red
Dog.
Representative LeBon asked Mr. Boutin to briefly talk about
the Ambler Road Project. Mr. Boutin noted that he was happy
to provide information. He indicated at 3:30 p.m. in the
current day he was doing a presentation for the Senate
Community and Regional Affairs Committee. He relayed that
the environmental impact study (EIS) was due on March 5,
2020. The Bureau of Land Management (BLM) did the EIS on
behalf of the State of Alaska. A record of decision would
follow 30 days later. The record of decision would also
include a U.S. Army Corps. 404 Clean Water Act Permit. It
was a 200 mile, 50-year, 50-foot right-of-way which
included 10 miles across a national park. It had 12 to 13
identified mineralized properties and was a multiple of Red
Dog Mine of any measure. It would be a toll road revenue
bond exactly like the Red Dog. He had been on the AIDEA
Board at the inception of the mine. It was fairly new at
the time to use public finance to develop natural
resources. It was still something that could be seen in
Alaska more often than any other place. He wondered if the
committee had additional questions.
Representative LeBon asked about the AIDEA divided. He
thought it was a percentage of AIDEAs net profit. He
wondered if AIDEAs capital level worked into the dividend
or whether it was strictly based on AIDEAs profitability
from year-to-year.
Mr. Boutin responded that the law stated the board could
appropriate up to 50 percent of earnings. He reported that
at the December board meeting members appropriated 50
percent of earnings for 2021. He thought it equaled $14.5
million. He noted that AIDEA had not had a general fund
appropriation for operations since 1986. So far AIDEA had
given $422 million to the general fund with the upcoming
dividends bringing that to the $450 million mark. He
relayed that AIDEA was essentially a bank that took half of
its earnings and gave it to its shareholders, the people of
Alaska. It preserved its capital, lent its capital, lived
off of its own earnings, and contributed to the general
fund each year.
Representative LeBon asked for AIDEA's capital level. Mr.
Boutin responded that AIDEAs capital that corresponded to
a commercial bank presently was just over $400 million.
Representative LeBon commented, Pretty healthy.
Co-Chair Foster clarified the amount for the dividend which
was reflected on the slide at $14.5 million. Mr. Boutin had
mentioned it was about half. He asked if it was up to half.
He wondered if there was a minimum and a maximum. Mr.
Boutin believed there was a minimum but was hard-pressed to
say. However, there was a range and, most often the board
approved the total - the cap which was 50 percent.
Co-Chair Foster asked if the full cap of 50 percent had
been reached in the current year. Mr. Boutin responded in
the affirmative. Co-Chair Foster thought the cap had been
25 percent in the prior year. He was not sure.
3:00:20 PM
Representative Josephson mentioned that in the previous
year the administration sought to take some of AIDEAs
receipts to help balance the budget. The legislature
contemplated doing so as well. He asked Mr. Boutin to
comment.
Mr. Boutin responded that part of the administration
proposed using $254 million of AIDEAs capital. He thought
AIDEA would be a much different organization if $254
million was taken from its purse of $400 million. The money
would have funded oil tax credits. The administration
decided not to use the $254 million after a brief
conversation. There were a couple of smaller appropriations
taken from AIDEA funds, one of which was vetoed and another
was not. The amount was $2 million. As a result of the $2
million appropriation, Moodys downgraded AIDEA 2 full
notches. Returning to the topic of the Ambler Road Project,
AIDEAs longtime financial firm estimated that the
downgrade would cost the Ambler Road Project financing $25
million. The appropriation of $2 million would cost Alaska
$25 million. Moodys had been looking at AIDEA for a 2-year
period without a specific date when they would release
their rating. Moodys had expressed concerns with AIDEA no
longer being as independent as it had been over the
decades. Moodys worried that AIDEA had a different
relationship than they had been rating. Standard and Poors
had also been looking at AIDEA for about the same length of
time. He reported that AIDEA approached Standard and Poors
and asked whether they would withdraw the rating and
discontinue the rating review if AIDEA defeased its debt.
Standard and Poors agreed to AIDEAs request. He explained
that AIDEA currently had no credit rating because of the $2
million appropriation from the previous year.
3:04:01 PM
Representative Carpenter thought that the Alaska
Development Team had a similar purpose to AIDEA. He asked
how it was different. Mr. Boutin responded that the
commissioner of DCCED was on the board and most of the team
members reported to her. He continued that AIDEA was a
financing organization. The development team brought
financing questions and ideas to AIDEA. The team also
brought some private financing to a road project in West
Susitna. They brought participation money in combination
with money from the Mat-Su Borough and the state. The
Alaska Industrial Development Authority worked very closely
together with the team. He noted that the Department of
Revenue had a seat on the AIDEA Board and was part of the
development team. Some of AIDEAs equity ownership
positions had challenges and the team had been helping
AIDEA to look at alternatives. He was not concerned with
redundancy or tripping over each other.
Commissioner Anderson added that they were two different
activities: economic development versus financing. She
concurred that the entities worked closely together. The
mission of DCCED and growing the economy was different from
the mission of AIDEA. She noted the importance of AIDEA
similar to Alaska Housing Finance Corporation and other
agencies in the state.
Mr. Boutin added that 5 of the AIDEA board members were
from the private sector. He thought having 5 business
people on the board provided an anchor in the reality of
private sector commerce.
Co-Chair Johnston noted that there was a contract between
AIDEA and the development team. She thanked Mr. Boutin for
telling the story of AIDEA receipts being used to balance
the budget. Co-Chair Johnston asked Mr. Boutin to comment
on AIDEA's equity participation. She wondered what the
average was of AIDEAs equity participation.
Mr. Boutin did not know how meaningful the information was.
He indicated AIDEA had the equity position in Ketchikan at
the direction of the legislature. He reported that AIDEA
carried it on the books in the amount of about $72 million.
A fair market value was just a few million dollars. He
elaborated that it was to provide jobs for Ketchikan and
was created in the wake of the closure of Ketchikan Pulp, a
600 ton per-day pulp mill and associated saw mills.
Co-Chair Johnston admitted her question was somewhat unfair
because she was aware of the historic equity positions of
AIDEA. She was trying to tie the knot between the economic
team and AIDEA and the discussion of P3s and other tools.
She hoped AIDEA was looking to take a lesser equity
position in many of its projects so that its resources
could be used more broadly without much exposure.
3:08:38 PM
Mr. Boutin responded that AIDEA would be using toll road
revenue bonds for the Ambler Road Project very similar to
Red Dog. The Federal Express Hanger was the result of
financing advise Federal Express preferred a decision
based on depreciation details. He noted that the Skagway
Ore Terminal was a project that came to AIDEA with a
special story. He noted that ore was currently being
shipped into Skagway again. Each equity position had its
own story. In most cases, the market value was much
different than the book value. Alaska Industrial
Development and Export Authority would not normally look at
an equity position in any kind of investment. AIDEA was
best in a certain space in lending and getting in and out
in a short period of time. He continued that AIDEA was best
recalibrating the risk in a way that a commercial bank was
reluctant to do.
Co-Chair Johnston commented that the shining star had
always been the Red Dog Mine. She appreciated Mr. Boutins
intent. Mr. Boutin reported that the Red Dog Mine paid the
Northwest Arctic Borough $18 million in FY 18.
Vice-Chair Ortiz referred to the dividend line of $14.5
million, an increase of $4 million. He asked if the figure
was a record amount. He queried the basis for the
significant increase of $4 million. Mr. Boutin was unsure
if the sum was a record amount. It was a dark period when
AIDEA had the $2 million appropriation which resulted in a
2-notch downgrade. The agency would like to return to the
model where AIDEA could assure the credit rating agencies
that it was an independent state agency.
Vice-Chair Ortiz asked if the $4 million was an arbitrary
figure. Mr. Boutin could not accurately answer the
question, as he was not in his current position at the
time.
Representative LeBon noted that AIDEA had an internal
lending limit for business loans in participation with
banks. His understanding was that AIDEAs cash position and
capital position were so strong that it could make its
participation loans without having to go to the bond
market. He asked if it was true.
Mr. Boutin confirmed that it was true. He indicated that
AIDEA was in the bond market frequently. The organization
would be in the bond market in a couple of weeks. He
thought that the present day was the date of the Interior
Gas Utilities (IGU) board meeting at which members would
approve up to $78 million worth of bonds. The Alaska
Industrial Development Export Authority would be having its
th
next board meeting on March 4 at which time the $78
million would be approved. The organization would be in the
bond market for the IGU within just a few weeks. He
reported that recently the authority had done a
significantly large bond issue for Tanana Chiefs and
another more recently for Fairbanks Memorial Hospital.
Alaska Industrial Development and Export Authority was
actually in the bond market almost continually. However,
AIDEA did not access the private bond markets for the loan
participation program in which every loan had to be brought
to AIDEA by an Alaska bank or credit union.
3:14:06 PM
Representative Wool asked about the $2 million
appropriation to the Kotzebue School District which
attributed to the credit rating downgrade. As a result, the
Ambler Road Project would cost an additional $25 million.
He asked if he was correct. Mr. Boutin answered in the
affirmative. He relayed that over the life of the debt the
estimated interest cost would be an additional $25 million
because of the 2-notch downgrade. It was a surprise to the
organization.
Representative Wool asked if there was a way to dispose of
the downgrade. He clarified that AIDEA would go to the bond
market for the Ambler Road Project and the rating would
affect the payback. Mr. Boutin responded, Thats exactly
right. He supposed that if the $2 million was returned to
AIDEA, the organization would approach Moodys to see if
the downgrade could be reversed. However, realistically,
Alaska had to start rebuilding with the rating agencies.
Representative Wool understood in some situations AIDEA
partnered with a bank making a loan. In other situations,
AIDEA went to the bond market, such as for Fairbanks
Memorial Hospital. He assumed that AIDEA did not use its
own money, rather, it used its borrowing capability to bond
on behalf of Fairbanks Memorial Hospital.
Mr. Boutin had not talked about AIDEA's direct loan
programs. For instance, AIDEA created a direct loan program
in 2019 to assist Alaska shipyards to compete in Seattle
and especially in Canada because of exchange rates. He
explained that when a ship was repaired or rebuilt in an
Alaska shipyard and, the shipyard and client agreed that
there were no change orders, AIDEA would buy the invoice.
It was a way of lending to a ship owner. He indicated that
AIDEA had been doing such transactions for Seward and
Ketchikan Shipyards, although it could be done in any
Alaska shipyard. The money was lent directly from AIDEAs
capital, a direct loan not financed with bonds.
Representative Wool asked if something like AIDEAs direct
loan program might help stimulate business at the Ketchikan
shipyard. If he were a boat owner getting his vessel
repaired, he could finance the work done at the shipyard
through AIDEA. Mr. Boutin indicated that the program was
designed for the Ketchikan Shipyard but was not limited to
Ketchikan. It was a way of enticing people to stay in the
state for repairs.
3:17:54 PM
Representative Wool relayed that sometimes when AIDEA came
up in conversation, AIDEA did not make money with the
exception of the Red Dog Mine. He was unsure it the
information was accurate. He was also uncertain if it was
AIDEAs goal to make money. He understood that the
organization did not want to be in an equity position. He
mentioned some projects that had not been successful
including the Healy Coal Mine. He did not think AIDEA was
focused on putting up a bunch of money on projects that
would not hold their market value of their investment. He
queried AIDEAs focus.
Mr. Boutin responded that the Healy Clean Coal was given to
AIDEA to sell. He happened to be on the board at the time.
Sometimes administrations brought AIDEA fish plants. He had
been on the board when Governor Hickel instructed AIDEA to
purchase three Mark Air Hangers. Sometimes AIDEA was drawn
into projects at the end. At the same time, nothing in the
statutes directed AIDEA to look at return on investment. It
was entirely focused on jobs and economic development. He
had mentioned earlier that AIDEA had not had a general fund
appropriation since 1986. He furthered that AIDEA lived off
its income and gave half of it to the state. The
organization was keenly interested in its projects not
losing money, otherwise it would evaporate. He noted that
not even the prudent investor rule was part of the statutes
related to AIDEA. He reiterated that AIDEA lived off of its
earnings. Even the low-interest loan programs made money.
The loan participation program was based on the Federal
Home Loan Bank of Des Moines interest rate plus 38 base
points for AIDEAs costs. It provided a rate of return that
helped the organizations bottom line.
Representative Knopp commented that the committee was
getting off track.
Co-Chair Foster indicated that the House Finance Chairs
would be leaving at 3:30 PM and, Vice-Chair Ortiz would be
chairing the meeting.
3:22:05 PM
Commissioner Anderson continued to slide 14 and slide 15 to
discuss the Division of Community and Regional Affairs. The
division had experienced the greatest restructuring within
the department. The division experienced a reduction of $1
million and had taken the challenge of managing the
workload and meeting its constitutional and statutory
requirements. The division had restructured its service
delivery model for local government services. It
implemented a resource desk in which communities had direct
access to local government specialists to assist them when
needed. The divisions community linkage and focus had led
to moving the reporting requirements previously housed
within the Division of Economic Development such as the
Made in Alaska Program, the Forest Products Program, and
the ARDOR Program to the Division of Community and Regional
Affairs. The Division was working to provided local
government support as well as support to local communities.
The division also worked closely with the Alaska
Development Team to increase the awareness of the
competitive advantages of the different regions within
Alaska. She wanted to make sure that as the state grew the
economy the benefits went to all residents of Alaska.
Commissioner Anderson continued to slide 16 to address
Serve Alaska and revenue sharing. She relayed that Serve
Alaska was a program that leveraged $1.8 million in federal
funds that were sub-granted through the agency. The agency
managed the AmeriCorps Programs and served as the
designated state service agency for the program. The
program provided several volunteers throughout Alaska.
Additionally, the Division of Community and Regional
Affairs administered revenue sharing for fisheries taxes,
national forest receipts, the payment of lieu of taxes
program, and the community assistance program.
Commissioner Anderson advanced to the divisions listed on
slide 17 and slide 18: the Alaska Energy Authority (AEA)
and the Alaska Gasline Development Corporation (AGDC). She
relayed that their mission was to reduce the cost of energy
within Alaska. The Alaska Energy Authority owned Bradley
Lake Hydroelectric Project out of Homer as well as the
Alaska Intertie Project. The Alaska Energy Authority was
considered the states energy office and was the lead
agency for statewide energy policy and program development.
The department was working with AEA to clarify the use of
renewable resources in the funding formula for the PCE
Program. It had been an item of considerable interest to
different communities.
Commissioner Anderson noted the Alaska Gasline Development
had been touched on briefly. She noted that the final EIS
was due in 2020 and, the record of decision should follow
shortly thereafter.
Commissioner Anderson discussed consumer protection on
slide 19. She relayed that the consumer protection agencies
included: Corporations, Business, and Professional
Licensing; the Division of Insurance; the Division of
Banking and Securities; the Alcohol and Marijuana Control
Office; the Alaska Oil and Gas Conservation Commission; and
the Regulatory Commission of Alaska.
Commissioner Anderson moved to slide 20. She relayed that
within the Division of Corporations, Business, and
Professional Licensing professional licensure was
administered by boards with departmental support for 21
programs. The remaining 22 programs were administered
solely by the division. The division also managed
registration for corporations, business licenses, and
tobacco endorsements. Over the past several years the
division had been working closely with information
technology to launch online licensure to allow professional
licensees to apply, renew, and check their status online.
Commissioner Anderson continued to the Division of
Insurance. She conveyed that the division was responsible
for licensing and the compliance of insurers and insurance
products throughout Alaska. The division worked closely
with other entities to ensure that credible agencies were
doing work within Alaska. The division was very successful
in brining another health insurer into the state, Moda. She
gave kudos to the director, Lori Wing-Heier.
3:27:25 PM
Commissioner Anderson turned to slide 21 to review the
Division of Banking and Securities duties which included
regulating the states depository and non-depository
financial institutions, administering and enforcing
Alaskas financial services laws, providing information to
consumers, investors, and entrepreneurs in the financial
industry. The division included three sections that
administered 12 statutory programs. In addition to
licensing examination and enforcement duties, division
staff answered inquiries, investigated and resolved
complaints, and contributed to education and outreach.
Commissioner Anderson reviewed the duties of the Alcohol
and Marijuana Control Office. The office was responsible
for enforcing alcohol and marijuana commerce laws. The
office served both the Alcohol and Marijuana Control
boards. Both were quasi-judicial agencies responsible for
the regulation of legal sales of alcohol or Marijuana in
Alaska. In FY 21 the Marijuana Control Boards programs
were 100 percent DGF funding.
Commissioner Anderson continued to slide 22. She reported
that the Alaska Oil and Gas Conservation Commission was an
independent quasi-judicial agency of the State of Alaska
and it was established under the Alaska Oil and Gas
Conservation Act. The commission oversaw oil and gas
drilling development, production, reservoir depletion,
metering operations, and all lands subject to the states
police powers. The commission acted to prevent waste,
protect correlative rights, improve ultimate recovery, and
protect underground fresh water. It administered the
underground injection control program for enhanced oil
recovery, and underground disposal of oil-filed waste in
Alaska. It served in a judiciary form for resolving certain
oil and gas disputes between owners including the state.
The commission carried forth statutory mandates consistent
with the protection of health, safety, and the environment.
It strived for cooperation with industry while maintaining
well defined and essential regulatory requirements.
Commissioner Anderson discussed the Regulatory Commission
of Alaska. The commission had broad authority to regulate
utilities and pipeline carriers throughout the state. The
commission monitored active certificates for public
utilities and pipelines. The certificates covered a broad
range of activities including provisional certificates for
small village water and waste water systems, fully
regulated telecommunications, and electric and gas
monopolies. She concluded the department's presentation.
Vice-Chair Ortiz thanked the Commissioner and reviewed the
agenda for the following meeting.
HB 205 was HEARD and HELD in committee for further
consideration.
HB 206 was HEARD and HELD in committee for further
consideration.
ADJOURNMENT
3:30:48 PM
The meeting was adjourned at 3:30 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| DCCED House Finance Overview 2.11.20.pdf |
HFIN 2/11/2020 1:30:00 PM |
|
| LAW FY21 Full-HFIN_Budget Presentation_2-11-20.pdf |
HFIN 2/11/2020 1:30:00 PM |
LAW Overview HFIN |