Legislature(1995 - 1996)
03/13/1996 03:16 PM House L&C
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
March 13, 1996
3:16 p.m.
MEMBERS PRESENT
Representative Pete Kott, Chairman
Representative Norman Rokeberg, Vice Chairman
Representative Beverly Masek
Representative Jerry Sanders
Representative Brian Porter
Representative Kim Elton
Representative Gene Kubina
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
*HOUSE BILL NO. 510
"An Act relating to occupational licensing fees and regulatory
costs for occupational licensing functions; and providing for an
effective date."
- HEARD AND HELD
*HOUSE BILL NO. 524
"An Act relating to insurance pooling."
- HEARD AND HELD
*HOUSE BILL NO. 526
"An Act relating to the financing authority, programs, operations,
and projects of the Alaska Industrial Development and Export
Authority; providing an exemption from the procurement code for
certain projects of the authority; and providing for an effective
date."
- PASSED HB 526(L&C) OUT OF COMMITTEE
*HOUSE BILL NO. 448
"An Act relating to eligibility for unemployment compensation
benefits."
- SCHEDULED BUT NOT HEARD
(* First public hearing)
PREVIOUS ACTION
BILL: HB 510
SHORT TITLE: ENFORCEMNT COST SURCHARGE ON OCC LICENSES
SPONSOR(S): REPRESENTATIVE(S) DAVIES, B.Davis
JRN-DATE JRN-PG ACTION
02/12/96 2728 (H) READ THE FIRST TIME - REFERRAL(S)
02/12/96 2728 (H) L&C, STATE AFFAIRS, FINANCE
02/21/96 2847 (H) COSPONSOR(S): B.DAVIS
03/13/96 (H) L&C AT 3:00 PM CAPITOL 17
BILL: HB 524
SHORT TITLE: INSURANCE POOLING BY EMPLOYER ASS'N.
SPONSOR(S): LABOR & COMMERCE BY REQUEST
JRN-DATE JRN-PG ACTION
02/21/96 2834 (H) READ THE FIRST TIME - REFERRAL(S)
02/21/96 2834 (H) LABOR & COMMERCE, FINANCE
03/13/96 (H) L&C AT 3:00 PM CAPITOL 17
BILL: HB 526
SHORT TITLE: AIDEA OPERATIONS/PROJECTS/LOANS
SPONSOR(S): LABOR & COMMERCE
JRN-DATE JRN-PG ACTION
02/22/96 2854 (H) READ THE FIRST TIME - REFERRAL(S)
02/22/96 2855 (H) LABOR & COMMERCE, FINANCE
03/08/96 (H) L&C AT 3:00 PM CAPITOL 17
03/08/96 (H) MINUTE(L&C)
03/13/96 (H) L&C AT 3:00 PM CAPITOL 17
WITNESS REGISTER
SHANNON MCCARTHY, Administrative Assistant
to Representative John Davies
Alaska State Legislature
Capitol Building, Room 422
Juneau, Alaska 99801
Telephone: (907) 465-4457
POSITION STATEMENT: Gave sponsor statement for HB 510.
CATHERINE REARDON, Director
Central Office
Division of Occupational Licensing
Department of Commerce and
Economic Development
P.O. Box 110806
Juneau, Alaska 99811-0806
Telephone: (907) 465-2534
POSITION STATEMENT: Testified in support of HB 510.
WILLIAM MENDENHALL
1907 Yankovich Road
Fairbanks, Alaska 99701
Telephone: (907) 479-2786
POSITION STATEMENT: Testified against HB 510.
GEORGE DOZIER, Committee Aid
House Labor and Commerce Committee
Alaska State Legislature
Capital Building, Room 432
Telephone: (907) 465-6603
POSITION STATEMENT: Explained HB 524 and HB 526.
MARIANNE BURKE, Director
Division of Insurance
Department of Commerce and
Economic Development
P.O. Box 110805
Juneau, Alaska 99811-0805
POSITION STATEMENT: Testified in opposition to HB 524.
PAUL GROSSI, Director
Division of Workers' Compensation
Department of Labor
P.O. Box 25512
Juneau, Alaska 99801-5512
Telephone: (907) 465-2790
POSITION STATEMENT: Testified on HB 524.
ROBIN WARD
Alaska State Home Builders' Association
P.O. Box 91443
Anchorage, Alaska 99509
Telephone: (907) 345-1076
POSITION STATEMENT: Testified on HB 524.
RON PRICE
Interior Builders' Association
State Alaska Home Builders' Association
520 Seventh Avenue
Fairbanks, Alaska 99701
Telephone: (907) 455-6650
POSITION STATEMENT: Testified in support of HB 524.
RILEY SNELL, Executive Director
Alaska Industrial Development and Export Authority
Department of Commerce and Economic Development
480 West Tudor Road
Anchorage, Alaska 99503-6690
Telephone: (907) 269-300
POSITION STATEMENT: Testified on HB 526.
ACTION NARRATIVE
TAPE 96-21, SIDE A
Number 001
The House Labor and Commerce Standing Committee was called to order
by Chairman Pete Kott at 3:16 p.m. Members present at the call to
order were Representatives Elton, Masek, Rokeberg and Kott.
HB 510 - ENFORCEMNT COST SURCHARGE ON OCC LICENSES
CHAIRMAN PETE KOTT announced the first order of business the
committee would address would be HB 510, "An Act relating to
occupational licensing fees and regulatory costs for occupational
licensing functions; and providing for an effective date,"
sponsored by Representative Davies.
Number 084
SHANNON MCCARTHY, Administrative Assistant to Representative John
Davies, Alaska State Legislature, explained Representative Davies
introduced the bill after hearing testimony from the Department of
Commerce and Economic Development in their budget overview. She
explained the Division of Occupational Licensing is required to
charge each occupation with the actual cost of regulating that
profession. The difficulty comes when there are legal and
enforcement costs when a professional operates outside of
professional standards. That becomes a problem and then the next
year, when those legal costs are then charged to the professionals,
it can cause wild fluctuations of licensing fees. Ms. McCarthy
said there is a particular concern with midwives. There are only
18 midwives and if they have to discipline a member of their own,
they are charged those fees the next year. In some cases it is
pricing people out of business.
MS. MCCARTHY explained each occupation has these fluctuations. It
is not just that one consistently has legal costs. They fluctuate
up and down. Another concern Representative Davies has is that
professionals may be reluctant to turn in another professional
because of the increase in fees the next year. She explained the
bill prorates all enforcement costs over all licenses with the
exception of business licenses. It will stabilize fees from year
to year so professionals can rely on what they will have to pay
each year.
CATHERINE REARDON, Director, Central Office, Division of
Occupational Licensing, Department of Commerce and Economic
Development, testified in support of HB 510. She said there are
difficulties with the way the cost allocations are currently
working. The entire division operates off of license fees -
general fund program receipts. The statute requires the division
to charge each occupation so that it will cover all of its
regulatory costs and those regulatory costs include investigations,
legal fees, hearing fees and court costs as well as the regulator
licensing activities. She explained they have been having trouble
as enforcement costs are unpredictable, particularly in the smaller
board areas. If there under 300 licensees, one year there will be
a very expensive disciplinary case that can cost $20,000 to
$50,000, and then it will be five years before you'll have another
one. It puts the division in a situation of having to raise the
fees to a level that the board area will generate $50,000 extra
every year but only need it one out of five years, or else put
their license fees at a level where they never budget for that
expensive disciplinary case in which they under-collect. She
handed out information that gave the committee an example in
relation to Psychologists. The amount of money the division was
spending on psychology ran around $40,000 for three of the fiscal
years and then in fiscal year 94, it was $82,000. That increase
was the result of one very expensive case. Ms. Reardon said HB 510
would allow her to spread enforcement costs, per capita, amongst
all 33,000 licensees. Therefore, it would be predictable as to how
much should be included in the fee. She said fees from profession
to profession would be more similar.
MS. REARDON referred to the larger licensing areas where they have
3,000 or 4,000 licensees, you don't see the fluctuations so much
because there is a big enough group that you get 20 or 30
complaints every year. It averages out. In the smaller areas, it
has been causing problems. Ms. Reardon said another thing she has
seen is the reluctance to discipline. In the case of the
Psychology Board, there was a license denial of someone who had
serious problems in another state. The division investigated this
person and then denied the license. The person challenged it and
it went to a hearing. The person continued to repeatedly challenge
the denial of the license. Ms. Reardon said she was told by the
Psychology Board when she increased their fees to $700 for two
years that if they had known it would have cost as much as it did,
they wouldn't have denied the license. She said that is a
realistic thing for them to be thinking about, but it is not
necessarily a good thing for people to be thinking about as
decisions are made about whether they should protect public health
and safety.
Number 560
CHAIRMAN KOTT questioned how many licenses are currently issued by
the department.
MS. REARDON said there are approximately 34,000. She noted half of
them renew each year. The licenses are all two year licenses.
CHAIRMAN KOTT asked Ms. Reardon if she has numbers regarding one
end of the spectrum to the other as far as what is currently being
paid.
MS. REARDON gave the committee members a booklet which lists every
fee the division charges. She said there are 34 licensing areas
which are either boards like the medical board or groupings of
licensees where there isn't a board. She continued to discuss the
information she gave the committee in relation to architects,
engineers and land surveyors to midwives.
Number 705
CHAIRMAN KOTT inquired if the bill would have been in law, what the
average board fee would have been.
MS. REARDON referred to fiscal year 95 and said they believe it
would be between $35 and $40 per licensee, per year. It would cost
$80 for a biannual license. She noted all of the licenses already
include some enforcement costs. It wouldn't be an addition $80 on
all of them. Some of the costs would go down and some would go up.
She indicated the fees that would go up would be the ones in the
large board areas like engineers where there are 5,000 licensees.
She said she would expect them to go up in minor amounts, yet per
capita. The ones that would go down, in general, would be in the
areas where there fewer than 250 licensees.
CHAIRMAN KOTT noted Representatives Porter, Sanders and Kubina were
in attendance.
Number 797
REPRESENTATIVE GENE KUBINA questioned why there is a two year time
period.
MS. REARDON explained that in their statute they currently have
biannual licenses. That was a move from one year licenses. It was
motivated to try and hold down administrative costs. She said it
would take a change in the law and two isn't necessarily a magic
number. She said you wouldn't want to have it too high because
renewal where they prove continuing education. Ms. Reardon said
maybe increasing the length of some of the licenses would be a good
way to go.
Number 915
REPRESENTATIVE NORMAN ROKEBERG asked Ms. Reardon if she has
discussed the concept of the bill with any of the licensee
registrants.
MS. REARDON said she spoke with three boards, but have not notified
all of the boards. She said she believes she would get a slightly
mixed response because there will be some people whose fees will be
going up a little bit.
MS. REARDON clarified between $35 and $40 per licensee per year
would be spent on enforcement activities. So a two year license
would be approximately $70 or $80.
CHAIRMAN KOTT questioned if the maximum increase would be $70.
MS. REARDON said if it were possible that there was an area where
no investigative or legal resources were being expended, then they
would see that entire increase. However, in every board area there
are some legal and enforcement costs are already built into their
budget.
Number 1063
REPRESENTATIVE KIM ELTON asked Ms. Reardon how she will determine
the base from which she will do the increment for the different
licensees.
MS. REARDON explained that enforcement costs are directly tracked
costs. She said they can actually tell how much money was spent on
legal fees within the contractual services line item for
psychologists in fiscal year 95. She indicated when she came to
project what their costs will be for the next two years, she would
back out all those costs and say it's going to $80 per person.
REPRESENTATIVE ELTON referred to midwives and said for fiscal year
93 the fee was $350 and in fiscal year 95 it was $850. He asked
Ms. Reardon how she determines the base for midwives.
MS. REARDON said she really wouldn't determine a base. She said
what she would do is every two years before they renew, she would
go through the process of projecting what their costs are going to
be for the next two years. She would look at the two most recent
fiscal years, fiscal years 95-96, and then back out the
investigative costs and that would be the base.
REPRESENTATIVE ELTON referred to determining the enforcement costs
of the pool, the pool is all the licensees, and said they would
periodically assess the costs, then prorate those costs to each of
the different licensees.
MS. REARDON indicated she would say $1.2 million a year. She said
she would divide it out by the $33,000 or $34,000 per person.
Number 1223
REPRESENTATIVE ROKEBERG said there are 22,088 nurse aids paying $55
biennium and there is 90 marine pilots paying $3,200. He
questioned what the math is.
MS. REARDON explained two things are going on with the marine
pilots. One is there are 80 marine pilots and some agents. There
are under 100 of them. She explained they have a marine pilot
coordinator, a range 20 position, because you're basically
regulating an industry. It has been determined through the budget
and statute that they need a coordinator. They have higher
personal services costs. Most of the other boards run off a range
12 licensing examiner and that is part of the difference. Ms.
Reardon explained the other is that marine pilots have extremely
high legal costs because every time a boat hits the rocks, the
hearing, court and the appeal goes on because of the millions of
dollars that are at stake over the result.
REPRESENTATIVE ROKEBERG asked what the difference in cost be for
the marine pilots and nurse aids.
MS. REARDON explained the marine pilot's fees would go down to
around $900. She indicated the last time the division looked at
marine pilot license fees two years ago, $800 of their $3,200 for
their staff and licensing functions. She noted those figures were
off the top of her head. Ms. Reardon said it is possible that the
marine pilots being such an unusual situation, it might need to be
dealt with. They are a very unusual case within the division
because of the very large legal costs they incur.
MS. REARDON referred to nurse aids and said most of their money
comes in a RSA from HESS. It is a federal program.
REPRESENTATIVE ROKEBERG reiterated the same question only with
nurses.
MS. REARDON indicated she doesn't know the answer because she isn't
sure how much of that is currently enforcement. She noted she is
currently reviewing their fees and is proposing to reduce them.
Number 1510
REPRESENTATIVE KUBINA referred to barbers or hairdressers and said
their fee would probably go up because it is currently low. By
their fee increase, they would sort of be subsidizing the marine
pilots.
MS. REARDON said there is obviously a policy issue. She noted
because marine pilots earn a lot of money, they are in the least
sympathetic situation. She said maybe they should be dealt with
separately from everyone else. The policy issue is everyone paying
for themselves. That seems fair, but the downside of everyone
paying their own costs is the fluctuations and professions
boomeranging every two years, and some of them depending on how
they're hit by a once every couple of years expensive case. She
said the other argument is their fee would be covering the cost of
having an investigative unit there for when they need it. It is an
issue where there are two ways of looking at it and charging fees
for services is never fun.
REPRESENTATIVE ELTON said this isn't an unusual concept because
that is how the division allocates the administrative costs that
have to be paid to the commissioner of Administration. Everybody
is kind of assessed the same amount to pay for administrative
overhead that they get from the Division of Administration,
Department of Commerce.
MS. REARDON explained they have what is called administrative
indirect costs. She referred to her salary and said she may be
spending a whole lot more time on guide licensing this year, but
she doesn't actually bill her salary hourly depending on which
program she worked on. Ms. Reardon said she is a "per capita
spread Admin indirect cost." She said the same is for the
receptionists, the budget person, the bookkeepers, because there
comes a point when it isn't worth the cost of people tracking on
their time sheets that closely for some of those positions. She
said they do have an addition of per capita spread of some costs
and others they try to directly allocate such as licensing
examiners and travel, etc.
Number 1532
CHAIRMAN KOTT said in reviewing the information Ms. Reardon
distributed, it seems some of the professions he would call
wealthier professions could probably absorb a greater amount of the
enforcement dollars whereas barbers, hairdressers and some of the
professions on the other end which are what he wouldn't say
"wealthy professions" would then be penalized and their enforcement
dollars would be increased to cover the more wealthier professions.
MS. REARDON said, "I think it actually breaks a little bit, less
predictably than that. For example, engineers and architects -
fairly highly compensated probably. They're a big board area,
5,000 licensees, they would probably see an increase as a result of
this. So I think the effect would depend on how many licensees you
have more than anything."
Number 1590
REPRESENTATIVE KUBINA questioned whether it would be fair to go
back and do a ten year average. That way they'd be hitting the
people that are costing more.
MS. REARDON said the difficulty is that the division needs to get
money appropriated every year and they have to spend it every year.
She said there would be a designated fund if they just kept all the
money. Even though they could set the fee by averaging over ten
years, that won't necessarily generate enough money to carry out
her functions the next year unless all fees were going into a pot
of money that always did go forward. Ms. Reardon also pointed out
that accounting systems change. She said fiscal year 93 was when
the division needed to be self sufficient. Before that they were
receiving general funds for enforcement. That then increased the
costs that needed to be spread. In fiscal year 94 and 95, they
started accounting for things on time sheets. Before then they
were just predicting what percentage of time you think you spend on
what and the bigger board areas were subsidizing the little ones
that way. They then went to time sheets. So, they've been getting
more and more specific but it means that a cost in fiscal year 96
is not necessarily determined the same way that it would have been
in fiscal year 91.
Number 1702
WILLIAM MENDENHALL was next to testify via teleconference from
Fairbanks. He noted he is a member of the Board of Architects,
Engineers and Land Surveyors but isn't testifying on their behalf.
He said that board is one of the larger boards with approximately
5,000 people. As indicated, their fees are going to go up again.
He said it is awfully easy to say, "Oh, lets just divide everything
by the number of people involved regardless of whether we have
enforcement costs that goes to that board." Mr. Mendenhall said if
the licenses go up $70 per biennium, this is one of the reasons why
the board has asked for legislation to make this semi-autonomous.
He said they would like to get out from the Division of
Occupational Licensing. He said whoever suggested there be a ten
year averaging to find out what the actual costs and assign those
to the boards is a good idea. Mr. Mendenhall said if somebody hits
a rock, why should everyone else pay. He said he is testify
against HB 510 and would suggest some kind of ten year averaging to
try to determine a reasonable cost for the enforcement process. He
thanked the committee for listening to him.
Number 1811
There being no further testimony on HB 510, CHAIRMAN KOTT closed
public testimony. He said it is not his intent to move the bill.
He referred to some of the ideas suggested such as carving out an
exemption, removing some of the high-end cost occupations from the
bill and looking at a longer average perspective and said some of
those ideas may be in order. Chairman Kott said the bill would be
held over in order to work with the department to reach a
conclusion.
HB 524 - INSURANCE POOLING BY EMPLOYER ASS'N.
Number 1856
CHAIRMAN KOTT announced the next order of business would be HB 524,
"An Act relating to insurance pooling."
GEORGE DOZIER, Committee Aid, House Labor and Commerce Committee,
explained HB 524 would permit employer associations to form joint
insurance arrangements (JIA). The purpose of the JIAs is to permit
a greater number of individuals to collectively assume risk and/or
to purchase group coverage. Mr. Dozier explained the bill defines
an "employer association" as consisting of at least five employers
who are in the same or similar business. Each employer association
would have to be in existence at least five years. Pursuant to the
bill, any type of insurance could be purchased except for four
types. Those are disability, health, life and title insurance. If
a JIA is formed, it would not be subject to regulation under Title
21, but the JIA would have to file an annual report with
Legislative Audit.
Number 1930
MARIANNE BURKE, Director, Division of Insurance, Department of
Commerce and Economic Development, was next to testify on HB 524.
She indicated the division is against the bill and their concern is
one of solvency. The division, by statute, is precluded from
oversight of the JIAs. They have no way of assuring that they have
adequate reserves and surplus to meet their claims as they come
due, and that their claimants are treated in a fair,
nondiscriminatory way and that if their claimants have problems,
the division doesn't have a statutory authority to assist them in
resolving these problems.
MS. BURKE said the solvency issue is their primary concern. She
said the one JIA currently in the state has not ran into any
problems with solvency. She believes this is due to a combination
of good management and good luck. They have not reached a
situation where they have had to make assessments against their
members to cover catastrophic occurrences. However, if they do
reach that situation, they all have a taxing base; they can raise
additional monies.
An unidentified speaker questioned who "they" is.
MS. BURKE answered municipalities, governmental entities. She said
they can raise additional funds. She referred to the group that is
considered in the bill and said if they ran into a catastrophic
situation where they had claims that were in excess of whatever
reserves they had set aside, assuming they had set aside reserves,
they could easily face an assessment that would exceed their
available assets. In that case there would be no money to pay the
(indisc.) and there is no safety net because they are not protected
by guarantee funds. There have some been some very notable
successes with JIAs, again it was because of a combination of
really good management and good fortune. On the other side of the
coin, there have been some very notable disasters. Ms. Burke said
in preparation for her testimony, the division did query other
states to see what their experience has been. There was one that
was a group of small businesses. They consisted of the "mom and
pop" type business that joined into a JIA arrangement in Florida in
January, 1991. By May, 1995, they had a $4 million deficit. There
was legislation enacted in Florida to give their department the
authority to oversee them and to insist on solvency. Currently,
their deficit is at $20 million and growing. On the other extreme,
there is a hospital association that also joined together to form
a JIA. They have been taken over by the Department of Insurance in
Florida because they are insolvent. The only way the department
has of trying to assist them in raising money to pay the legitimate
claims of these people who are relying on this association is to
consider assessing every hospital in the state for a pro rata
share. Ms. Burke said the feedback they've gotten is that's not
very popular down there.
MS. BURKE pointed out insurance companies can become insolvent and
that happens, but at least we minimize that risk by insisting that
they have adequate reserves, that they adhere to a set of statutes
as far as nondiscrimination is concerned, as far as claims
handling, and that they all play by the rules. If they still go
under, there is the guarantee association, whereby all the
remaining insurance companies have to put money in to make good on
the claims of the insurance company that failed. A JIA doesn't
have that type of protection. She said that is a concern to the
Department, as its primary mission is to protect the insurance
consumers in the state of Alaska. A JIA arrangement is totally
outside of the Department's ability to assist them or have any
oversight.
Number 2166
REPRESENTATIVE ELTON referred to the experiences in Florida and
said he is curious as to why there is a zero fiscal note.
MS. BURKE said the effect on the state of Alaska would be zero.
She said they would have no regulatory authority.
REPRESENTATIVE ELTON referred to Alaska Troller's Association,
Alaska Forest Products Association, Pacific Seafood Processors
Association, Alaska Miners Association and asked if those groups
would be eligible to form a JIA if the bill were to become law.
MS. BURKE said if it is an employer group as defined in the bill,
they would be eligible.
Number 2209
REPRESENTATIVE ELTON said those associations have different
businesses that have been members of the associations for a long
time. He said he would think that if "employer association" were
defined to mean "An unincorporated association that had been in
existence for at least five years and that consists of at least
five employers who are engaged in the same or similar types of
trade, business or profession." He said he is a little bit
bothered because he is not sure that any of the groups should be
involved in a JIA and yet it seems they would qualify under the
definition in the bill.
MS. BURKE said she is most concerned of any group forming a JIA
that does not have any statutory requirements to have proper
reserves. She noted that in Title 21 there are provisions for
reciprocal arrangements and joint purchasing, but they're all tied
to having adequate solvencies that is available to move the claims.
Not all groups have to have what we think of as traditional
insurance. In fact even in the worker's compensation statutes, if
you have adequate collateral, security and assets it is her
understanding that you could self-insure worker's comp, for
example. But it is regulated.
Number 2313
REPRESENTATIVE BRIAN PORTER said it is his understanding that
insurance rates have a fee that goes to the state.
MS. BURKE said there is a premium tax. All the property casualty
insurance companies pay 2.7 percent of the premium in the form of
a premium tax. Title insurance, for example, is 1 percent. They
do vary, but all insurers that do business in the state of Alaska
pay totally into the general fund.
REPRESENTATIVE PORTER said this is general state revenue. He said
if a number of these people pooled up and formed a JIA, wouldn't
that fee revenue decrease.
MS. BURKE said if the department had some way of knowing who they
are going to be and what their insurance needs are that would no
longer be covered. It could be done if she knew who was planning
to be a part of the JIA and what their current premium base is.
Number 2351
REPRESENTATIVE ROKEBERG questioned what worker's compensation
insurers pay.
MS. BURKE said they pay 2.7 percent.
REPRESENTATIVE ROKEBERG asked who the one JIA is.
MS. BURKE said the Municipal League.
Number 2383
PAUL GROSSI, Director, Division of Workers' Compensation,
Department of Labor, was next to address HB 524. He told the
committee Ms. Burke has said many of the things he wanted to say.
Basically the department is concerned about the Workers'
Compensation aspect and the association's ability to pay their
obligations under the Workers' Compensation Act. Currently,
employers either purchase a workers' compensation insurance policy
or they self insure. They purchase a workers' compensation policy
and Ms. Burke's division regulates those people or they come to his
division and certify to self-insure. The Division of Workers'
Compensation regulates them directly. Mr. Grossi said a JIA is
neither one of those things. There would be no regulatory
authority over them for the workers' compensation coverage. He
said they would still be required to pay according to the act but
the department doesn't have any way of knowing whether they will
have an ability to do that and if something happens, there is no
safety net to cover these. Mr. Grossi said there is no requirement
that there be funds to start out and there is no security deposit
required. There is no requirement even to have joint and several
liability. If something happens to an individual employer, what
happens in that event? Mr. Grossi said there are a number of
things the department is worried about, but primarily injured
workers not being compensated.
Number 2455
REPRESENTATIVE ROKEBERG asked what the regulatory or statutory
requirements are to become certified self-insured.
MR. GROSSI said it requires the company to show a certain amount of
assets and they may be required to have a security deposit of
$250,000 or $300,000. He noted he isn't sure of the exact number.
There are a number of requirements to show they have the capacity
to pay the claims.
TAPE 96-21, SIDE B
Number 001
MR. GROSSI said, "...the one - the big thing, in fact, is this
would be a problem under this current legislation, they have to
basically show us their financial statements so that we know that
they're solvent and they have to do that yearly. Under this, we
would have no way of looking at the individual employers to look at
their financial statement to see what their abilities are to pay
these things and what kind of assets they have."
MR. GROSSI said there is a requirement for a yearly audit, which he
believes the JIAs have, but that wouldn't tell him what the
individual employers ability is to pay and what assets they have.
Number 051
ROBIN WARD, Alaska State Home Builders' Association, was next to
testify via teleconference from Anchorage. Ms. Ward read a
position statement into the record:
"The Alaska State Home Builders' Association is supporting a change
in the insurance laws of Alaska. Alaska has the second highest
workers' comp rate in the United States for home builders. The
result of a study performed by the National Association of Home
Builders' Economic Mortgage Finance and Housing Division revealed
that the workers' comp cost to a new home in Alaska, usually
calculated in dollars per $100 in wages, was a whopping $6,312.
That's based on sub-suppliers and the general contractors work comp
fees through the entire house building. With the national average
cost being approximately $4,321, Alaska has the distinction of
having rates 40 percent higher in the nation, second only to
Hawaii.
"The State Home Builders' Association is proposing a change in the
insurance law that would allow employer associations to form a self
insured fund. This allows a preselected, and I do want to
reiterate a preselected group of employers to pool their money to
pay workers' compensation claims. In almost all cases, the fund
would be managed (indisc.--coughing) association called the third
party administrator. These firms bill the premiums, pay the
claims, audit the plan, underwrite clients, service risk managers,
select a reinsurance company and assist the agents in marketing the
insurance. The advantage is in forming groups such (indisc.--
coughing) are potential for significant work comp premium savings,
more direct control over the insurance costs, a higher degree of
control over claims (indisc.--coughing), self audits can be done
without negative repercussions and most of the (indisc.) self
insured fund can be more readily adapted to suit the needs of the
association. We're hoping by some changes that we can have more
control over managing our claims. We feel that we could do a
better job of getting our people back to work in a short amount of
time with less claims."
MS. WARD indicated she has visited with the Department of Labor and
it was her understanding they would oversee this. She said her
organization is looking at doing substantial reserves along with
reinsurance for major claims.
Number 155
REPRESENTATIVE PORTER said, "Robin, your statement in conclusion
there that you thought that the Department of Labor would oversee
it was kind of the basis for the question that I was going to ask
regarding putting a pencil, I guess, to what you would expect if
there was kind of a hybrid of what this bill is which would be the
ability to pool, but the ability also of the department to set
reasonable criteria for available assets, and it sounds like the
kinds of things that you're talking about.
MS. WARD said absolutely. She indicated they have no problem. Ms.
Ward said her organization assumed they would either be under the
preview of the Department of Labor or under the Division of
Insurance. Most builders are fiscally conservative and there is no
problem following the same rules that the work comp companies do
today. Ms. Ward said referred to the committee substitute and said
she doesn't believe that the word "unincorporated" should be
included. Most of their nonprofit associations and trade
associations are incorporated nonprofits.
Number 289
RON PRICE, Interior Builders' Association, State Alaska Home
Builders' Association, testified via teleconference from Fairbanks
in support of HB 524. He said they want to control their own
destiny. Mr. Price pointed out that North Carolina has been a
model state. In their years of existence, they've had $27 million
worth of savings. He said he believes there is $95 million in
reserves. Mr. Price said, "Granted, they are a much larger
membership than we are, and that was a concern of ours, but they
help us to identify with the state of New Mexico that just recently
enacted self insurance for themselves."
MR. PRICE referred to the question about having a catastrophe early
on without any reserves is taken care of by the reinsurance out
there. North Carolina, in its first year of having this program,
got a major claim. A person fell off of a scaffold and was in a
coma for five years. Their responsibility was $125,000 which was
taken care of by reinsurance. That was a premium paid on
insurance. Mr. Price said his organizations are very concerned
about the (indisc.) numbers and the membership that is available.
There are 13 or 14 other states that have had it in existence. He
said his organizations are industry based and includes not only
builders, but suppliers, architects, appraisers, etc. Mr. Price
said half the risk among those different professions is to allow
them to realize some savings. By being a member of his association
does not automatically qualify a person for their workmans' comp
program. He said they will be selective on that.
MR. PRICE explained they will also, in controlling their own
destiny, initiate safety programs. The other states have found
claim reductions are down by 50 percent by pursuing the safety
programs actively. Mr. Price said again, the program would be
handled by a third party administrator and can meet any standards
that the state wants to put out there. He stated strong support
for the bill.
Number 412
MS. BURKE came back before the committee. She said a number of
things have been brought up and she would like to address the
workers' comp premiums. She explained those are by industry and
are industry specific, based on costs incurred. In other words, if
you are in a state that has higher wages, higher costs of
rehabilitation, higher costs of training and the whole series of
costs incurred, your premiums will be higher. They're based on
severity and frequency. So if you are in an industry that has high
frequency, lots of small claims, it will force up the premiums. If
you you're in an industry that has a few very severe claims, it
will force up premiums. Ms. Burke pointed out reinsurance might
help in a situation where there were a few large dollar claims, but
if you are in an industry that has a lot of smaller claims, claims
below this umbrella, you're absorbing all those costs.
MS. BURKE referred to the issue of safety programs and said that is
a good issue. It is a very direct way that any industry can reduce
their cost of workers' comp. She noted it has happened in the
state of Alaska. Those industries that have put in safety programs
benefit from them, because again, what is applied to your premium
is an experience factor. If you don't have a lot of claims, you
have a reduction in you premiums.
MS. BURKE referred to discussion on whether or not it would be
regulated and explained that JIAs, by statute, are outside the
Division of Insurance's ability to regulate. If the bill did pass,
there would be an additional need for legislation to provide for
whatever regulation or oversight would be proposed.
Number 525
CHAIRMAN KOTT questioned whether the department has any authority
over Title 21.
MS. BURKE said none whatsoever with JIAs. She pointed out it
specifically says not regulated by the department.
Number 637
REPRESENTATIVE JERRY SANDERS questioned whether there are any
changes the legislature could make that would give the department
authority over the JIAs.
MS. BURKE said yes but then they would be subject to all the
solvency requirements that they are asking to not be subject to.
She pointed out the legislature could enact legislation that would
spell out different criteria for their solvency requirements. Ms.
Burke said her only authority is that she receives a copy of their
report. She can't do anything with it, but she receives it.
CHAIRMAN KOTT asked if she would receive the report directly or if
it is through Legislative Budget and Audit.
MS. BURKE pointed out the statute says they will provide her a
copy. She said the legislature is responsible for the oversight of
the JIAs.
Number 588
REPRESENTATIVE ELTON said he has always assumed the size of the
pool helps reduce the rates because the more you spread the risk,
the better off you are. He said in one case, the committee heard
from a statewide organization of homebuilders and in the second
case, the committee heard from a person who was a member of the
statewide organization but is also a member of the Interior
Builders' Association. The way HB 524 is drafted, both of those
organizations would probably qualify for establishing a JIA. He
said it would seem to him that the Interior Builders' Association
would be a higher risk JIA because they have a smaller number of
members in the state group. He asked if that was a valid
assumption.
MS. BURKE said he is getting to the heart of insurance. The whole
principle behind insurance is spreading the risk over a large
basis, but in a JIA, without solvency requirements you could have
five very profitable solvent companies that have lots of assets
that would have the ability to meet their obligations to pay
claims. You could have a very large group that by the simple
nature of the (indisc.) that they have profitable, marginal, not so
marginal members that they would not be able to meet their
obligations because the assessment would be spread out among all
the members. Without the joint and several liability, you would
not necessarily have sufficient money from the more profitable
ones.
REPRESENTATIVE ELTON referred to how and employer association is
defined in the bill and said it would seem that the requirement is
that the employer association have at least five employers but
there is no assumption that all five employers have to participate
in the JIA. They could have two employers that participate.
Number 711
REPRESENTATIVE PORTER said if it had joint and several liability,
then if the JIA that had five businesses in it had a claim against
it, the joint association would be liable or any individual member
could be sued to the extent of their assets also.
MS. BURKE said that is correct.
REPRESENTATIVE PORTER questioned why anybody would want to sign
into an association like that.
MS. BURKE said there is a very sincere belief that they're not
going to have large claims and that they can manage their claims
and their claims would be less than what they'd pay in premiums.
She said that may be true for several years. We've all paid fire
insurance on our house, but she doubts if there are many people in
the room that have had to collect.
REPRESENTATIVE PORTER said if he has an insurance policy with State
Farm and his neighbor has a State Farm policy, he doesn't want to
have to pay more because somebody sues him.
MS. BURKE explained under an insurance contract, you're pooling the
total losses and sharing them among all of the people on a more
less pro rata basis. It is not joint and several liability. She
pointed out JIAs normally assess all their members equal, however
if there is joint and several liability that is incorporated into
their contract or the instrument that brings them together, then it
could go to those people who have the dollars to make good on the
claims. Ms. Burke said she is talking about a situation where you
might have several builders that are financially well off and can
meet these claims, but others are not.
Number 848
REPRESENTATIVE ELTON referred to the definition on line 12 and said
by that definition what you're doing is excluding those groups that
are incorporated because in the bill an employer association means
an unincorporated association. So an incorporated association
would be excluded under that definition. He noted it is a small
technical thing the committee might want to address.
Number 891
CHAIRMAN KOTT stated it is not his intent to move HB 524. It is
his intent work with the department to see if there is any way to
move toward a happy medium and agree on some of the concepts. He
said the bill would be held.
HB 526 - AIDEA OPERATIONS/PROJECTS/LOANS
Number 931
CHAIRMAN KOTT announced the next order of business would be HB 526,
"An Act relating to the financing authority, programs, operations,
and projects of the Alaska Industrial Development and Export
Authority; providing an exemption from the procurement code for
certain projects of the authority; and providing for an effective
date."
GEORGE DOZIER, Committee Aid, House Labor and Commerce Committee,
explained HB 526 makes a number of technical changes. Sections 2
through 4 of the bill changes the phrase "loan financed" to "loan
participation purchased." The purpose of this is to make it clear
that AIDEA, in the Loan Participation Program, purchases part of
the loans rather than actually financing the loans. Mr. Dozier
explained the bill eliminates the business assistance fund. Under
current law, part of AIDEA is the business assistance fund which is
used to backup loan guarantees under the Business Assistance
Program. By the elimination of the business assistance fund, that
would make the entire corpus available to backup business
assistance guarantees.
MR. DOZIER explained Section 8 increases the amount of a loan
guarantee that AIDEA may make in its Business Assistance Program
from $75,000 to $100,000 without collateral. Under existing law,
a guarantee could be made for a loan that is not collateralized up
to the amount of $75,000 provided that the loan is amortized over
a period of five years or less. With this change, that amount
would increase to $100,000. He explained there was another change
made in Section 8. Under current law, the proceeds of a loan that
has been guaranteed, under this program, must go to a business that
is majority owned by Alaskans. Under the bill in Section 8, the
change would be that the proceeds would only need to go to a
business that benefits or is conducted in Alaska. The ownership of
the business would be irrelevant. Mr. Dozier pointed out another
change made in Section 8 is that under current law, AIDEA is not
permitted to guarantee the interest of loans that are made by these
financial institutions to third parties. With this change interest
could be guaranteed.
Number 1095
MR. DOZIER explained Section 15 is related to Section 8 in that it
makes it clear that a previous provision of the law is repealed.
The current provision is that individuals who hold debt instruments
that are subject to the Loan Guarantee Program or that had been
guaranteed by AIDEA, have no recourse to the assets of AIDEA beyond
those assets which are designated to be in the loan assistance
fund. Since the fund is repealed, there is no longer a need for
this section and it no longer makes sense.
MR. DOZIER informed the committee Section 16 repeals a couple of
previous legislative authorizations for bonding projects. He noted
one would be the bond project for the fueling facility at the
Anchorage International Airport which was in the amount of $40
million. That is no longer needed as the airlines self-financed
that. Another legislative authorization was for the midrix project
at Point McKenzie in the amount of $50 million. That project is no
longer intended to be at Point McKenzie so it is no longer
necessary to have these appropriations as part of the statutes.
Mr. Dozier explained another important provision in Section 16 is
a repealer of the sunset provision that applies to the Business
Assistance Program. That entire program will sunset in July of
this year.
MR. DOZIER referred to Section 17 and said it authorizes AIDEA to
issue bonds for the Delong Mountain project which services the Red
Dog Mine. That would be in the amount of $60 million.
MR. DOZIER said Section 18 addresses the Snettisham hydroelectric
project. That would be an authorization for bonding in the amount
of $100 million.
MR. DOZIER explained Section 19 gives an immediate effective date.
Number 1243
RILEY SNELL, Executive Director, Alaska Industrial Development and
Export Authority (AIDEA), Department of Commerce and Economic
Development, was next to address HB 526. He pointed out HB 526 is
very similar to HB 425, introduced by the Governor. Probably the
only principle difference has to do with the absence in HB 526 of
including the renewed authority to issue bonds. He said AIDEA
feels that is a very important provision which needs to be added to
the legislation. He said he would work with the committee to
explain what the absence of that provision does to their ability to
assist customers throughout the businesses in Alaska. Without that
addition, there are several project financings that they would be
unable to respond to. Mr. Snell said currently, they are waiting
for the renewal of these powers in order to be able to assist the
AMX Company in Fairbanks to do a conduit of financing for their
mine. There is a provision of that project that could be done as
tax exempt. He explained the Authority would act as an issuer
being able to use their powers, if they were renewed, in order to
obtain a lower cost financing for those items that would be
eligible.
MR. RILEY explained there are additional projects that are awaiting
the authority to regain its powers to issue those types of bonds.
One includes the Kenzington mining project and they're currently
having discussions with others. In addition to being able to do
what they call the conduit type financings there is also, with the
absence of the renewal of these powers, the inability to
participate in the ability to issue bonds for loans under the loan
participation program of the Authority. The most recent project
where they were able to use those powers was in the Kodiak fish
mill project which included a fish mill project that was under a
compliance order to clean up its operations. Many of the facets of
that project were eligible for tax exempt financing and AIDEA was
able to use its power to bring a lower cost of financing into that
project that allowed them to have a more affordable overall total
cost financing. Mr. Riley said with the one absence of that
provision, which was Section 2 in HB 425, AIDEA finds that this
bill satisfies the recommended changes that board of directors were
recommending be taken up. Mr. Riley said he would be happy to
review the specifics of the projects or provisions if the Chairman
wishes.
Number 1416
REPRESENTATIVE KOTT asked Mr. Riley to explain what the
ramifications would be if this bill, or a similar bill, were not to
pass this session.
MR. RILEY said he thinks there would be a very definite impact on
the business communities of the state of Alaska. As most of the
business people in attendance knows, you can hardly find a bank
doing business in the state of Alaska who will participate in a
loan that will exceed ten years in terms. That is partly because
of the FDIC regulations on how they now make banks account for
their participation in lending practices. In the absence of the
banks being able to do that because of closer regulations from the
FDIC, these types of longer amortization schedules have fallen to
the markets of pension funds, insurance companies and those types
of people who have traditionally been involved in commercial real
estate. As a result of a downturn in the state's economy in the
mid 1980s, most of these types of lenders have fled the state. He
said AIDEA represents probably the only long term lender of capital
of this nature. With the way their programs work, by the bank's
participation remaining at a ten year term, AIDEA will take a
longer term amortization which allows the businesses in the state
to actually structure financing that is affordable. Absence that
type of capital market, there could be distress as to the capital
gap to do certain types of commercial lending in the state.
Number 1516
REPRESENTATIVE ELTON asked Mr. Snell to explain what the impact of
the passage of the bill would be without the bonding provisions.
MR. SNELL said he believes the answer would be very similar. With
no legislation, the biggest impact would be on their inability to
use their bonding powers to assist businesses in the state. Mr.
Snell said if the bill were to pass without that bond, they could
do certain types of lending out of their cash equity, but they
would still be prohibited from probably using the lowest possible
financing costs or features for certain types of projects for
businesses in the state.
Number 1562
REPRESENTATIVE ELTON asked the committee if it is protocol not to
replicate an existing bill. He asked if there is any reason that
the bonding provisions are not in HB 526.
CHAIRMAN KOTT stated there are no reasons to substantiate why they
are not included. He said it was basically left up to the
committee to determine whether or not these particular bonding
requirements should be inclusive within the bill. Chairman Kott
said if it is the will of the committee to insert those further
recommendations of AIDEA, he wouldn't have any heartburn.
Number 1617
REPRESENTATIVE PORTER asked Mr. Snell if the sunset is the problem
with the bonding in general.
MR. SNELL said that is correct. He said there was a provision that
was in the previous legislation of the authority that had a sunset
provision. As a result of that sunset provision, which became
effective on July 1, 1995, AIDEA has lost its ability to issue
bonds. That is something that has been traditional. These powers
have been passed through to the Authority in previous years, but
there has always been a sunset provision that requires them to come
before the body to get these powers renewed.
Number 1673
REPRESENTATIVE PORTER asked if there was an attempt last year to
extend or do away with the sunset.
MR. SNELL indicated the answer is no. He said, "We did an
inventory of our customers, understanding just exactly what likely
was the deal flow where we would have to have the bonding (indisc.)
renewed, and based upon the newness of the Administration and the
fact that were told that none of our current customers that we were
aware of had those projects that would be coming forth, we felt we
could deal with it in this session. And as where we set today, as
long as this body takes the action, then we still have all the
customers in a position to where we could use these powers.
Number 1724
REPRESENTATIVE ELTON offered an amendment to HB 526 that reinserts
Section 2 from HB 425. It would be lines 9 through 12 on the
handout the committee had just received. He said to insert that as
a new Section 2 in HB 526 and then renumber the subsequent
sections.
CHAIRMAN KOTT said the amendment basically inserts Section 2 of the
Governor's bill, HB 425. He said they would be granting AIDEA the
ability to bond for projects less than $10 million without
legislative approval.
Number 1807
MR. SNELL pointed out that those are powers that were previously in
law.
CHAIRMAN KOTT asked Mr. DOZIER to come back before the committee.
He said there is an opinion by counsel regarding this particular
section. He then objected to the proposed amendment for the
purpose of discussion.
Number 1891
MR. DOZIER explained that the opinion was that the way Section of
HB 425 currently reads is that there is a grant of the ability to
issue bonds up the amount of $10 million without legislative
oversight. A limitation on the ability to grant bonds in excess of
$10 million, without legislative oversight, when the bonds are
issued to assist in the financing and development projects under
44.88.172 through 177. The negative implication would be that the
limitation or the requirement of legislative oversight may not
apply or arguably might not apply if the intent is to issue bonds
in the amount of $10 million or over for purposes not related to
development projects under Sections 172 through 177. He indicated
counsel has suggested that the committee should delete the
language, "To assist in the financing of a development project
under 44.88.172 through 44.88.177." He said it would simply read
starting on line 11, "Amount greater than $10 million."
REPRESENTATIVE PORTER said, "Wouldn't that generally return to
where it was in the first place?"
Number 1049
MR. SNELL said he thinks there is some difficulty with that
language. The first concern is there are several types of programs
and bonding powers within the Authority. There is a development
finance program which are for the larger projects like Red Dog,
Snettisham, Skagway ore terminal, Unalaska port, those types of
projects that they have engaged in under what is traditionally
called the "Own and Operates Projects Program." Then there are the
loan participation programs where a bank will originate a loan,
bring it to the Authority for their participation. He pointed out
AIDEA is capped in another portion of their statues to a limit not
to exceed $10 million in any participation by a bank loan. Mr.
Snell said AIDEA already has the additional safeguards. He said
they are ready prevented in any single loan participation of
participating on their part up to anything greater than $10
million. Mr. Snell said, "Where I believe that language would run
afoul of some projects that we offer assistance to businesses in
the state is in what is called conduit of financing or revenue
financing where the Authority's credit is not involved. It is
strictly the credit of the businesses and we are just acting in the
capacity of an issuer. Those would be the case in Fort Knox where
there is $30 million of eligible qualifying costs under the
Internal Revenue Service tax code that we can issue that do not
affect, in any way, shape or form, the finances or the credit of
the Authority. I believe, just listening to the language that was
read, that could preclude us from acting as an issuer on behalf of
businesses in the state for those types of projects without
legislative approval. And these deals -- this deal flow usually
come through to where the legislative body may not be in session or
it could be awkward in bringing this in a bill form through that
process would be my only thought at this time."
Number 2205
REPRESENTATIVE PORTER said with Mr. Snell's explanation, he would
presume it wouldn't be a problem if the bill were amended to say,
"In an amount greater than $10 million that would affect the credit
of the authority..."
MR. SNELL said he believes that is correct.
Number 2243
REPRESENTATIVE ROKEBERG indicated concern about cutting Legislative
Budget and Audit out of the loop particularly if there is conduit
financing. He said he is reluctant to jump on something like this
without further review.
REPRESENTATIVE PORTER referred to when AIDEA had the bonding
authority and asked if this was a requirement then.
MR. SNELL said they were given the $10 million and there was no
restriction on what they could do under a conduit financing. It
did not require further legislative oversight.
REPRESENTATIVE ROKEBERG said new language is being added.
REPRESENTATIVE PORTER pointed out the language being added is
apparently aimed at getting us back where we were prior to the
sunset.
Number 2347
REPRESENTATIVE ELTON said if Representative Porter wants to put his
language in the form of a motion, he would consider that a friendly
amendment.
REPRESENTATIVE ROKEBERG said he didn't understand.
REPRESENTATIVE PORTER said he would move to amend the amendment to
delete on page 1, line 11, "to assist in the financing of a
development" and all of line 2, but then add words to the effect of
"in an amount greater than $10 million if those bonds would affect
the credit of the state of Alaska."
MR. SNELL suggested that "the Authority" be inserted in place of
"the state of Alaska." He noted they have independent status.
REPRESENTATIVE PORTER said if those bonds would affect the credit
of the Authority.
REPRESENTATIVE ROKEBERG noted, for the record, that he was reading
out of HB 425.
REPRESENTATIVE PORTER said, "Again, for the record, the intent is
to bring it back to where we were prior to July, 1995, whatever
that appropriate language to do that..." [END OF TAPE...]
TAPE 96-22, SIDE A
Number 001
MR. SNELL said, "Representative, I believe the that the sunset
provision removes the powers to do it without and then you come
before them to get renewed."
CHAIRMAN KOTT said currently as it stands, AIDEA has no authority
to bond for any amount without coming to the legislature.
MR. SNELL said other than refunding bonds, they have no ability to
issue new bonds.
CHAIRMAN KOTT said the question before the committee is whether or
not they want to restore it to what it was July, 1995, which
provided the opportunity to bond up to $10 million without
legislative authority because they have sunsetted. He said that is
the amendment.
REPRESENTATIVE ROKEBERG said the Governor's bill did take out the
accepting refunding bonds. He asked Mr. Snell if they are no
longer doing refunding bonds.
Number 123
MR. SNELL explained those are bonds that come due and are callable
and based upon what the current interest rate environment is, a lot
of time you can do what is called a "refunding bond" to lower the
cost on the interest on the bonds. That then is passed to the
borrowers.
REPRESENTATIVE ROKEBERG said there is a lot of stuff going on in
about five or six words that he is concerned about.
REPRESENTATIVE PORTER asked Mr. Snell why they wanted to accept
refunding bonds.
MR. SNELL said it was a legal drafting issue that he believes they
have the powers to do a refunding bond so that was some editing on
the provisions.
REPRESENTATIVE ROKEBERG said it is hard to read it out of context.
Number 252
CHAIRMAN KOTT said the motion was to adopt Amendment 1 which would
then read, "Without prior legislative approval, the Authority may
not issue bonds greater than $10 million if those bonds would
affect the credit of the authority."
REPRESENTATIVE ELTON said it is important to note that this is a
conceptual amendment.
CHAIRMAN KOTT asked if there was objection to the amendment.
Hearing none, Amendment 1 was adopted.
Number 331
REPRESENTATIVE SANDERS questioned whether AIDEA is going to buy a
dam and own it.
MR. SNELL referred to the current owners of the Snettisham and the
Eklutna hydroelectric project is owned by the Federal Alaska Power
Administration. There have been ongoing discussions by our
congressional delegation as well as by the state for a number of
years looking at ways to transfer those projects from federal
ownership back into either state or local ownership. Based on the
number of years of negotiation and based on a number of memorandums
of understandings that have been crafted by previous
administrations, Congress finally took the action last session to
transfer these projects out of federal ownership to state
ownership, as it relates to Snettisham. As it relates to Eklutna
to participate in utilities in the railbelt area who will be
acquiring that. The purpose of that transfer, as he understands,
is to get the federal government out of the energy business in
Alaska. He noted this is something that has been talked about for
a long time. The purpose is also to allow the local governments
and the state, in the case of Snettisham, to obtain the assets to
ensure stable energy rates to the consumers in these areas. Mr.
Snell explained he believes, based on the negotiations that AIDEA
has been involved in over the last couple of years as it relates to
Snettisham, that they have structured the outline of an agreement
that provides substantial comfort to AIDEA through the ability of
Mr. Corbus to operate the plant and to be able to meet what has
already been a 20 year history on a project that has operated. Mr.
Snell said they are satisfied that there are reasonable ways of
having reserves and replacement funds made available so that when
you need to replace parts, that there are adequate funds to do
that. This means that under a taker pay contract with the local
utility, that we can stabilize the electric rates within the Juneau
area. Mr. Snell indicated they take comfort in the terms of the
contract that they are negotiating with Mr. Corbus. He said AIDEA
feels this is an appropriate deal and one that the state should
follow through with.
MR. SNELL said the reason that the state must be the owner is so
there is the ability to use tax exempt financing. If it is
publicly owned, they have the ability to bring tax exempt financing
which will lower the overall cost of the acquisition costs from the
federal government to the state. He explained they fully intend
and have crafted the necessary agreements to put all of the
operating and maintenance responsibilities back on the local
utility. Mr. Snell said AIDEA is not an operating entity.
Although they have several ownerships in projects, they transfer
those responsibilities directly back to the businesses that they
are engaged with.
Number 608
REPRESENTATIVE ROKEBERG asked if this is the only legislative
oversight on the Snettisham transfer. He asked if it was contained
in the bill. He asked if there is other legislation that talks
about this.
MR. SNELL indicated this is the only legislation that talks about
the Snettisham transfer. He explained AIDEA will have all the
attributes of ownership, but they will transfer the direct
operating and maintenance responsibilities directly to the local
utility. In addition to that, under the power sales agreement that
will be drafted, it will be a take or pay contract with the local
utility, which they are obligated to make payments to the state
under nearly and most all conditions.
Number 753
REPRESENTATIVE ROKEBERG said he would like to have a background of
understanding of what the changes are in what is called the
participation purchase or the business assistance loan program. He
said several pages of the bill are apparently AIDEA's
recommendations for changing that program and rising the level up
to $100,000 from $75,000. Representative Rokeberg asked when this
provision was put in AIDEA's authority.
MR. SNELL explained he believes the program was adopted and brought
forth under the authority's umbrella in the mid 1980s.
REPRESENTATIVE ROKEBERG asked how many loans the Authority has
actually made. He said it was his understanding that there wasn't
too many.
MR. SNELL explained it has never been overly active because there
have been companion type programs at the federal government level,
predominately the SBA Program which is very similar in structure in
providing guarantees to the banks on (indisc.). To date, he
believes they have $2.8 million committed under this program. He
noted they also currently have in process about another $1.7
million. Mr. Snell informed the committee they have had one
default under the program and it was to the tune of $37,000.
REPRESENTATIVE ROKEBERG asked Mr. Snell to walk him through the
loan process.
MR. SNELL explained that a borrower would not approach them
directly as they do not do direct lending. They originate their
loans with the bank. The bank underwrites the loan, presents their
write up to the Authority, the Authority Credit Committees on the
loan following their own loan officer's review and its own write up
on the credit. The Credit Committee then makes a determination as
to whether or not it satisfies all the requirements of credit
worthiness. They will either pass to participate on the loan or
they'll approve the loan and then the necessary paperwork with the
bank for AIDEA's guarantee is executed.
REPRESENTATIVE ROKEBERG asked what the typical loan to ratio is.
MR. SNELL indicated it is about 75 percent. The bank then picks up
the balance.
REPRESENTATIVE ROKEBERG asked what the typical rate currently is.
MR. SNELL said AIDEA's taxable rate currently is probably in the
9.2 percent range. The bank is usually prime plus something.
REPRESENTATIVE ROKEBERG asked what AIDEA is selling their taxable
bonds for.
MR. SNELL indicated 9.25 to 9.50 depending on where the market is.
He explained his actual cost of money includes necessary loan loss
reserves, commitment fees and those types of things.
REPRESENTATIVE ROKEBERG asked what is being done structurally.
MR. SNELL explained the SBA has undergone some rather significant
changes in their program. They now do not guarantee as large
amount under any given loan. They've raised their fee structure to
where it is not very attractive and in a lot of cases not
affordable to small business in the state. He noted AIDEA has been
approached by the small business community along with the banking
institutions in the state asking them to modify their programs to
where it is more attractive for the use by the banks and small
businesses in the state. It is predominately the result of the
federal government changes in the existing SBA Program.
REPRESENTATIVE ROKEBERG asked what the loan to ratio would be if
there was a real estate loan of $1 million.
MR. SNELL explained it would be 75 percent loan to value or an
appraised value on the project not to exceed 80 percent. He said
if the committee were to look at AIDEA's default rate, they would
agree that AIDEA probably does some of the toughest underwriting as
to the loans that are brought to them.
Number 1183
REPRESENTATIVE PORTER said AIDEA is going to ask the local
utilities to oversee and pay the maintenance requirements for the
project.
MR. SNELL said from the power sales agreement, they would be
responsible.
REPRESENTATIVE PORTER asked if that is currently being done by the
feds.
MR. SNELL said it is.
REPRESENTATIVE PORTER asked if it is assumed that rates are going
to go up when this happens.
MR. SNELL said the way the structure is set and the way that they
have calculated the purchase price with the Alaska Power
Administration, it is AIDEA's belief that rates will remain
substantially the same. He noted any rate adjustments would have
to go before the Alaska Public Utilities Commission.
Number 1284
REPRESENTATIVE ROKEBERG referred to page 4, line 24, subsection (2)
(c), "The authority may guarantee the payment of interest on the
guaranteed portion of a loan for the time and in the manner
established by the authority by regulation," and questioned the
meaning.
MR. SNELL explained the current program works in such a fashion
that the old program of AIDEA, the existing program of AIDEA, did
not guarantee interest on a loan that went into default. The new
proposal, which would be adopted by regulation by the Authority,
they would move forward with public hearings and adopt regulations
that would allow interest payments under the guaranteed program up
to a period of ninety days. He said AIDEA believes that is a
prudent and reasonable time frame to allow the banker to move in
and to liquidate the collateral at the point that the loan was to
go into default. It is something that currently exists under the
SBA Program. He indicated he would schedule time with
Representative Rokeberg to review the bill.
Number 1468
REPRESENTATIVE SANDERS made a motion to move HB 526, with
accompanying fiscal notes and amendments.
CHAIRMAN KOTT asked if there was an objection. Hearing none, CSHB
526(L&C) was moved out of the House Labor and Commerce Committee.
ADJOURNMENT
Number 1518
CHAIRMAN KOTT adjourned the House Labor and Commerce Committee
meeting at 5:15 p.m.
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