Legislature(1995 - 1996)

03/13/1996 03:16 PM L&C

Audio Topic
* first hearing in first committee of referral
+ 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             
      - PASSED HB 526(L&C) OUT OF COMMITTEE                                    
 *HOUSE BILL NO. 448                                                           
 "An Act relating to eligibility for unemployment compensation                 
      - SCHEDULED BUT NOT HEARD                                                
 (* First public hearing)                                                      
 PREVIOUS ACTION                                                               
 BILL:  HB 510                                                               
 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                                                               
 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            
 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            
 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                    
 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             
 Number 1063                                                                   
 REPRESENTATIVE KIM ELTON asked Ms. Reardon how she will determine             
 the base from which she will do the increment for the different               
 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                
 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              
 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                     
 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                
 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                  
 "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                     
 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                
 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             
 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                   
 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            
 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                    
 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           
 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                
 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           
 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                
 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             
 MR. SNELL said from the power sales agreement, they would be                  
 REPRESENTATIVE PORTER asked if that is currently being done by the            
 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               
 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.             
 Number 1518                                                                   
 CHAIRMAN KOTT adjourned the House Labor and Commerce Committee                
 meeting at 5:15 p.m.                                                          

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