Legislature(2005 - 2006)CAPITOL 106

02/02/2006 08:00 AM STATE AFFAIRS

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08:06:34 AM Start
08:07:39 AM Overview(s): Department of Environmental Conservation, Division of Water, Village Safewater Program
09:38:53 AM HB238
10:01:59 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Overview of Department of Environmental TELECONFERENCED
Conservation, Division of Water, Village
Safewater Program
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
                    ALASKA STATE LEGISLATURE                                                                                  
             HOUSE STATE AFFAIRS STANDING COMMITTEE                                                                           
                        February 2, 2006                                                                                        
                           8:06 a.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Representative Paul Seaton, Chair                                                                                               
Representative Carl Gatto, Vice Chair                                                                                           
Representative Bob Lynn                                                                                                         
Representative Jay Ramras                                                                                                       
Representative Berta Gardner                                                                                                    
Representative Max Gruenberg                                                                                                    
MEMBERS ABSENT                                                                                                                
Representative Jim Elkins                                                                                                       
COMMITTEE CALENDAR                                                                                                            
OVERVIEW  OF DEPARTMENT  OF ENVIRONMENTAL  CONSERVATION, DIVISION                                                               
OF WATER, VILLAGE SAFEWATER PROGRAM                                                                                             
     - HEARD AND HELD                                                                                                           
HOUSE BILL NO. 238                                                                                                              
"An Act relating to contribution  rates for employers and members                                                               
in the defined  benefit plans of the  teachers' retirement system                                                               
and the  public employees'  retirement system  and to  the ad-hoc                                                               
post-retirement  pension adjustment  in the  teachers' retirement                                                               
system;  requiring insurance  plans  provided to  members of  the                                                               
teachers' retirement system, the  judicial retirement system, the                                                               
public  employees'  retirement  system, and  the  former  elected                                                               
public  officials   retirement  system  to  provide   a  list  of                                                               
preferred  drugs;  relating  to defined  contribution  plans  for                                                               
members  of  the  teachers'  retirement  system  and  the  public                                                               
employees'  retirement system;  and  providing  for an  effective                                                               
     - HEARD AND HELD                                                                                                           
PREVIOUS COMMITTEE ACTION                                                                                                     
BILL: HB 238                                                                                                                  
SHORT TITLE: PUBLIC EMPLOYEE/TEACHER RETIREMENT                                                                                 
SPONSOR(s): STATE AFFAIRS                                                                                                       
03/30/05       (H)       READ THE FIRST TIME - REFERRALS                                                                        
03/30/05       (H)       STA, FIN                                                                                               
03/31/05       (H)       STA AT 8:00 AM CAPITOL 106                                                                             
03/31/05       (H)       Heard & Held                                                                                           
03/31/05       (H)       MINUTE(STA)                                                                                            
04/02/05       (H)       STA AT 10:00 AM CAPITOL 106                                                                            
04/02/05       (H)       Heard & Held                                                                                           
04/02/05       (H)       MINUTE(STA)                                                                                            
04/05/05       (H)       STA AT 8:00 AM CAPITOL 106                                                                             
04/05/05       (H)       Heard & Held                                                                                           
04/05/05       (H)       MINUTE(STA)                                                                                            
04/07/05       (H)       STA AT 8:00 AM CAPITOL 106                                                                             
04/07/05       (H)       Scheduled But Not Heard                                                                                
04/09/05       (H)       STA AT 9:30 AM CAPITOL 106                                                                             
04/09/05       (H)       Heard & Held                                                                                           
04/09/05       (H)       MINUTE(STA)                                                                                            
04/12/05       (H)       STA AT 8:00 AM CAPITOL 106                                                                             
04/12/05       (H)       Heard & Held                                                                                           
04/12/05       (H)       MINUTE(STA)                                                                                            
04/14/05       (H)       STA AT 8:00 AM CAPITOL 106                                                                             
04/14/05       (H)       Heard & Held                                                                                           
04/14/05       (H)       MINUTE(STA)                                                                                            
04/16/05       (H)       STA AT 9:30 AM CAPITOL 106                                                                             
04/16/05       (H)       Heard & Held                                                                                           
04/16/05       (H)       MINUTE(STA)                                                                                            
04/19/05       (H)       STA AT 8:00 AM CAPITOL 106                                                                             
04/19/05       (H)       Scheduled But Not Heard                                                                                
04/20/05       (H)       STA AT 8:00 AM CAPITOL 106                                                                             
04/20/05       (H)       Scheduled But Not Heard                                                                                
04/21/05       (H)       STA AT 8:00 AM CAPITOL 106                                                                             
04/21/05       (H)       <Bill Hearing Canceled>                                                                                
02/02/06       (H)       STA AT 8:00 AM CAPITOL 106                                                                             
WITNESS REGISTER                                                                                                              
LYNN TOMICH KENT, Director                                                                                                      
Division of Water                                                                                                               
Department of Environmental Conservation                                                                                        
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Introduced fellow presenters during the                                                                    
Department of Environmental Conservation, Division of Water,                                                                    
Village Safe Water program overview.                                                                                            
BILL GRIFFITH, Program Manager                                                                                                  
Facility Programs                                                                                                               
Division of Water                                                                                                               
Department of Environmental Conservation                                                                                        
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:   Presented the overview of  the Village Safe                                                               
Water program.                                                                                                                  
SCOTT RUBY, Community Development Section Chief                                                                                 
Division of Community Advocacy                                                                                                  
Department of Commerce                                                                                                          
Community, & Economic Development (DCCED)                                                                                       
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT:   Explained how  the Rural  Utility Business                                                               
Advisor  (RUBA) program  works in  relation to  the Village  Safe                                                               
Water program.                                                                                                                  
JIM McCRACKEN, President                                                                                                        
Lowell Point Community Council                                                                                                  
Lowell Point, Alaska                                                                                                            
POSITION STATEMENT:  Provided comment  during the overview of the                                                               
Village Safe Water program.                                                                                                     
ACTION NARRATIVE                                                                                                              
CHAIR  PAUL  SEATON  called  the  House  State  Affairs  Standing                                                             
Committee  meeting  to  order at  8:06:34  AM.    Representatives                                                             
Gatto,  Lynn, Ramras,  Gardner, and  Seaton were  present at  the                                                               
call to order.   Representative Gruenberg arrived  as the meeting                                                               
was in progress.                                                                                                                
^OVERVIEW(S):      DEPARTMENT  OF   ENVIRONMENTAL   CONSERVATION,                                                             
DIVISION OF WATER, VILLAGE SAFEWATER PROGRAM                                                                                  
8:07:39 AM                                                                                                                    
CHAIR SEATON announced  that the first order of  business was the                                                               
overview  of   the  Department  of   Environmental  Conservation,                                                               
Division of Water, Village Safe Water program.                                                                                  
8:07:41 AM                                                                                                                    
LYNN  TOMICH KENT,  Director, Division  of  Water, Department  of                                                               
Environmental Conservation, introduced fellow presenters.                                                                       
8:09:36 AM                                                                                                                    
BILL GRIFFITH,  Program Manager,  Facility Programs,  Division of                                                               
Water,  Department of  Environmental Conservation,  presented the                                                               
overview of the Village Safe Water  program.  He said the program                                                               
was created by  the legislature in 1970, at which  time less than                                                               
10 percent  of rural  Alaskan homes had  running water  and flush                                                               
toilets.  Today 77 percent  of rural homes have those facilities,                                                               
thanks in part to the program.   He stated that the division runs                                                               
its  program, working  closely  with  rural communities,  federal                                                               
agencies,  and  the  Alaska  Native  Health  Consortium  to  help                                                               
communities in  planning, designing,  and constructing  water and                                                               
sewer  systems.   In  the  past decade  alone,  he reported,  the                                                               
percentage  of rural  households with  basic sanitation  services                                                               
has increased  by over 30  percent.   During that time,  over 200                                                               
Alaska communities  have received  funding for water,  sewer, and                                                               
solid waste facility improvements.                                                                                              
8:11:45 AM                                                                                                                    
MR.  GRIFFITH said  the Village  Safe Water  program carries  out                                                               
three   primary    functions:      funding    allocation,   grant                                                               
administration,  and   project  oversight.     Regarding  funding                                                               
allocation, he  noted that  for the  past several  years, funding                                                               
for the program has comprised  of 75 percent federal funding from                                                               
the United States Environmental  Protection Agency (U.S. EPA) and                                                               
the  United   States  Department  of  Agriculture   (USDA)  rural                                                               
development program,  and 25 percent from  state capital funding.                                                               
Communities  apply  annually  to   the  program  for  grants  for                                                               
sanitation projects.  Those applications  are scored based on the                                                               
project's ability  to address critical  health needs, as  well as                                                               
the  community's demonstrated  capacity to  operate and  maintain                                                               
facilities.   The  highest-ranking projects  are recommended  for                                                               
funding under the state capital budget.                                                                                         
MR. GRIFFITH, regarding grant  administration, said once projects                                                               
are  included in  the state  capital budget,  federal funding  is                                                               
secured through federal grant applications.   The next step is to                                                               
work  with communities  to  develop  grant agreements,  including                                                               
project  scope  of  work,  cost   estimates,  and  grant  funding                                                               
conditions.  Construction is only  approved once communities have                                                               
met  agreed   upon  performance  criteria,  he   said,  and  have                                                               
demonstrated  the  capacity  to  operate  and  manage  sanitation                                                               
facilities.     Mr.   Griffith  said   although  local   capacity                                                               
requirements  may occasionally  delay construction,  they are  an                                                               
important element of a comprehensive, statewide sanitation plan.                                                                
8:13:23 AM                                                                                                                    
MR.  GRIFFITH,  regarding  project oversight,  said  the  program                                                               
provides  technical and  financial support  to Alaska's  smallest                                                               
communities  to design  and construct  water  and sewer  systems.                                                               
Community officials are  worked with to ensure  that planning and                                                               
results  are appropriate,  facilities  are properly  constructed,                                                               
and grant funds  are used effectively.  He said,  "In some cases,                                                               
funding is  awarded by [the  Village Safe Water  program] through                                                               
the  Indian health  service to  the Alaska  Native Tribal  Health                                                               
Consortium,  who  in turn  assist  communities  in designing  and                                                               
constructing sanitation projects."                                                                                              
8:14:07 AM                                                                                                                    
MR. GRIFFITH  provided a look  at some of the  direction received                                                               
from  the legislature,  governor,  and  federal funding  agencies                                                               
regarding how  to improve  the program.   He  said last  year the                                                               
legislature,  through legislative  intent language,  directed DEC                                                               
to  do  the  following:   establish  a  process  for  sustainable                                                               
projects at  reasonable costs; exercise final  decision authority                                                               
regarding project costs  and types of systems  to be constructed;                                                               
develop  a  project  accounting  system to  provide  up  to  date                                                               
information to  engineers and managers; encourage  development of                                                               
local ordinances for  collecting sufficient user fees  to pay for                                                               
sustained operation  of facilities; and work  with the regulatory                                                               
commission of Alaska to encourage  local management of facilities                                                               
in compliance with commission standards.                                                                                        
MR.  GRIFFITH said  also in  2005, the  governor's administrative                                                               
order  on sustainability  requires that  state funded  facilities                                                               
include the  following components:   supporting  necessary costs;                                                               
keeping  capital  costs  low through  system  simplification  and                                                               
infrastructure standardization;  and having  a business  plan for                                                               
every operation.   Additionally, all state  programs must include                                                               
the   following  considerations   in  their   funding  processes,                                                               
according  to administrative  order:    local responsibility  for                                                               
infrastructure  sustainability; access  to existing  services and                                                               
facilities;   renovation  prioritized   over  new   construction;                                                               
infrastructure sized  to meet  needs; affordability  of lifecycle                                                               
costs;  and appropriate  technology to  control unit  costs.   He                                                               
noted that  the committee was  provided with  both a copy  of the                                                               
legislative letter of intent and the administrative order.                                                                      
8:20:17 AM                                                                                                                    
MR.  GRIFFITH  said  during the  funding  allocation  process,  a                                                               
variety  of  local capacity  indicators  are  used to  prioritize                                                               
funding  requests, including:    primary and  backup water  plant                                                               
operator  certification;   trained  utility   managers;  adequate                                                               
collection rates;  and operation  at full  regulatory compliance.                                                               
Later in  the process, he  said, local capacity  requirements are                                                               
used  as   construction  funding  grant   conditions,  including:                                                               
completion  of  an  approved business  plan;  assessment  by  the                                                               
Remote  Utility Business  Advisor  program in  the Department  of                                                               
Commerce, Community, & Economic  Development (DCCED); meeting all                                                               
essential   capacity  indicators;   full   compliance  with   all                                                               
operation-related  water treatment  regulations; and  trained and                                                               
certified  sewer  system operators.    Mr.  Griffith stated  that                                                               
although  none of  the local  capacity indicators  and conditions                                                               
are new, historically their use was inconsistent until 2005.                                                                    
MR.  GRIFFITH  said in  addition  to  capital cost  control,  the                                                               
process of developing, reviewing,  and approving community master                                                               
plans  is  also  used   for  incorporating  other  sustainability                                                               
considerations,  including:     access  to  existing  facilities,                                                               
renovation prioritized over  new construction, and infrastructure                                                               
sized  to meet  the needs  of the  community.   He said  existing                                                               
plans  may   be  revisited  in   order  to   address  significant                                                               
deficiencies associated with these considerations.                                                                              
8:22:52 AM                                                                                                                    
MR. GRIFFITH  said another  priority for  the Village  Safe Water                                                               
program  over the  past  two years  has  been project  accounting                                                               
system  improvements.   New accounting  staff provides  increased                                                               
internal controls  for the  program.  State  and federal  funds -                                                               
previously advanced  to project bank  accounts - are now  left in                                                               
the  state  and federal  treasury  until  expenses are  incurred.                                                               
Accurate real-time expenditure and  obligation information is now                                                               
available to  engineers and management.   New  project accounting                                                               
structure  allows  expenses  to  be tracked.    Additionally,  he                                                               
noted, the program no longer  maintains a separate administrative                                                               
account for engineering, management,  and travel expenses related                                                               
to project oversight; these expenses  must now be charged against                                                               
the federal  grant and  the project they  benefit.   All project-                                                               
related costs  are charged directly  against the project,  with a                                                               
consistent scope-level accounting  system that provides real-time                                                               
expenditure   and  obligation   information   to  engineers   and                                                               
8:24:26 AM                                                                                                                    
MR. GRIFFITH  reported that a third  area of focus and  change is                                                               
in  the  area  of  funding allocation  and  grant  administration                                                               
improvements,    including    clarity    and    consistency    of                                                               
prioritization  criteria   on  sanitation   facility  improvement                                                               
applications, as well  as of funding conditions  that are applied                                                               
to all  construction related grants.   He said  current completed                                                               
and approved  sanitation master  plans include  the scope  of all                                                               
funding  applications and  new grant  offers.   He noted  another                                                               
improvement  is  that detailed  project  cost  estimates are  now                                                               
provided  and reviewed  at the  time of  funding application  and                                                               
grant  agreements.     These  project  costs   are  then  tracked                                                               
throughout  the  project  and  used as  a  basis  from  financial                                                               
reporting to federal funding agencies, he said.                                                                                 
8:25:35 AM                                                                                                                    
MR.  GRIFFITH stated  that  federal  appropriations since  fiscal                                                               
year 2005 (FY  05) have included two  new requirements associated                                                               
with the  allocation of  rural sanitation funding:   a  set aside                                                               
for rural  regional hub  communities and  the establishment  of a                                                               
three-year priority list.   He offered to provide  an overview of                                                               
these requirements  and the changes  that have been made  to meet                                                               
8:25:56 AM                                                                                                                    
CHAIR  SEATON  asked  Mr.  Griffith  if he  is  saying  that  the                                                               
division is not  proceeding with projects that  have already been                                                               
approved and funded because of a new prioritization.                                                                            
8:26:21 AM                                                                                                                    
MR. GRIFFITH  answered no.   He clarified  that the  division has                                                               
changed some  of the prioritization criteria  and waiting factors                                                               
over  the  last  couple  of   years,  but  it  has  continued  to                                                               
prioritize projects as it always has.                                                                                           
8:27:48 AM                                                                                                                    
MR.  GRIFFITH,  in response  to  a  question from  Representative                                                               
Gatto, confirmed that the division is  not looking to reach a 100                                                               
percent  goal   "when  the  definition  is   every  single  rural                                                               
household" [having  indoor facilities].   He said  the division's                                                               
goal  is to  cover all  "serviceable homes,"  which he  explained                                                               
means  those  within  established communities,  not  isolated  by                                                               
distance or barriers.                                                                                                           
8:28:06 AM                                                                                                                    
REPRESENTATIVE GATTO asked if the  households have to pay for any                                                               
of the sustainability.                                                                                                          
8:29:04 AM                                                                                                                    
MR.  GRIFFITH   answered  yes.     He  said  all   operation  and                                                               
maintenance  costs  for  these  facilities  have  to  be  locally                                                               
provided  by individual  users.   Sufficient  user  fees must  be                                                               
collected to  pay for  continued operation  and maintenance.   In                                                               
response to a  follow-up remark by Representative  Gatto, he said                                                               
it  is  similar to  electric  and  telephone utilities;  however,                                                               
unlike  those other  power supplies,  there is  no local  subsidy                                                               
available for  the operation and  maintenance of water  and sewer                                                               
8:30:14 AM                                                                                                                    
MR.  GRIFFITH,  in response  to  a  question from  Representative                                                               
Gatto, said  the water  source and  its containment  is extremely                                                               
variable  depending upon  the community.   He  said some  factors                                                               
that are considered  are the location of permafrost  and types of                                                               
8:30:46 AM                                                                                                                    
CHAIR   SEATON,   regarding    the   sustainability   guidelines,                                                               
particularly   in  regard   to   consistent   review,  said   his                                                               
jurisdiction  has dealt  with the  issue of  "Lowell Point."   He                                                               
said it appears that the  department does not have a standardized                                                               
form or survey.   He asked, "How are you  meeting this consistent                                                               
criteria if  you don't  have some kind  of a  standardized survey                                                               
8:31:39 AM                                                                                                                    
MR. GRIFFITH  said he thinks  the form  to which Chair  Seaton is                                                               
referring is one to establish  both household occupancy and water                                                               
and sewer  needs.   He said  Lowell Point  is somewhat  unique in                                                               
that the pattern  of occupancy is variable in  the community from                                                               
house to  house.  He  explained that  the vast majority  of rural                                                               
communities that the division works  with don't contain vacant or                                                               
seasonal houses.   He said the division  develops different kinds                                                               
of  surveys and  questionnaires  to help  establish  the type  of                                                               
occupancy patterns in a community.                                                                                              
8:33:17 AM                                                                                                                    
MR. GRIFFITH, in  response to a question from  Chair Seaton, said                                                               
the program covers  populations of 25 minimum to  600 maximum for                                                               
an unincorporated  community.   He added that  there is  no upper                                                               
population limit for a second-class city.                                                                                       
CHAIR  SEATON asked  if Mr.  Griffith could  explain why  - after                                                               
adopting and  funding a  project for a  community that  meets the                                                               
minimum  population requirement  - the  division would  decide to                                                               
hold the money  and not proceed with the project  that was funded                                                               
until it  establishes another group  of surveys and spends  a lot                                                               
more money on additional study.                                                                                                 
MR. GRIFFITH answered as follows:                                                                                               
     Yes,   particularly  when   you're   talking  about   a                                                                    
     community with  [a] small number of  homes, like Lowell                                                                    
     Point  - somewhere  around 30  ... year-round  occupied                                                                    
     homes.  ... Five or ten  homes one way or the other can                                                                    
     make  a big  difference  in what  kind  of facility  is                                                                    
     going to  best meet the  water and sewer needs  of that                                                                    
     community in  the most economical fashion.   So, that's                                                                    
     why it's important to establish  whether that number is                                                                    
     20, or  25, or 35, or  40, because it not  only makes a                                                                    
     difference in what  kind of system will  work best from                                                                    
     a  technical perspective,  but as  I mentioned  we also                                                                    
     look at capital costs -  which means the cost per home.                                                                    
     So, a few  homes make a big difference in  the cost per                                                                    
     home when the community is small.                                                                                          
8:36:06 AM                                                                                                                    
MR. GRIFFITH, in  response to a question from  Chair Seaton, said                                                               
the division reviews the sanitation  master plan if it hasn't had                                                               
recent  review, and  will  continue  to do  that  to ensure  that                                                               
conditions  haven't   changed,  the  information  is   clear  and                                                               
consistent, and -  most importantly - that  capital costs control                                                               
is exercised through  the review of the plans.   He noted that in                                                               
general,  the division  finds most  of the  plans that  have been                                                               
developed and  the plans that  are being developed now  have that                                                               
kind of  consideration already and  there is  no need to  go back                                                               
and amend them.                                                                                                                 
8:37:07 AM                                                                                                                    
CHAIR SEATON  indicated that  it is uncommon  to ask  for funding                                                               
for a project that will then be redesigned.                                                                                     
8:38:02 AM                                                                                                                    
MR.  GRIFFITH  said the  division  has  established capital  cost                                                               
control and other previously  mentioned sustainability factors as                                                               
a  primary part  of  reviewing every  sanitation facility  master                                                               
plan.   With that focus, he  opined, the quality of  the plans is                                                               
much better.  Some  of the old plans did not  have that focus and                                                               
the  division thinks  it has  an obligation  to return  to review                                                               
those plans to ensure that those facilities will be sustainable.                                                                
8:38:31 AM                                                                                                                    
CHAIR SEATON  asked Mr.  Griffith if the  division thinks  it has                                                               
the authority to  make changes to projects that  have already had                                                               
money allocated, without legislative approval.                                                                                  
8:39:04 AM                                                                                                                    
MR. GRIFFITH  answered, "Not  in some cases;  it depends  on what                                                               
the funding was  appropriated for and what  the potential changes                                                               
8:39:52 AM                                                                                                                    
MR. GRIFFITH, in  response to a remark  by Representative Gardner                                                               
regarding a  handout that  shows that one  family in  three still                                                               
does not  have access to a  sanitary means of sewage  disposal or                                                               
an  adequate supply  of  safe drinking  water,  said his  initial                                                               
reaction is that it should be updated to say one family in four.                                                                
8:40:03 AM                                                                                                                    
REPRESENTATIVE GARDNER asked Mr.  Griffith to speak about failure                                                               
8:40:35 AM                                                                                                                    
MR.  GRIFFITH said  the program  goes back  30 years  and in  the                                                               
early days there  were more catastrophic failures,  mostly due to                                                               
materials available at  the time.  Because of  the improved local                                                               
capacity  of   communities,  there  have  been   no  catastrophic                                                               
failures in at  least 10 years.  Occasionally  there are projects                                                               
that  may  not be  operated  as  efficiently  as they  could  be.                                                               
Through the  application process,  grant conditions,  and working                                                               
with  other programs,  he  said he  believes  those concerns  are                                                               
being addressed as well.                                                                                                        
8:41:56 AM                                                                                                                    
REPRESENTATIVE GARDNER asked  what the mechanism is  by which the                                                               
division is able to identify when things are falling apart.                                                                     
8:42:12 AM                                                                                                                    
MR. GRIFFITH  said one  mechanism is  the Rural  Utility Business                                                               
Advisory program,  which uses a comprehensive  list of indicators                                                               
to assess how  well a utility is functioning.   The division also                                                               
relies on other indicators, such  as certified, trained operators                                                               
and utility  managers and  compliance of  water regulations.   He                                                               
also  mentioned  the  Remote Maintenance  Worker  program,  where                                                               
someone travels out  to the communities several times  a year and                                                               
reports back  to the division.   In  response to a  question from                                                               
Chair  Seaton, he  said most  of the  remote maintenance  workers                                                               
work  through regional  grantees, but  there are  also three  who                                                               
work directly for the state.   Each remote maintenance worker, he                                                               
said, works with about 8-10 communities.                                                                                        
[CHAIR SEATON handed the gavel to Vice Chair Gatto.]                                                                            
8:43:43 AM                                                                                                                    
REPRESENTATIVE  GRUENBERG  directed  attention  to a  copy  of  a                                                               
legislative audit  conducted November 19, 2003,  [included in the                                                               
committee  packet], and  he asked  if  that is  the most  current                                                               
8:44:24 AM                                                                                                                    
MR. GRIFFITH  said that's the  latest special  legislative audit.                                                               
He explained  that there is  an annual audit  done, as well.   In                                                               
response  to a  question from  Representative Gruenberg,  he said                                                               
there  are a  number of  letters  available that  are updates  to                                                               
changes  that  have  taken  place  as  a  result  of  that  audit                                                               
[included  in  the committee  packet].    He indicated  that  the                                                               
updates  were made  in April,  June, and  September of  2004, and                                                               
April of 2005.                                                                                                                  
8:45:31 AM                                                                                                                    
REPRESENTATIVE GRUENBERG asked if  it is still the recommendation                                                               
of the  legislative auditor  that the  program be  transferred to                                                               
the Department of Transportation & Public Facilities (DOT&PF).                                                                  
8:45:54 AM                                                                                                                    
MR. GRIFFITH said  one of the division's letters  was in response                                                               
to that recommendation,  but there has been no  follow-up on that                                                               
8:46:02 AM                                                                                                                    
REPRESENTATIVE GRUENBERG responded that "that  seems to be at the                                                               
heart  of   their  recommendation,"  and  he   expressed  concern                                                               
regarding  both  the  content   of  the  correspondence  and  the                                                               
differences of opinion that the  division has compared to that of                                                               
the  legislative   auditors,  "both  sides   apparently  somewhat                                                               
calling the  other side's competency  into question."   He asked,                                                               
"Are you  still resisting their  recommendation to  transfer your                                                               
8:47:14 AM                                                                                                                    
MR. GRIFFITH responded as follows:                                                                                              
     For    the   large    part   we've    implemented   the                                                                    
     recommendations  of  the  audit, but  that  significant                                                                    
     suggestion  in the  audit is  one  that the  department                                                                    
     responded to  and has not  in any way  followed through                                                                    
     with as a recommendation.                                                                                                  
8:47:38 AM                                                                                                                    
REPRESENTATIVE GRUENBERG  said he doesn't recall  ever hearing of                                                               
an agency  calling the competency  of [the  legislative auditors]                                                               
into question.   He  asked Mr. Griffith  if the  department still                                                               
thinks they were not competent.                                                                                                 
8:48:00 AM                                                                                                                    
MS.  KENT said  what she  is attempting  to explain  is that  the                                                               
concerns  of   the  auditors,  which  might   have  driven  their                                                               
recommendation  to  shift  the program  from  one  department  to                                                               
another, have  been addressed by  the department;  therefore, the                                                               
department  thinks  that  the  recommendation  is  not  necessary                                                               
8:48:34 AM                                                                                                                    
REPRESENTATIVE  GRUENBERG restated  his  question.   He said  the                                                               
tone  of  the  program's  responses   called  into  question  the                                                               
competency of  the [auditors], and  he said  he wants to  know if                                                               
the department still  thinks its comments were valid  and, if so,                                                               
why.  He  said he is concerned  when there is question  as to the                                                               
competency of the people the legislature employs.                                                                               
8:49:23 AM                                                                                                                    
VICE CHAIR GATTO  suggested Ms. Kent may want some  time in which                                                               
to formulate an answer.                                                                                                         
8:49:51 AM                                                                                                                    
MS. KENT concurred.                                                                                                             
8:50:07 AM                                                                                                                    
VICE  CHAIR  GATTO  asked  how  Ms.  Kent's  position,  life,  or                                                               
organization would be changed if those audits were implemented.                                                                 
8:50:16 AM                                                                                                                    
MS.  KENT  said the  program  would  very  likely look  like  the                                                               
program that is currently being implementing.                                                                                   
8:50:43 AM                                                                                                                    
VICE CHAIR  GATTO surmised that  DOT&PF would most  likely expect                                                               
"your group to remain together,  continue your work, and probably                                                               
have a different person overseeing."   He asked if there would be                                                               
more significant changes.                                                                                                       
MS. KENT  said she doesn't think  so, because of all  the changes                                                               
that  have been  made  thus  far in  response  to the  governor's                                                               
administrative order,  the legislative  intent language,  and the                                                               
audit suggestions.                                                                                                              
8:51:16 AM                                                                                                                    
REPRESENTATIVE GRUENBERG  mentioned language  on pages 19  and 44                                                               
of  the aforementioned  audit handout  which  is in  regard to  a                                                               
possible  lack   of  statutory   authority  for   communities  to                                                               
participate  in programs.   He  asked,  "Do you  feel that  there                                                               
should be some statutory changes?"                                                                                              
[VICE CHAIR GATTO returned the gavel to Chair Seaton.]                                                                          
8:52:35 AM                                                                                                                    
MR. GRIFFITH said  the division looked at the  statute related to                                                               
the  Village Safe  Water program  and  determined that  statutory                                                               
changes are not necessary.                                                                                                      
8:53:31 AM                                                                                                                    
REPRESENTATIVE GRUENBERG read from  [the first paragraph of] page                                                               
19 of the handout as follows:                                                                                                   
        Village Safe Water procedures do not encourage a                                                                        
     community to monitor a manager's ongoing compensation.                                                                     
REPRESENTATIVE GRUENBERG referred  to part of footnote  37 on the                                                               
bottom of page 19, which read:                                                                                                  
       The community usually contributes none of its own                                                                        
     money to the project.                                                                                                      
REPRESENTATIVE GRUENBERG  noted that  the division's  response to                                                               
footnote  37 [is  in  the  second paragraph  on  page  44 of  the                                                               
handout] and read:                                                                                                              
    Communities    are   prohibited    by   statute    from                                                                     
     contributing to the cost of construction.                                                                                  
REPRESENTATIVE GRUENBERG  asked, "Is that good  public policy, or                                                               
do you believe that should be changed?"                                                                                         
8:53:46 AM                                                                                                                    
MR.  GRIFFITH asked  Representative Gruenberg  to clarify  if his                                                               
question  is about  whether or  not the  division believes  there                                                               
should be a match requirement  for the small communities as there                                                               
is for larger cities.                                                                                                           
8:54:22 AM                                                                                                                    
REPRESENTATIVE GRUENBERG answered yes.                                                                                          
8:54:27 AM                                                                                                                    
MS. KENT suggested that that's  within the purview of legislature                                                               
to  decide such  a  policy  question as  to  whether  or not  the                                                               
smaller  communities  should  provide  matching  grant  funds  to                                                               
projects that  the division conducts.   She said she  assumes the                                                               
legislature would  consider how small  a cash flow   is available                                                               
in the smaller communities if it were to make such a decision.                                                                  
8:55:02 AM                                                                                                                    
REPRESENTATIVE  GRUENBERG  expressed   difficulty  in  getting  a                                                               
handle on this  issue.  He concluded,  "But I am, I  must say, to                                                               
some extent  troubled by the  content and  the tone, and  I don't                                                               
say that very often."                                                                                                           
8:55:36 AM                                                                                                                    
REPRESENTATIVE GATTO directed attention to  page 19 of [the audit                                                               
handout to which Representative  Gruenberg referred], which shows                                                               
a  recommendation   to  address   excessive  wages   for  on-site                                                               
managers.   That recommendation  is that the  managers be  paid a                                                               
salary,  rather  than  an  hourly   wage.    He  noted  that  the                                                               
justification for that recommendation is  on page 20, which shows                                                               
["Exhibit  5"],   an  example  for  [the   highest-paid]  on-site                                                               
manager.     Representative  Gatto  noted  that,   with  all  the                                                               
additional job  perks, this manager  received $355,000.   He said                                                               
that is an  unbelievable amount of money, "unless  this person is                                                               
so extraordinary."                                                                                                              
8:57:40 AM                                                                                                                    
MR. GRIFFITH  said that  got the  division's attention,  too, and                                                               
resulted  in  several  policy  changes   in  the  form  of  field                                                               
directives,  limiting the  number  of hours  that a  construction                                                               
superintendent can work on the job.   It also addressed issues of                                                               
nepotism and working  on multiple jobs.  He  indicated that those                                                               
changes are detailed in the  aforementioned letters.  In response                                                               
to a question  from Chair Seaton, he said  those on-site managers                                                               
are  still  paid  hourly  "and   we  are  following  those  field                                                               
directives ...."                                                                                                                
8:58:46 AM                                                                                                                    
REPRESENTATIVE  GRUENBERG said  he  is concerned  by the  example                                                               
that Representative  Gatto highlighted, but he  is more concerned                                                               
about how this was  allowed to happen.  He said  he wants to know                                                               
what  basic managerial  changes are  being made  to prevent  this                                                               
from occurring.                                                                                                                 
MS.  KENT  said she  would  be  happy to  follow  up  on that  in                                                               
8:59:51 AM                                                                                                                    
CHAIR SEATON said  a consistent theme is that  DEC engineers were                                                               
having to  act outside of their  area of expertise in  drawing up                                                               
contracts.   He referred to  a letter  to Jim Clark  from Ernesta                                                               
Ballard,  dated  April 26,  2004,  which  read,  "We are  in  the                                                               
process of reclassifying a position  to add contracting support."                                                               
He  asked, "Is  there contracting  officer support  now, and  are                                                               
contracts done by contracting officers or by the DEC engineers?"                                                                
9:00:31 AM                                                                                                                    
MR. GRIFFITH said a procurement  specialist has been added to the                                                               
staff,  and   contracts  and  procurement  do   go  through  that                                                               
individual.  He  added, "We've also addressed  that issue through                                                               
standardizing  a   number  of  our  contracts   for  professional                                                               
services."    In response  to  a  follow-up question  from  Chair                                                               
Seaton, he confirmed that that  means DEC engineers are no longer                                                               
drawing up the contracts.                                                                                                       
9:01:04 AM                                                                                                                    
REPRESENTATIVE  GATTO noted  that the  employee from  the example                                                               
actually  earned the  money in  2002 and  Mr. Griffith  said that                                                               
that got  the division's attention.   Based on  that information,                                                               
he said he wonders  why the pay is still at  hourly and no change                                                               
has been made to date.                                                                                                          
9:01:31 AM                                                                                                                    
MR. GRIFFITH explained that there were  a number of causes of the                                                               
high  compensation  rate,  the  most  significant  of  which  was                                                               
excessive  hours.   He stated  his belief  that there  are issues                                                               
about what  types of employees  can be  paid for hourly  and what                                                               
kinds  of workers  can  be  paid by  salary,  and  he stated  his                                                               
understanding  that hourly  pay is  called for  by labor  law for                                                               
this type of  construction job.  He added,  "But that's something                                                               
that I may want to confirm."                                                                                                    
9:02:23 AM                                                                                                                    
MR. GRIFFITH, in  response to a question from  Chair Seaton, said                                                               
the   term   "on-site   manager"   is   used   for   construction                                                               
superintendents.  In response to  a follow-up question from Chair                                                               
Seaton, he said the division does  not have any employees who are                                                               
construction superintendents.   Construction oversight on-site is                                                               
provided  either  by  local  hire   or  through  a  contract  for                                                               
construction management  services, depending  on the size  of the                                                               
9:03:26 AM                                                                                                                    
CHAIR  SEATON  asked  if there  are  currently  any  requirements                                                               
related to technical competence or degrees.                                                                                     
9:03:41 AM                                                                                                                    
MR. GRIFFITH  answered that in  the case of  the local hire  of a                                                               
construction   superintendent,    the   division    has   minimum                                                               
requirements  that must  be  met.   In  response  to a  follow-up                                                               
question  from   Chair  Seaton,  he  said   "minimum"  refers  to                                                               
9:04:14 AM                                                                                                                    
REPRESENTATIVE  GARDNER  directed attention  to  page  21 of  the                                                               
audit handout, which  shows that the employee  in question billed                                                               
the  state  for 110  hours  per  week  for  10 weeks,  which  she                                                               
calculated is  more than 15  hours a day, 7  days a week,  for 10                                                               
weeks.  She asked if  anyone actually believes that that employee                                                               
worked that amount of time and if he/she is still employed.                                                                     
9:04:38 AM                                                                                                                    
MR. GRIFFITH said there are now  limits that were not in place at                                                               
the   time,  which   limit   a   superintendent's  hours   during                                                               
construction  periods to  72 hours  a week  and 40  hours a  week                                                               
during  nonconstruction periods.   He  stated that  the limit  is                                                               
cumulative  and applies  whether the  superintendent is  managing                                                               
one or more  projects.  That requirement was not  in place at the                                                               
time  the superintendent  from the  example  worked; however,  he                                                               
said the  division found no  reason to consider  that information                                                               
to  be fraudulent.   That  particular  superintendent works  well                                                               
with  one of  the  communities  on the  Kenai  Peninsula and  has                                                               
continued to work  on the project, but is now  subject to the new                                                               
requirements.   As long as  an individual meets  the requirements                                                               
and doesn't violate any laws  or labor requirements, the decision                                                               
to hire him/her is up to the community.                                                                                         
9:06:33 AM                                                                                                                    
CHAIR  SEATON asked  if the  time sheets  with notes  of what  is                                                               
being worked  on are currently  a requirement of all  the Village                                                               
Safe Water program's projects.                                                                                                  
9:07:02 AM                                                                                                                    
MR. GRIFFITH answered yes.                                                                                                      
9:07:27 AM                                                                                                                    
MR.  GRIFFITH,  in response  to  a  question from  Representative                                                               
Gatto, confirmed that the locally  hired superintendents are paid                                                               
by DEC.  He offered further details.                                                                                            
9:07:53 AM                                                                                                                    
REPRESENTATIVE GATTO stated:                                                                                                    
     I'm surprised at that, but  I'm more surprised at this:                                                                    
     When  the manager  did not  commute, DEC  rented him  a                                                                    
     two-story,  three-bedroom, sauna-equipped,  home office                                                                    
     at  one end  of the  road.   The rental  was renovated,                                                                    
     painted,  and  furnished  for  him  at  DEC's  expense,                                                                    
     including two televisions, VCRs,  and a $2,700 computer                                                                    
     Somebody's  making  out  pretty   well  here,  and  I'm                                                                    
     terribly  concerned  that if  indeed  we  just pay  the                                                                    
     money because that's  the way the time  sheets come in,                                                                    
     and don't have control over  who gets hired and -- well                                                                    
     you know  where I'm going  with this.  This  seems like                                                                    
     an out-of-control operation.                                                                                               
9:08:49 AM                                                                                                                    
CHAIR SEATON said he thinks  the committee would be better served                                                               
by getting  some additional information  from DEC.  He  said, "We                                                               
were all  troubled by  the audit  and ... I'm  glad that  DEC was                                                               
troubled by the audit, as well."                                                                                                
9:09:36 AM                                                                                                                    
SCOTT  RUBY, Community  Development  Section  Chief, Division  of                                                               
Community   Advocacy,  Department   of  Commerce,   Community,  &                                                               
Economic  Development   (DCCED),  told  the  committee   that  he                                                               
oversees  not  only the  Rural  Utility  Business Advisor  (RUBA)                                                               
program  within the  department,  but also  the Local  Government                                                               
Assistance  program,  which  provides  "much  the  same  sort  of                                                               
assistance to communities  on issues other than  sanitation."  He                                                               
directed  attention  to  a  handout   in  the  committee  packet,                                                               
entitled, "Rural Utility Business  Advisor (RUBA) program," which                                                               
he said provides a brief overview  of the program.  He noted that                                                               
the program  was started in 1990.   He stated the  reason for the                                                               
program's involvement  and work with  DEC was because  there were                                                               
some problems  with facilities failing or  struggling to survive,                                                               
because rates  were not set,  money was not being  collected, and                                                               
ordinances were not passed.                                                                                                     
MR. RUBY  indicated that RUBA  was provided funds through  DEC in                                                               
order  to  work with  communities  that  were slated  to  receive                                                               
[sanitation systems].   Over the years, he said,  RUBA varied how                                                               
it  measured   capacity  and  "identified  what   those  critical                                                               
indicators were."  The latest  version of capacity indicators was                                                               
developed in  2004.  He  related that those categories  are shown                                                               
on the  last two pages of  a three-page handout in  the committee                                                               
packet  entitled,  "History  of Rural  Utility  Business  Advisor                                                               
(RUBA)  program  History  of  Use  and  Development  of  Capacity                                                               
Indicators,"  and  those  indicators are:    utility,  accounting                                                               
systems,   payroll   tax,    personnel   system,   organizational                                                               
management, and operational.  Each  of those indicators is broken                                                               
down  into   "sustainable"  and   "essential."     The  essential                                                               
indicators are the ones that DEC  has decided to focus on through                                                               
special grant conditions that a  community must meet in order for                                                               
construction to happen, he said.   He said RUBA staff completes a                                                               
management audit, gives  it to the community, and  offers to work                                                               
with   the   community  to   assist   them   in  correcting   any                                                               
deficiencies.  Mr.  Ruby said there are other  agencies that also                                                               
have   staff  that   can  help   the   communities  correct   the                                                               
deficiencies.   Once the community has  implemented the necessary                                                               
changes,  it requests  that RUBA  conduct another  assessment, or                                                               
9:13:51 AM                                                                                                                    
CHAIR SEATON  asked if  the audits are  done only  on communities                                                               
that have  a Village Safe Water  program project, "or is  this on                                                               
the community before the grant is granted?"                                                                                     
9:14:10 AM                                                                                                                    
MR.  RUBY replied  that any  community  can request  an audit  be                                                               
done, but  RUBA does not have  the authority to conduct  an audit                                                               
without a community's  request for one.  He  said RUBA's priority                                                               
would be to those communities who have current grants.                                                                          
9:15:33 AM                                                                                                                    
MR. RUBY,  in response  to an observation  made by  Chair Seaton,                                                               
said some  of the indicators  do not apply  to a community.   For                                                               
example, a community  may be in the process of  getting grant and                                                               
has not  yet hired  any employees, and  therefore they  would not                                                               
have worker's  compensation insurance  for that purpose.   Rather                                                               
than  marking "yes,"  which would  mean the  community meets  the                                                               
indicator of  having workman's compensation insurance,  RUBA uses                                                               
"N/A," which  Mr. Ruby explained is  the same as yes,  in that it                                                               
would not hold up a project.                                                                                                    
9:17:10 AM                                                                                                                    
REPRESENTATIVE  GATTO   referred  to  the   previously  mentioned                                                               
handout   entitled,  "Rural   Utility  Business   Advisor  (RUBA)                                                               
program."  He read one of  the items regarding RUBA's approach to                                                               
assisting communities:  "Assess progress  and adjust work plan if                                                               
necessary."  He questioned whether that was really happening.                                                                   
9:18:09 AM                                                                                                                    
MR. RUBY said RUBA's work plan  is based upon the deficiencies in                                                               
the  capacity  assessment,  and   it  prioritizes  the  essential                                                               
indicators.  He said:                                                                                                           
     Once you  get past the  essential indicators, a  lot of                                                                    
     times you're trying  to decide ... whether  or not it's                                                                    
     better  to ...  adopt  ... personnel  procedures or  to                                                                    
     revise the ordinance.  We  negotiate with the community                                                                    
     a work plan ... which they want to implement.                                                                              
     ... Frequently,  ... what we  have is high  turnover in                                                                    
     the communities.  ... It  may be that they've had clerk                                                                    
     turnover  and we  need to  retrain their  bookkeeper to                                                                    
     make sure  that their accounting  system is kept  up to                                                                    
     date, rather than working on the personnel policies.                                                                       
     ... Our  work plans try to  be ... two to  three months                                                                    
     out for  what we're  going to  currently work  on [for]                                                                    
     the  community, but  it's a  negotiated  work plan  for                                                                    
     what the  community's able  and willing  to work  on at                                                                    
     that time.                                                                                                                 
9:19:15 AM                                                                                                                    
CHAIR SEATON asked  if RUBA has the ability to  hold up a project                                                               
if it  does not like it,  even if the community  is following the                                                               
original work plan.                                                                                                             
9:19:51 AM                                                                                                                    
MR. RUBY answered no.  He said  the work plan is basically set by                                                               
the community.                                                                                                                  
9:21:02 AM                                                                                                                    
CHAIR SEATON  noted that the  House Resources  Standing Committee                                                               
was supposed  to hear this overview  but is all tied  up with oil                                                               
and gas  issues, which  is why the  House State  Affairs Standing                                                               
Committee is  hearing it.   He said one  of the reasons  that the                                                               
legislature is investigating  this issue is because  of a project                                                               
in Lowell Point in Seward that  has been on hold for quite awhile                                                               
even  though it  was  approved  and funded.    He explained  that                                                               
although this  is not  a bill  hearing, he  would like  to invite                                                               
certain public figures in Seward to offer their point of view.                                                                  
9:22:01 AM                                                                                                                    
JIM  McCRACKEN,   President,  Lowell  Point   Community  Council,                                                               
stated,  "We  were  hoping  for  some  standardization  from  one                                                               
community  to  another,  but  after  listening  to  some  of  the                                                               
discussions   this  morning,   we  can   see  why   there's  some                                                               
complications."   He noted that  Lowell Point is  the beneficiary                                                               
of a grant and has been involved  for six years on a work project                                                               
with the Village Safe Water program.                                                                                            
9:26:21 AM                                                                                                                    
CHAIR  SEATON said  he  finds it  problematic  that an  at-length                                                               
engineering study  was completed, the Village  Safe Water program                                                               
said it wanted  certain things amended, the  engineers made those                                                               
amendments, further  study was done,  the governor  nominated the                                                               
program,  the legislature  approved the  program, and  now he  is                                                               
hearing  the administration  saying it  doesn't like  the program                                                               
anymore, because  it doesn't meet  necessary criteria.   He asked                                                               
if that is what is being said.                                                                                                  
9:27:10 AM                                                                                                                    
MR. GRIFFITH responded:                                                                                                         
     That is what we're  saying; we're taking responsibility                                                                    
     for the fact  that that project plan didn't  get a good                                                                    
     review, didn't get a good  look at alternatives the way                                                                    
     that  we believe  we should  have reviewed  it, and  we                                                                    
     didn't take  a close enough  look at the  capital costs                                                                    
     in the  most economical way  to provide for  the public                                                                    
     health needs in  that community.  And  we're going back                                                                    
     and trying  to revisit  that issue with  the community.                                                                    
     We could have done a better job at the time.                                                                               
9:27:46 AM                                                                                                                    
MR.  GRIFFITH,  in response  to  a  question from  Representative                                                               
Gatto, said Lowell  Point is located approximately  2 miles south                                                               
of Seward Alaska on the road  system.  In response to a follow-up                                                               
question  from  Representative  Gatto,  he said  $90,000  is  the                                                               
approximate  amount per  home for  sewer collection  pipe "mains"                                                               
and service  lines.  He  said that would  not include any  of the                                                               
associated  piped  water  system.   The  total  project  need  is                                                               
approximately $6,135,000  - about $200,000  per home for  pipes -                                                               
which  he  said  is  high  compared to  what  is  spent  in  most                                                               
communities.   He  said, "In  most  communities we're  developing                                                               
water  sources, water  treatment, sewage  disposal, [and]  sewage                                                               
treatment.  In  Lowell Point and the Seward area,  a lot of those                                                               
facilities are already constructed."                                                                                            
9:28:45 AM                                                                                                                    
REPRESENTATIVE GATTO asked what  Mr. Griffith thinks the public's                                                               
perception  would be  about the  cost  of $200,000  per home  for                                                               
water and sewer.                                                                                                                
9:29:24 AM                                                                                                                    
MR. GRIFFITH said  he thinks the concern about the  cost per home                                                               
for  water  and  sewer  facilities  in  rural  communities  is  a                                                               
legitimate one.   He  said he thinks  it's the  responsibility of                                                               
the department  to oversee  those capital  costs and  ensure that                                                               
each  project has  a  thorough review  to  prevent spending  more                                                               
money than necessary.   He concluded, "That's part  of what we're                                                               
trying to do in revisiting the master plan for Lowell Point."                                                                   
CHAIR  SEATON proffered,  "And you  should know  that the  master                                                               
plan does not include water; it's a sewer plan that we funded."                                                                 
MR.  GRIFFITH clarified  that  the  master plan  to  which he  is                                                               
referring was  developed in 2000.   The application  submitted in                                                               
2003 was for only the sewer portion of that master plan.                                                                        
9:30:18 AM                                                                                                                    
REPRESENTATIVE GARDNER  asked if  there is any  contribution from                                                               
the local property owners to the project.                                                                                       
9:30:37 AM                                                                                                                    
MR. GRIFFITH answered no.                                                                                                       
9:30:40 AM                                                                                                                    
CHAIR SEATON  told Representative  Gardner, "Village  safe waters                                                               
are either federal  pass-through money or state money.   ... It's                                                               
not like  you're going into a  home and putting in  an individual                                                               
system - this is the sewer main, et cetera."                                                                                    
9:31:04 AM                                                                                                                    
REPRESENTATIVE LYNN said  he has been to Lowell Point.   He asked                                                               
if  the occupancy  of the  homes  is year-round,  adding that  he                                                               
thinks he knows the answer.                                                                                                     
9:31:46 AM                                                                                                                    
MR. GRIFFITH said there are a  number of homes in addition to the                                                               
30  being talked  about,  and  there is  a  variety of  occupancy                                                               
patterns in those  homes.  He estimated that 30  of the homes are                                                               
occupied continuously "in  one way or the other."   He said there                                                               
are slope  workers, fishermen, teachers  who rent a  house during                                                               
the school year and live there  in summer, people who operate bed                                                               
& breakfasts, and vacationers.                                                                                                  
CHAIR SEATON added that there  is a homesteader living there, and                                                               
there is also a volunteer fire station - "more than just homes."                                                                
The committee took an at-ease from 9:33:23 AM to 9:38:41 AM.                                                                
HB 238-PUBLIC EMPLOYEE/TEACHER RETIREMENT                                                                                     
CHAIR SEATON announced that the  last order of business was HOUSE                                                               
BILL  NO.  238,  "An  Act  relating  to  contribution  rates  for                                                               
employers  and  members  in  the defined  benefit  plans  of  the                                                               
teachers' retirement system and  the public employees' retirement                                                               
system and  to the ad-hoc  post-retirement pension  adjustment in                                                               
the  teachers'  retirement   system;  requiring  insurance  plans                                                               
provided  to  members of  the  teachers'  retirement system,  the                                                               
judicial  retirement  system,  the public  employees'  retirement                                                               
system,  and  the  former  elected  public  officials  retirement                                                               
system to provide a list  of preferred drugs; relating to defined                                                               
contribution  plans  for  members  of  the  teachers'  retirement                                                               
system  and   the  public   employees'  retirement   system;  and                                                               
providing for an effective date."                                                                                               
9:38:53 AM                                                                                                                    
REPRESENTATIVE  GATTO moved  to  adopt  the committee  substitute                                                               
(CS) for HB  238, Version 24-LS0761\R, Wayne, 1/31/06,  as a work                                                               
draft.   There  being  no  objection, Version  R  was before  the                                                               
9:40:15 AM                                                                                                                    
CHAIR SEATON stated  that the purpose of bringing back  HB 238 is                                                               
to address  helping employer costs.   He directed attention  to a                                                               
PowerPoint  presentation,  the  hardcopy  for  which  is  in  the                                                               
committee packet and  is [10 pages front and back].   On page one                                                               
of  the PowerPoint,  it shows  definitions of  relevant terms  as                                                               
follows [original punctuation provided]:                                                                                        
     Blended  employer past  service cost  rate:   refers to                                                                
     the  average past  service cost  rate of  all non-State                                                                    
     non-school district PERS employee                                                                                          
     Past  service cost:    refers to  the  annual lump  sum                                                                
     payment   made  towards   the   PERS  system   unfunded                                                                    
     Past Service Cost Rate:   means the annual payment as a                                                                
     percentage  of  total  wage  base  of  employee  salary                                                                    
     required to pay  the past service cost  as an amortized                                                                    
     contribution in percentage over  a stipulated number of                                                                    
     Unfunded Liability:   refers to amount  that would need                                                                
     to be  paid into the  PERS system  to cover all  of its                                                                    
CHAIR SEATON, regarding the blended  rate, said, "If you paid the                                                               
full normal costs  and all of your assumptions  were correct, you                                                               
would fully collect  and you would pay for all  the benefits that                                                               
would have accrued to that employee."                                                                                           
9:42:27 AM                                                                                                                    
CHAIR SEATON  directed attention to  the first "slide" on  page 2                                                               
of the  PowerPoint presentation, which read  as follows [original                                                               
punctuation provided]:                                                                                                          
     What is the Past Service Offset Account? (PSCOA)                                                                         
     The  PSCOA is  a mechanism  to help  municipalities pay                                                                    
     their unfunded  liability over 25 years.   The payments                                                                    
        are based on a municipality's number or Tier IV                                                                         
     employees and contributions are limited to the average                                                                     
     experience of the system                                                                                                   
CHAIR  SEATON reminded  the committee  that the  rate has  always                                                               
been calculated  based on the  entire wage base of  the employer;                                                               
therefore, if an employer has  25 employees, it doesn't matter if                                                               
they are  Tier I,  II, III, or  IV.  He  directed attention  to a                                                               
hypothetical situation of how the  PSCOA is calculated, beginning                                                               
on page 3 of  the PowerPoint.  Using "City X"  as an example, the                                                               
page shows that if City X has  25 employees, 20 of whom are Tiers                                                               
I, II, and  III defined benefit (DB) employees and  5 of whom are                                                               
Tier IV defined  contribution (DC) employees, the  PSCOA will pay                                                               
the past service  cost (PSC) for those new Tier  IV employees who                                                               
technically  do not  have  a past  service  cost associated  with                                                               
CHAIR SEATON moved  on to [page 4 of the  PowerPoint] which shows                                                               
the following in the top slide [original punctuation provided]:                                                                 
     Assumptions about City X                                                                                                 
     Past Service Cost Rate of City X:  30%                                                                                     
     Average Past Service Cost Rate:  20%                                                                                       
     Average Salary for City X:  $40,000                                                                                        
     City's X's Wage Base:  $1 million                                                                                          
     The PSCOA will pay on behalf of the 5 DC employees:                                                                        
     (average salary * average employer PSC rate) * number                                                                      
     of DC employees = PSCOA assistance                                                                                         
     ($40,000 * .2) * 5 = $40,000                                                                                             
9:46:02 AM                                                                                                                    
REPRESENTATIVE GARDNER  stated her  understanding of  the benefit                                                               
of having a  DC program is that it is  freestanding, meaning each                                                               
employee's costs  and benefits are  independent of  anything that                                                               
went before.                                                                                                                    
CHAIR SEATON said Representative Gardner is exactly correct.                                                                    
REPRESENTATIVE GARDNER  asked, "So, why  is there a  past service                                                               
cost for the new tier employees?"                                                                                               
9:46:19 AM                                                                                                                    
CHAIR SEATON explained  that there actually is  not; however, the                                                               
employer has to make a certain  amount of payment into the system                                                               
to pay  the debt.   Even though the new  employee did not  have a                                                               
past service cost, the employer still  owes the debt, and the way                                                               
it's most easily calculated is  by looking at the employer's wage                                                               
9:47:22 AM                                                                                                                    
REPRESENTATIVE GARDNER responded that in  some respect this is an                                                               
artificial construct; it's a bookkeeping decision.                                                                              
9:47:35 AM                                                                                                                    
CHAIR SEATON confirmed that is correct.                                                                                         
9:47:38 AM                                                                                                                    
REPRESENTATIVE GARDNER  asked, "If I  am a small  public employer                                                               
and  ...  I need  to  hire  somebody, am  I  better  off to  hire                                                               
somebody under  the new tier or  to hire somebody who  already is                                                               
in a tier and comes to me from some other state agency?"                                                                        
9:48:00 AM                                                                                                                    
CHAIR SEATON reiterated that the debt  is a fixed amount that the                                                               
employer  would  have to  pay.    In response  to  Representative                                                               
Gardner's  restatement of  her question,  he  confirmed that  the                                                               
employer  would be  better off  hiring someone  new, rather  than                                                               
someone who is in the old DB system.   He said he is waiting on a                                                               
legal opinion  to find out  whether an employer can  legally make                                                               
that determination.                                                                                                             
9:49:23 AM                                                                                                                    
REPRESENTATIVE GARDNER asked, "If we  were to assume that this is                                                               
a great plan  and it would be very effective,  why would we limit                                                               
it to nonstate and nonschool  district employers; why not include                                                               
9:49:40 AM                                                                                                                    
CHAIR  SEATON  said  the  school   district  and  state  agencies                                                               
basically have  no funding other  than from the legislature.   He                                                               
said,  "This is  a  mechanism to  try to  get  to those  nonstate                                                               
REPRESENTATIVE GARDNER  said, "So,  we're setting up  a mechanism                                                               
for indirectly  funding those obligations  that are  not directly                                                               
ours, but we're  accepting them as ours and setting  up a funding                                                               
mechanism.  But we still could  do the same for all the different                                                               
pots.   We're just saying,  'This gets paid  out of this  pot and                                                               
this gets paid out of this pot.'"                                                                                               
CHAIR  SEATON responded,  "We could,  and we  might want  to have                                                               
different funding mechanisms for the  others, because it gives us                                                               
more flexibility, because  we're paying those bills  anyway."  In                                                               
response to  a comment made  by Representative Gardner,  he said,                                                               
"Under this  mechanism we  would help pay,  and we're  creating a                                                               
mechanism to help the municipalities."                                                                                          
9:51:21 AM                                                                                                                    
CHAIR  SEATON continued  with the  PowerPoint, bringing  focus to                                                               
the  second slide  on page  4,  which read  as follows  [original                                                               
punctuation provided]:                                                                                                          
      The PSCOA payment reduces City X's PSC contribution                                                                     
     from $300,000 to $260,000 , or their PSC rate from 30%                                                                   
     to 26%                                                                                                                   
CHAIR  SEATON reviewed  that another  bill  dealing with  pension                                                               
obligation  bonds (POBs),  offered a  scenario in  which the  POB                                                               
could  lower  the  [past  service  cost] by  2.6  percent.    The                                                               
scenario  shown on  page 4  of  the PowerPoint,  he noted,  would                                                               
lower the past service cost by 4 percent.                                                                                       
CHAIR  SEATON directed  attention to  page 5  of the  PowerPoint,                                                               
which shows  City X at  "20 years out," to  show how much  of the                                                               
employers' past service  cost the PSCOA would pay  in the future.                                                               
[The first  slide on page 6  shows that City X  has 30 employees,                                                               
three of which are DB and 27 of  which are DC.]  The second slide                                                               
on page 6 read as follows [original punctuation provided]:                                                                      
     Assumptions about City X                                                                                                 
     Past Service Cost Rate of City X:  30%                                                                                     
     Average Past Service Cost Rate:  20%                                                                                       
     Average Salary for City X:  $40,000                                                                                        
     City's X's Wage Base:  $1.2 million                                                                                        
     The PSCOA will pay on behalf of the 27 DC employees:                                                                       
     (average salary * blended employer PSC rate) * number                                                                      
     of DC employees = PSCOA assistance                                                                                         
     ($40,000 * .2) * 27 = $216,000                                                                                           
CHAIR SEATON  noted that [the first  slide on page 7]  shows that                                                               
the   PSCOA  payment   reduces   City  X's   past  service   cost                                                               
contribution  from [$360,000  to $144,000],  or the  past service                                                               
cost rate from  30 percent to 12 percent.   Chair Seaton referred                                                               
to [the second slide on page  7], which read as follows [original                                                               
punctuation provided]:                                                                                                          
      Why not a greater reduction in PSC payments for City                                                                    
     City X is only receiving aid for the average PSC rate                                                                      
     (20%) when there [sic] actual rate is 30%                                                                                  
     If city  X had the  same PSC  rate as the  system (20%)                                                                    
     the  PSCOA would  pay 18%  of  the city's  PSC for  the                                                                    
     twentieth  year,   the  city   left  to  make   up  the                                                                    
     difference of $24,000                                                                                                      
CHAIR  SEATON explained  that is  the example  of City  X, "we're                                                               
only  funding to  the  average  past service  cost  rate for  all                                                               
employees."   He said  cities make  choices.   He said  there are                                                               
cities that  sell off  a section  of a  business and  retain that                                                               
money  within the  city's account.   Chair  Seaton said  the most                                                               
glaring example  is Fairbanks, which  sold off a utility  and put                                                               
$100  million in  an  account,  but kept  the  past service  cost                                                               
liability.   He said, "So, what  we're saying is we're  not going                                                               
to  go in  and  absorb,  from the  state  level, those  voluntary                                                               
changes that you make.  So, we'll only come up to the average."                                                                 
9:57:05 AM                                                                                                                    
CHAIR  SEATON noted  that the  [first slide  on page  8] shows  a                                                               
graph  correlating with  the employer's  30 percent  past service                                                               
cost  rate, with  the average  being  20 percent,  a scenario  in                                                               
which  the  employer  would  pay  about  12  percent  with  PSCOA                                                               
assistance.   The same slide  shows the employer having  the same                                                               
past  service cost  rate as  the  system average  of 20  percent.                                                               
With the PSCOA, that scenario  would mean that the employer would                                                               
pay only 2 percent.                                                                                                             
CHAIR SEATON  cited [the second slide  on page 8], which  read as                                                               
follows [original punctuation provided]:                                                                                        
     PSCOA  payments will  increase over  time until  by the                                                                  
     end  of the  amortization  period the  PSCOA is  paying                                                                  
     almost all  of the past  service cost payment  for that                                                                  
CHAIR  SEATON drew  attention to  [the  first slide  on page  9],                                                               
which he noted  contains a graph showing  the PSCOA contributions                                                               
as percent  of total  past service  cost.   The graph,  he noted,                                                               
begins in 2005 at about 8  percent and goes to almost 100 percent                                                               
[by 2027].  The next slide on page 9 read as follows:                                                                           
     System Impact of PSCOA                                                                                                   
        Unfunded liability of PERS non-State non-school                                                                         
     district:  679 million                                                                                                   
     What the PSCOA will pay over 25 years:  299 million                                                                      
CHAIR SEATON suggested  a better way to look at  this is that "we                                                               
would pay 44  percent of the amount due for  employers" [which is                                                               
shown on  the final slide  on page 10].   He said, "To  make this                                                               
function, it would be a little  less than $300 million in present                                                               
dollars  that would  have to  go into  the present  dollar offset                                                               
account to create this funding mechanism."                                                                                      
9:59:03 AM                                                                                                                    
CHAIR SEATON  directed attention to the  sponsor statement, which                                                               
he  indicated  will   clarify  some  of  the   information.    He                                                               
referenced  a  two-page  graph  entitled,  "Payment  to  Unfunded                                                               
Liability per  Tier - Actual  Dollar Value."   He said  the graph                                                               
offers a look  at a five-year breakdown of  communities for Tiers                                                               
I, II, III, and IV, and totals.                                                                                                 
CHAIR  SEATON asked  the  committee to  remember  that this  plan                                                               
would set up  a long-term mechanism; it's not an  instant shot to                                                               
reduce the employers' contribution amounts today.  He said:                                                                     
     We've heard  a lot of  complaints, but in  reality, the                                                                    
     contribution rates  for municipalities haven't  gone up                                                                    
     at all, because  we made a 5  percent contribution last                                                                    
     year.   There's 5  percent, plus  the other  5 percent.                                                                    
     ...  At  least  in  the governor's  budget,  there's  a                                                                    
     proposal  to pay  the 10  percent for  this year.   ...                                                                    
     What's going to happen over  time though, is if we take                                                                    
     a  long-term look,  we want  to make  sure that  on the                                                                    
     further end  of things  that cities  aren't constrained                                                                    
     so that  they can't offer  their services that  we want                                                                    
     all communities to offer.                                                                                                  
10:01:08 AM                                                                                                                   
CHAIR  SEATON,  in response  to  a  question from  Representative                                                               
Gardner, reminded everyone that the  bill that dealt with pension                                                               
obligation  bonds  had passed  out  of  the House  State  Affairs                                                               
Standing  Committee  and  is  currently   in  the  House  Finance                                                               
Committee.   He  explained he  had offered  that example  to show                                                               
another plan with quite a different effect.                                                                                     
CHAIR SEATON announced that HB 238 was heard and held.                                                                          
There being no  further business before the  committee, the House                                                               
State  Affairs  Standing  Committee   meeting  was  adjourned  at                                                               
10:01:59 AM.                                                                                                                  

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