Legislature(2005 - 2006)BELTZ 211


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Heard & Held
Heard & Held
                    ALASKA STATE LEGISLATURE                                                                                  
    SENATE COMMUNITY AND REGIONAL AFFAIRS STANDING COMMITTEE                                                                  
                         April 20, 2005                                                                                         
                           1:32 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Senator Gary Stevens, Chair                                                                                                     
Senator Bert Stedman                                                                                                            
Senator Thomas Wagoner                                                                                                          
Senator Johnny Ellis                                                                                                            
Senator Albert Kookesh                                                                                                          
MEMBERS ABSENT                                                                                                                
COMMITTEE CALENDAR                                                                                                            
SENATE BILL NO. 171                                                                                                             
"An Act amending the National  Petroleum Reserve - Alaska special                                                               
revenue fund;  and establishing the  Special Legislative  Oil and                                                               
Gas NPR-A  Development Impact Review  Committee and  defining its                                                               
powers and duties."                                                                                                             
     HEARD AND HELD                                                                                                             
HOUSE BILL NO. 229                                                                                                              
"An Act relating to the reinstatement of Native corporations;                                                                   
and providing for an effective date."                                                                                           
     HEARD AND HELD                                                                                                             
PREVIOUS COMMITTEE ACTION                                                                                                     
BILL: SB 171                                                                                                                  
SHORT TITLE: NPR-A COMMUNITY GRANT PROGRAM                                                                                      
SPONSOR(s): SENATOR(s) WILKEN                                                                                                   
04/12/05       (S)       READ THE FIRST TIME - REFERRALS                                                                        
04/12/05       (S)       CRA, FIN                                                                                               
04/20/05       (S)       CRA AT 1:30 PM BELTZ 211                                                                               
BILL: HB 229                                                                                                                  
SHORT TITLE: REINSTATEMENT OF NATIVE CORPORATIONS                                                                               
SPONSOR(s): REPRESENTATIVE(s) FOSTER                                                                                            
03/22/05       (H)       READ THE FIRST TIME - REFERRALS                                                                        
03/22/05       (H)       CRA, FIN                                                                                               
03/31/05       (H)       CRA AT 8:00 AM CAPITOL 124                                                                             
03/31/05       (H)       Moved Out of Committee                                                                                 
03/31/05       (H)       MINUTE(CRA)                                                                                            
04/01/05       (H)       CRA RPT 4DP                                                                                            
04/01/05       (H)       DP: LEDOUX, SALMON, OLSON, THOMAS                                                                      
04/04/05       (H)       FIN AT 1:30 PM HOUSE FINANCE 519                                                                       
04/04/05       (H)       Moved Out of Committee                                                                                 
04/04/05       (H)       MINUTE(FIN)                                                                                            
04/05/05       (H)       FIN RPT 8DP 1NR                                                                                        
04/05/05       (H)       DP: HAWKER, HOLM, WEYHRAUCH, STOLTZE,                                                                  
                         MOSES, FOSTER, MEYER, CHENAULT;                                                                        
04/05/05       (H)       NR: KELLY                                                                                              
04/08/05       (H)       TRANSMITTED TO (S)                                                                                     
04/08/05       (H)       VERSION: HB 229                                                                                        
04/11/05       (S)       READ THE FIRST TIME - REFERRALS                                                                        
04/11/05       (S)       CRA, STA                                                                                               
04/20/05       (S)       CRA AT 1:30 PM BELTZ 211                                                                               
WITNESS REGISTER                                                                                                              
Senator Gary Wilken                                                                                                             
Alaska Capitol Building                                                                                                         
Juneau, AK 99801                                                                                                                
POSITION STATEMENT:  Sponsor of SB 171                                                                                        
Susan Burke, Attorney                                                                                                           
Gross & Burke                                                                                                                   
224 Fourth Street, Suite 3                                                                                                      
Juneau, AK 99801                                                                                                                
POSITION STATEMENT:  Pointed out legal problems associated with                                                               
                    SB 171                                                                                                      
Brian Labolle                                                                                                                   
Staff to Representative Richard Foster                                                                                          
Alaska Capitol Building                                                                                                         
Juneau, AK 99801                                                                                                                
POSITION STATEMENT:  Introduced HB 229 for the sponsor                                                                        
ACTION NARRATIVE                                                                                                              
CHAIR  GARY  STEVENS called  the  Senate  Community and  Regional                                                             
Affairs  Standing  Committee  meeting  to order  at  1:31:36  PM.                                                             
Present were  Senators Stedman, Wagoner, and  Chair Gary Stevens.                                                               
Senators  Kookesh and  Ellis  arrived during  the  course of  the                                                               
              SB 171-NPR-A COMMUNITY GRANT PROGRAM                                                                          
CHAIR GARY STEVENS announced SB 171 to be up for consideration.                                                                 
1:32:08 PM                                                                                                                    
SENATOR WILKEN read the sponsor statement into the record to                                                                    
frame the PowerPoint presentation:                                                                                              
     Senate  Bill   171  examines  the   National  Petroleum                                                                    
     Reserve  -  Alaska  (NPR-A)  Mitigation  Grant  Program                                                                    
     administered by the  Department of Commerce, Community,                                                                    
     and  Economic  Development  (DCCED)  and  modifies  the                                                                    
     selection process  to provide  for active  oversight by                                                                    
     the legislature.                                                                                                           
     The  bounty of  NPR-A is  thought by  many to  match or                                                                    
     exceed the  oil and gas  deposits found at  Prudhoe Bay                                                                    
     or Kuparuk.   As was  mentioned in the  Anchorage Daily                                                                    
     News,  February  15,  2005,    "(The)  Bureau  of  Land                                                                    
     Management estimates NPR-A  northeast corner could hold                                                                    
     more  that  2 billion  barrels  of  crude oil  and  3.5                                                                    
     trillion cubic feet of natural gas."                                                                                       
     All Alaskans  look forward  to the  time when  they can                                                                    
     enjoy  the  benefits   of  reasonable  and  responsible                                                                    
     development of these natural resources.                                                                                    
     When members  of the  United State  Congress authorized                                                                    
     competitive leases  in NPR-A  in 1980,  they recognized                                                                    
     that  development   in  the  petroleum   reserve  might                                                                    
     severely impact communities  in or near the  area.  The                                                                    
     federal   legislation   directed   that   the   revenue                                                                    
     generated through  NPR-A development  be used  first to                                                                    
     mitigate  direct impacts,  if  any, to  municipalities,                                                                    
     and then  by the  rest of  the State  of Alaska.   This                                                                    
     federal directive in 1980  created two troubling issues                                                                    
     that today pose significant problems.                                                                                      
     First, the  federal legislation  is in  direct conflict                                                                    
     with  the  Alaska State  Constitution.    The State  of                                                                    
     Alaska receives from the  federal government 50 percent                                                                    
     of royalties  and lease payments  from the oil  and gas                                                                    
     development  in NPR-A.   As  required  by federal  law,                                                                    
     these funds are available,  before consideration of any                                                                    
     other public  purpose, to communities  that demonstrate                                                                    
     impact  from  resource  development  in  NPR-A.    This                                                                    
     directive is  at odds  with Article  IX, Section  15 of                                                                    
     our constitution.                                                                                                          
          At least twenty-five per  cent of all mineral                                                                         
          lease   rentals,   royalties,  royalty   sale                                                                         
          proceeds,  federal  mineral  revenue  sharing                                                                         
          payments  and bonuses  received by  the State                                                                         
          shall be placed in a permanent fund.                                                                                  
     Senate  Bill 171  recognizes this  unsettling conflict,                                                                    
     but  does not  overtly address  or remedy  the conflict                                                                    
     between our  State Constitution and federal  law.  This                                                                    
     issue, while bothersome, is set  aside for another day.                                                                    
     Instead,   this  legislation   speaks  to   the  second                                                                    
     troublesome  issue of  how the  federal NPR-A  payments                                                                    
     are  distributed  to  Alaska communities  that  may  be                                                                    
     severely  impacted by  oil and  gas development  within                                                                    
     the  National Petroleum  Reserve.    With the  sizeable                                                                    
     increase in  NPR-A lease payments  since 2000  and with                                                                    
     the clear expectation of  future and profitable growth,                                                                    
     now is the  time to revisit how the  NPR-A payments are                                                                    
     distributed  and   why.  It   is  the  charge   of  the                                                                    
     legislature to  devise a method to  fairly allocate the                                                                    
     financial benefits  of NPR-A to all  citizens of Alaska                                                                    
     while,  at the  same time,  recognize and  mitigate the                                                                    
     direct impact of development  on certain communities as                                                                    
     required by federal law.                                                                                                   
     In response  to a 1986 Alaska  Superior Court decision,                                                                    
     Senate Bill 171 sets in  place a system to grant impact                                                                    
     assistance to municipalities  most directly or severely                                                                    
     impacted by  oil and gas  activity within  the National                                                                    
     Petroleum Reserve  - Alaska.  First,  the Department of                                                                    
     Commerce,  Community,  and Economic  Development  shall                                                                    
     review  and conduct  a preliminary  evaluation of  each                                                                    
     grant  application to  determine whether  the community                                                                    
     can    demonstrate    "extraordinary   municipal    and                                                                    
     educational operating expenditures  attributable to oil                                                                    
     and  gas  development  in NPR-A  that  are  beyond  the                                                                    
     municipality's reasonable  capability to meet."    (See                                                                    
     SB 171, page 3, lines  3-6)  The department will submit                                                                    
     a list of all qualifying projects to the legislature.                                                                      
     Second,  the  Special  Legislative Oil  and  Gas  NPR-A                                                                    
     Development Impact Review  Committee, composed of three                                                                    
     Senate   finance    members   and   three    House   of                                                                    
     Representative   finance  members,   will  review   the                                                                    
     submitted applications  and within 45 days  forward the                                                                    
     committee's  recommendation to  the respective  finance                                                                    
     committees for possible funding.                                                                                           
     Third, twenty-five  percent of the NPR-A  payments will                                                                    
     be deposited  to the principal of  the Alaska Permanent                                                                    
     Fund and  .5 percent to  the Public School  Trust Fund,                                                                    
     as required  in AS 37.14.110.   If the  amounts awarded                                                                    
     to  qualified  municipalities   as  grants  exceed  the                                                                    
     available  money,   each  deposit  in   the  previously                                                                    
     mentioned  funds   and  each   grant  will   be  reduce                                                                    
     And  last, a  successful  grantee shall  submit to  the                                                                    
     Department   of  Commerce,   Community,  and   Economic                                                                    
     Development  a  financial  report  and  a  copy  of  an                                                                    
     independent  audit  or  review  covering  any  previous                                                                    
     grants before any subsequent grants are awarded.                                                                           
1:37:41 PM                                                                                                                    
SENATOR WILKEN gave a PowerPoint presentation titled, "NPR-A                                                                    
Impact Mitigation Program" [copy in file] as follows:                                                                           
     Page 1                                                                                                                     
     "The duty imposed by  the federal government ultimately                                                                    
     falls upon the Alaska Legislature..."                                                                                      
     Barrow vs. State                                                                                                           
     Judge Walter Carpeneti, March 18, 1986                                                                                     
     Page 2                                                                                                                     
     Alaska Constitution vs. Alaska Statute                                                                                     
          ·  Impact mitigation program as seen today                                                                            
          · The importance of the word "impact"                                                                                 
          · Senate Bill 171                                                                                                     
1:38:42 PM                                                                                                                    
SENATOR WILKEN showed the location of NPR - A.                                                                                  
     Page 3                                                                                                                     
     National Petroleum  Reserve -  AK, the  Alaska Wildlife                                                                    
     Refuge, the Trans-Alaska  Pipeline, Native owned lands,                                                                    
     oil fields and other reference points.                                                                                     
             · 23.5 million-acre petroleum reserve is about                                                                     
          the size of Indian                                                                                                    
             · The area between the Brooks Range and the                                                                        
          Arctic Ocean                                                                                                          
1:39:09 PM                                                                                                                    
     Page 4                                                                                                                     
     History of NPR                                                                                                             
         1923 - Navel Petroleum Reserve established by                                                                          
     President Warren Harding                                                                                                   
     1976 - The Department of Interior assumed jurisdiction                                                                     
      and changed the name to National Petroleum Reserve -                                                                      
     1980 - Congress addressed changes                                                                                          
1:39:31 PM                                                                                                                    
     Page 5                                                                                                                     
     Changes to NPR-A were made in Congress in 1980                                                                             
             · Competitive leases were authorized in 42                                                                         
          U.S.C. Sec. 6508                                                                                                      
             · Federal law cleared the way for the private                                                                      
          development of NPR-A resources                                                                                        
             · State of Alaska and the federal government                                                                       
          agree to split the revenues.                                                                                          
1:40:01 PM                                                                                                                    
     Page 6                                                                                                                     
     The Legislature responded                                                                                                  
       To the new federal law:  "The State is required to                                                                       
         give priority to communities 'most directly or                                                                         
     severely impacted' by development."                                                                                        
         Establishing a special revenue fund within the                                                                         
     Department of Revenue (CS SB 835 am H, 1982)                                                                               
            Half the NPR-A receipts appropriated to                                                                             
          communities affected by leasing                                                                                       
           Half the receipts are available for state                                                                            
1:40:37 PM                                                                                                                    
     Page 7                                                                                                                     
     But Governor Hammond vetoed June 24, 1982                                                                                  
      "The dedication of such federal monies appears to be                                                                      
       inconsistent with the dedication of revenue to the                                                                       
     Alaska Permanent Fund."                                                                                                    
     Alaska State Constitution                                                                                                  
     Article IX Section 15                                                                                                      
     Alaska Permanent Fund                                                                                                      
     "At  least twenty-five  percent  of  all mineral  lease                                                                    
     rentals,  royalties,  royalty  sale  proceeds,  federal                                                                    
     mineral revenue  sharing payments and  bonuses received                                                                    
     by  the State  shall be  placed in  a permanent  fund."                                                                    
     (Adopted in 1976)                                                                                                          
SENATOR WILKEN said that few  are aware that four communities and                                                               
one  borough have  "jumped  ahead: of  deposits  into the  Alaska                                                               
Permanent Fund in receiving  appropriations. Most Alaskans assume                                                               
the royalties are  shared equally. He said that  some would argue                                                               
that the royalties are "received:  after the four communities are                                                               
allotted  a  portion.  He  contended that  the  funds  should  be                                                               
considered  "received" once  the federal  government appropriates                                                               
1:41:05 PM                                                                                                                    
     Page 8                                                                                                                     
     And so the legislature...                                                                                                  
     Without a specific state law on the books...                                                                               
             · Received $48.6 million during the early                                                                          
             · Deposited half of the State's share into the                                                                     
          Permanent Fund and .5 percent to the Public                                                                           
          School Fund                                                                                                           
             · Deposited the remainder of the funds in the                                                                      
          General Fund                                                                                                          
1:41:16 PM                                                                                                                    
     Calculation by Alaska Constitution                                                                                         
        In 1982, the Legislature appropriated the NPR-A                                                                         
     receipts according to the Alaska State Constitution                                                                        
     NPR-A Receipts                          $48,600,000                                                                        
     50% of gross receipts to Perm Fund      (24,300,000)                                                                       
     .5 of gross receipts to Public School                                                                                      
     Trust                                      (243,000)                                                                       
     Available to General Fund for                                                                                              
     Impacted Communities                                                                                                       
1:41:35 PM                                                                                                                    
     Page 10                                                                                                                    
     But what about the federal law?                                                                                            
             · In 1985, the North Slope Borough and NPR-A                                                                       
          communities sued the state                                                                                            
             · The plaintiffs wanted:                                                                                           
                  1. A    "rational    process"     for                                                                         
                    communities to apply for the                                                                                
                  2. Declaration that all NPR-A funds                                                                           
                    be automatically deposited into                                                                             
                    the special revenue fund and                                                                                
                    available for grants                                                                                        
                  3. A system to separately account the                                                                         
                    receipt of NPR-A funds and to                                                                               
                    reconstitute the special revenue                                                                            
SENATOR WILKEN emphasized the reference to a revenue fund as                                                                    
opposed to the Alaska Permanent Fund. The special revenue fund                                                                  
is not unlike the Alaska Mental Health Trust fund, he said.                                                                     
1:42:16 PM                                                                                                                    
     Page 11                                                                                                                    
     The Superior Court said...                                                                                                 
      Barrow v. State, Alaska Superior Court, Judge Walter                                                                      
     Carpeneti, March 18, 1986                                                                                                  
        1. The State is required to establish a system to                                                                       
          grant impact assistance to subdivisions most                                                                          
          directly or severely impacted by NPR-A activity.                                                                      
        2. Automatic deposits into the Permanent Fund and                                                                       
          General Fund violates the federal law.                                                                                
        3. Under the supremacy clause of the federal                                                                            
          constitution, federal law controls.                                                                                   
1:43:00 PM                                                                                                                    
In 1986 HB 491 established the impact mitigation program and                                                                    
authorized the department to adopt regulations to set up                                                                        
criteria for awarding NPR-A grants.                                                                                             
The Legislature appropriated $24.5 million to reconstitute the                                                                  
NPE-A special revenue fund.                                                                                                     
1:43:25 PM                                                                                                                    
     Page 12                                                                                                                    
     The Legislature listened                                                                                                   
          · Adopted legislation to implement the court                                                                          
             findings (CS HB 491 (FIN), 1986)                                                                                   
              · Established       the      Impact                                                                               
                  Mitigation Program                                                                                            
              · Authorized    DCCED    to   adopt                                                                               
                  regulations setting eligibility                                                                               
                  criteria for NPR-A grants                                                                                     
                · Appropriated $24.5 million to                                                                                 
                 the NPR-A special revenue fund                                                                                 
        Judge Carpeneti ruled that the NPR-A special                                                                            
        revenue fund be reconstituted. The $24.5                                                                                
        million payment was in response to this ruling.                                                                         
     Page 13                                                                                                                    
     Where did the money go?                                                                                                    
    First   and   foremost,   grants   to   four   impacted                                                                     
     After that…                                                                                                                
     1. 50 percent to the principal of the Perm Fund                                                                            
     2. .5 percent to the Public School Trust Fund                                                                              
     3. Remaining amounts to the General                                                                                        
     Note:  In 1999, HCS CSSB  157 (FIN) am H  (1999) passed                                                                    
     the  Legislature  and requires  a  25%  deposit to  the                                                                    
     Permanent  Fund and   allows  a deposit   to  the Power                                                                    
     Cost  Equalization  fund before the General Fund.                                                                          
1:43:47 PM                                                                                                                    
     Page 14                                                                                                                    
     Calculation by Alaska Statute (AS 37.05.530 (g))                                                                           
      Conforms with 1980 federal law which conflicts with                                                                       
     our Alaska Constitution                                                                                                    
          NPR-A Federal Receipts                                                                                                
          Grants to NPR-A Communities (DCCED Rec)                                                                               
          Net NPR-A Receipts                                                                                                    
          25% of Net Receipts to Permanent Fund                                                                                 
          .5% of Net Receipts to Public School Trust                                                                            
          Available Receipts for PCE (May be approp.)                                                                           
     Remainder Available for General Fund if any                                                                                
          (Example uses requested FY 06 numbers)                                                                                
1:44:47 PM                                                                                                                    
     Page 15                                                                                                                    
     Comparison of Two Methods                                                                                                  
     AK Constitution vs. AK Statutes                                                                                            
                    AK Constitution     AK Statutes                                                                             
                    Art. IX, Sec. 15    (per federal law)                                                                       
     Fed Rcpts           $31,623,800         $31,623,800                                                                        
     25% of Gross                                                                                                               
     Rcpts to                                                                                                                   
     Perm Fund           (7,906,000)                                                                                            
     .5% of Gross                                                                                                               
     Rcpts to                                                                                                                   
     School Fund         (158,100)                                                                                              
     Grants to                                                                                                                  
     (DCCED Rec)         (23,559,700)        (24,706,500)                                                                       
     25% Net to                                                                                                                 
     Perm Fund                                 1,729,300)                                                                       
     .5% Net to                                                                                                                 
     School Fund                                 (34,600)                                                                       
     Available for PCE                                                                                                          
     (May Approp)             0.0                 5,153,400                                                                     
     Available for                                                                                                              
     GENERAL FUND             0.0                 Remainder                                                                     
                                                  if any                                                                        
     Example uses requested FY 06 amount.                                                                                       
SENATOR WILKEN  said this demonstrates  the conflict  between the                                                               
Constitution  and   statute  and  the  affect   is  "shorting  my                                                               
grandkids  by  80  percent"  of  the  amount  stipulated  by  the                                                               
Constitution. "The future  is being shorted by  this federal law"                                                               
that  provides the  Permanent Fund  could receive  NPR-A receipts                                                               
only after  the requests  of four communities  That issue  is not                                                               
addressed  in this  bill,  he said.  It is  a  matter for  future                                                               
     Page 16                                                                                                                    
     NPR-A Impact Mitigation Program                                                                                            
     Alaska Constitution vs. Alaska Statute                                                                                     
     Current Impact Mitigation Program                                                                                          
     Importance of "Impact"                                                                                                     
     Senate Bill 171                                                                                                            
1:48:20 PM                                                                                                                    
     Page 17                                                                                                                    
     The Current Mitigation Program                                                                                             
     Committee Substitute for House Bill 491 (FIN), 1986                                                                        
       U.S. Dept of Interior notifies Dept. of Commerce,                                                                        
     Community and Economic Development regarding possible                                                                      
     NPR-A Federal Receipts                                                                                                     
         Flow Chart demonstrating subsequent process as                                                                         
     follows: NPR-A Communities                                                                                                 
     1. Public Notice & Request for Applications                                                                                
     2. Requests                                                                                                                
     Review Committee                                                                                                           
     3. Evaluate & Recommend Proposals                                                                                          
     4. Commissioner Requests Funding                                                                                           
     5. OK Funding                                                                                                              
1:49:16 PM                                                                                                                    
     Page 18                                                                                                                    
     Where are the Communities?                                                                                                 
          [Map of NPR-A and surrounding area with four                                                                          
     communities identified as follows:                                                                                         
          Population - 4,300                                                                                                    
          Median Household Income - $67,000                                                                                     
          City  Responsibilities   -  Bingo,  Community                                                                         
          Center,  Roller   and  Ice  Rink,   Teen  and                                                                         
          Recreation   Center,   Housing,  City   Hall,                                                                         
          Little   Dribblers,   Taxis,   Summer   Youth                                                                         
          Employment, Gravel Sales                                                                                              
          City of Wainwright                                                                                                    
          Population - 531                                                                                                      
          Median Household Income - $54,000                                                                                     
          City Responsibilities - None listed                                                                                   
          City of Atqasuk                                                                                                       
          Population - 218                                                                                                      
          Median Household Income - $66,607                                                                                     
          City Responsibilities -  Bingo, Room Rentals,                                                                         
          Community Center, Recreation, Cable TV                                                                                
          City of Nuiqsut                                                                                                       
          Population - 430                                                                                                      
          Median Household Income - $48,036                                                                                     
          City   Responsibilities  -   Community  Hall,                                                                         
          Dock, Cable TV                                                                                                        
          Source: DCCED  and Alaska Municipal  League -                                                                         
          Alaska Municipal Officials Directory                                                                                  
1:50:13 PM                                                                                                                    
     Page 19                                                                                                                    
     Total Distribution to Date                                                                                                 
     ...and FY07 projections                                                                                                    
     Bar  graph  showing  amount  of  the  Grant  Awards  in                                                                    
     amounts  between  $0 and  $50,000  for  the years  1980                                                                    
     through  1986  and FY  87  through  FY 08.  A  notation                                                                    
     states: FY  06 is  the requested amount.  FY 07  is the                                                                    
     projected amount  from the proposed NPR-A  summer lease                                                                    
     Since 1980,  a total  of $117,249,388 has  been awarded                                                                    
     to 4 communities.                                                                                                          
     (Total  includes   the  FY   06  requested   amount  of                                                                    
     (FY 87 and FY 91 include 5 communities)                                                                                    
1:51:35 PM                                                                                                                    
     Page 20                                                                                                                    
     A Perspective in Statewide Terms                                                                                           
     What  if  ... the  FY  06  requested grant  amount  was                                                                    
     computed on  a per person  basis, what would  that mean                                                                    
     for other AK communities?                                                                                                  
SENATOR WILKEN said  that if broken down per  capita, the current                                                               
year distribution  would represent $4,500  per person. This  is a                                                               
grant program with  no match. This analysis is the  spirit of the                                                               
law versus the letter of the  law. He suggests that the spirit of                                                               
the law was not to pass out this  kind of money to a certain part                                                               
of the population.                                                                                                              
1:54:04 PM                                                                                                                    
SENATOR  WAGONER  asked about  the  federal  side of  ledger.  He                                                               
assumed  that 50  percent of  everything that's  been divided  on                                                               
projects is federal and isn't touched by the formula.                                                                           
SENATOR WILKEN  replied, "We never see  it. It just stays  in the                                                               
federal budget. We would only see  it as it flows through federal                                                               
appropriations.  It  stays in  Washington  and  they send  us  50                                                               
1:54:49 PM                                                                                                                    
The  importance  of  the  word  "impact."  Alaska  law  says  the                                                               
municipality may use  NPR-A funds only for  services to alleviate                                                               
the impact of oil and  gas development within NPR-A. According to                                                               
regulations   put   in    place,   "impact"   means   "reasonably                                                               
attributable to  NPR-A oil and  gas activities under  the federal                                                               
1:55:48 PM                                                                                                                    
     Page 21                                                                                                                    
     Where is NPR-A oil and gas activity?                                                                                       
     Wainwright is 220 miles  from NPR-A development, Barrow                                                                    
     is  160  miles away,  Atqasuk  is  160 miles  away  and                                                                    
     Nuiqsut is six miles down the road.                                                                                        
1:56:42 PM                                                                                                                    
     Page 22                                                                                                                    
     Where is the NPR-A O&G activity?                                                                                           
     [Map  of  northern  Alaska showing  NPR-A,  the  Alaska                                                                    
     National  Wildlife Refuge,  the Trans-Alaska  Pipeline,                                                                    
     Native lands,  certain oil fields  and other  points of                                                                    
     Proximity to Current NPR-A Oil and Gas Activity                                                                            
     Wainwright - 220 miles                                                                                                     
     Barrow - 160 miles                                                                                                         
     Nuiqsut - 6 miles                                                                                                          
     Atqasuk - 160 miles                                                                                                        
     Page 23                                                                                                                    
     And the main O&G Activity?                                                                                                 
     [Map showing  area of North Slope  O&G Activity between                                                                    
     the eastern boundary of  the National Petroleum Reserve                                                                    
     - Alaska and  the western boundary of the  1002 Area of                                                                    
     Highlighted  are:  Units,  Drill  Pad,  Town  Location,                                                                    
     Dalton    Highway,     Trans-Alaska    Pipeline,    Oil                                                                    
     Accumulations, and Gas Accumulations.                                                                                      
1:57:29 PM                                                                                                                    
     Page 24                                                                                                                    
     Today "IMPACT" is rated as a minimum consideration                                                                         
     FY 01 NPR-A                                                                                                                
     Impact Mitigation Program                                                                                                  
     Basis for Recommendation                                                                                                   
          Description - 15 points                                                                                               
          Impact - 50 points                                                                                                    
          Budget - 15 points                                                                                                    
          Readiness - 15 points                                                                                                 
          Capability - 5 points                                                                                                 
     FY 03 NPR-A                                                                                                                
     Impact Mitigation Program                                                                                                  
     Basis for Recommendation                                                                                                   
          Description - 30 points                                                                                               
          Impact - 30 points                                                                                                    
          Budget - 20 points                                                                                                    
          Readiness - 15 points                                                                                                 
          Capability - 5 points                                                                                                 
     FY 05 NPR-A                                                                                                                
     Impact Mitigation Program                                                                                                  
     Basis for Recommendation                                                                                                   
          Description - 25 points                                                                                               
          Impact - 25 points                                                                                                    
          Budget - 20 points                                                                                                    
          Readiness - 20 points                                                                                                 
          Capability - 10 points                                                                                                
     As administered by the DCCED                                                                                               
     Page 25                                                                                                                    
     What does the law say?                                                                                                     
        · Federal Law - 42 U.S.C. 6508                                                                                          
             · In allocation of the NPR-A funds, the                                                                            
               State  shall  give  priority to  use  by                                                                         
               subdivisions of the  State most directly                                                                         
               or severely impacted  by the development                                                                         
               of oil and gas leased in NPR-A.                                                                                  
        · Alaska State Law - AS 37.05.530                                                                                       
             · A municipality may use the NPR-A funds                                                                           
               only for services to alleviate the                                                                               
               impact of O&G development within NPR-A.                                                                          
        · Alaska Regulations - 3 AAC 150.050                                                                                    
             · Impact means an effect reasonably                                                                                
               attributable to NPR-A O&G activity                                                                               
               under 42 U.S.C. 6508.                                                                                            
     Page 26                                                                                                                    
     Regs Define Impact to Mean                                                                                                 
     Reasonably attributable to NPR-A O&G activities on the                                                                     
     following (3 AAC 150.050):                                                                                                 
        · Population                                                                                                            
        · Employment                                                                                                            
        · Finances                                                                                                              
        · Social/Cultural Values                                                                                                
        · Air & Water Quality                                                                                                   
        · Fish & Wildlife Habitat                                                                                               
        · Ability to Provide Services                                                                                           
        · Other Demonstrable Things                                                                                             
     Page 27                                                                                                                    
     Impact is the First Criteria                                                                                               
     [Flow chart following a project request as follows.                                                                        
               Directly or severely impacted?                                                                                   
               Reasonably attributable to...?                                                                                   
          No - Application Rejected                                                                                             
          Yes - Application Scored                                                                                              
          No - Request not Funded                                                                                               
          Yes - Funded                                                                                                          
               Appropriation by the Legislature]                                                                                
         The    State   shall    give   priority    to                                                                          
           subdivisions of the State most directly or                                                                           
          severely impacted (42 U.S.C. 6508)                                                                                    
2:01:25 PM                                                                                                                    
     Page 28                                                                                                                    
     An example for review                                                                                                      
     Wainwright Lagoon Boat Launch - $525,000 - To replace                                                                      
     or renovate the Wainwright Lagoon Boat Ramp                                                                                
     "Impact" on Population                                                                                                     
          "Construction    of   the    oil   production                                                                         
          infrastructure  and  pipeline has  driven  up                                                                         
          the growth of population."                                                                                            
          The  population of  Wainwright has  increased                                                                         
          from 492 to 546 in 1990 - 2000.                                                                                       
     "Impact" on Employment and Finances                                                                                        
          "Due  to  decline  in property  tax  revenues                                                                         
          from  aging O&G  infrastructure. The  borough                                                                         
          cannot financially help the community."                                                                               
          The reduction in revenue is  not due to NPR-A                                                                         
          In fact, NPR-A  development will increase the                                                                         
          borough revenues.                                                                                                     
     Page 29                                                                                                                    
     ...and to continue                                                                                                         
     Wainwright Lagoon Boat Launch - $525,000                                                                                   
     "Impact" on Social and Cultural Values                                                                                     
          "The  social disruption  prompted by  oil and                                                                         
          gas  development   affects  many  traditional                                                                         
          Wainwright   is   220    miles   from   NPR-A                                                                         
     "Impact" on Fish and Wildlife Habitat                                                                                      
          "Access to hunting areas  would change in oil                                                                         
          development   reduces  the   availability  of                                                                         
          subsistence resources."                                                                                               
          Past  experience  at  Prudhoe Bay  has  shown                                                                         
          that  O&G  activities  and wildlife  can  co-                                                                         
    Question:   Were   the    listed   impacts   reasonably                                                                     
     attributable to O&G development within NPR-A?                                                                              
       A review committee of three rated "Impact" only 20                                                                       
     points out of 100, the project was recommended.                                                                            
     Page 30                                                                                                                    
     And another example...                                                                                                     
       City of Barrow Impound and Disposal Site Project -                                                                       
     "Impact" on Visual Resources                                                                                               
          "Many  of  the  abandoned vehicles  that  the                                                                         
          City of Barrow has  allowed people to dump on                                                                         
          city land  were brought to Barrow  during the                                                                         
          oil  boom in  the  last quarter  of the  20th                                                                         
          The "oil  boom" discussed was  outside NPR-A.                                                                         
          The impact must  be "reasonably attributable"                                                                         
          to oil and gas development within NPR_A.                                                                              
          No other impact was stated by the applicant.                                                                          
          Question:  Was the  listed impact  reasonably                                                                         
          attributable to  O&G development  within NPR-                                                                         
      The review committee rated "Impact" between 20 - 24                                                                       
     points out of 100; the project was recommended.                                                                            
     Page 31                                                                                                                    
     And another one...                                                                                                         
      Roller Rink Renovation Feasibility Study - $63,556 -                                                                      
      to identify the costs to renovate the Barrow Roller                                                                       
     "Impact" on Employment                                                                                                     
          "Although  an estimated  4,000 jobs  exist on                                                                         
          the North  Slope in the  O&G industry  only a                                                                         
          fraction are held by Inupiat."                                                                                        
          The  vast majority  of the  jobs  in the  O&G                                                                         
          industry are  not reasonably  attributable to                                                                         
          NPR-A development.                                                                                                    
     "Impact" on Unemployment                                                                                                   
          "As the economic  benefits of O&G development                                                                         
          begin  to  decline,  it leaves  members  less                                                                         
          able to survive..."                                                                                                   
          The  decline in  O&G  development  is not  in                                                                         
          NPR-A;   this  petroleum   reserve  is   just                                                                         
          beginning to be explored.                                                                                             
     Pate 32                                                                                                                    
     ...and to continue                                                                                                         
       City of Barrow Roller Rink Renovation Feasibility                                                                        
     Study - $63,556                                                                                                            
     "Impact: on Social and Cultural Values                                                                                     
          "The decline in  subsistence resources due to                                                                         
          NPR-A O&G development  negatively impacts the                                                                         
          Inupiat culture."                                                                                                     
2:04:53 PM                                                                                                                    
          Studies    are   currently    undertaken   to                                                                         
          determine the impact to  wildlife, if any, to                                                                         
          Barrow residents 160 miles from Alpine.                                                                               
     "Impact" on Public Services                                                                                                
          Although the population has had a small, net                                                                          
          loss in the previous five years, the burden                                                                           
          on the City of Barrow has not been reduced.                                                                           
            Most of the workers connected with NPR-A                                                                            
            development reside on the oil company's                                                                             
          production sites and not in local towns.                                                                              
    Question:   Were   the    listed   impacts   reasonably                                                                     
     attributable to O&G development within NPR-A:                                                                              
     A review committee of three rated "Impact" between 15                                                                      
     - 25 points out of 100; the project was recommended.                                                                       
2:06:06 PM                                                                                                                    
     Page 33                                                                                                                    
     Additional Concerns                                                                                                        
        · Grants are all funded as capital projects and the                                                                     
          dollars do not lapse (AS 37.25.020)                                                                                   
             · But less than 40% of the grants are for                                                                          
               capital projects (the majority of                                                                                
               grants are for operating expenses)                                                                               
        · Funds are approved before old grants for the same                                                                     
          purpose are expended...                                                                                               
             · As an example of many grants, only 15%                                                                           
               of  an FY  04  group-operating grant  of                                                                         
               $1,759,484   to   survey   wildlife   is                                                                         
               disbursed,  but  an   FY  06  grant  for                                                                         
               $2,461,368 is  recommended for  the same                                                                         
2:07:12 PM                                                                                                                    
     Page 34                                                                                                                    
     To continue                                                                                                                
        · Few grants follow timelines                                                                                           
             · Only 40% of grant funds scheduled for                                                                            
              completion on 6/30/05 has been spent                                                                              
        · Awards are not based on successful completion of                                                                      
          previous grants                                                                                                       
          FY 00 - Nuiqsut Cultural Center Construction                                                                          
          - $939,800 - Not Started as of 4/26/05                                                                                
          FY 02 - Nuiqsut Cultural Center Operating -                                                                           
     These  grant  funds  will  be  used  for  new  projects                                                                    
     without notice to or approval from the Legislature.                                                                        
2:09:20 PM                                                                                                                    
     Page 35                                                                                                                    
     Impact Mitigation Program                                                                                                  
     Alaska Constitution vs. Alaska Statute                                                                                     
     Current Impact Mitigation Program                                                                                          
     Importance of "Impact"                                                                                                     
     Senate Bill 171                                                                                                            
     Page 36                                                                                                                    
     Now is the time                                                                                                            
     To  listen  to the  Alaska  Superior  Court (Barrow  v.                                                                    
     State, March 18, 1986):                                                                                                    
     "The duty imposed by  the federal government ultimately                                                                    
     falls upon  the Alaska Legislature and  it includes the                                                                    
     duties   to   examine   the  claimed   needs   of   the                                                                    
     subdivisions  arising  from  oil  and  gas  development                                                                    
     impacts,  to evaluate  them and,  it the  claimed needs                                                                    
     are found to exist, to  rate them in order of priority,                                                                    
     and to meet the out of NPR-A revenues."                                                                                    
     Page 37                                                                                                                    
     Legislature has authority...                                                                                               
        1. To examine the claims for financial assistance                                                                       
        2. To evaluate and rank the grant requests                                                                              
        3. To determine the appropriate amount of NPR-A                                                                         
          revenue for use by impacted municipalities                                                                            
        4. To determine the specific projects that are                                                                          
     Legal Services memorandum, March 18, 2005                                                                                  
2:10:42 PM                                                                                                                    
     Page 38                                                                                                                    
     Senate Bill 171                                                                                                            
     "It is  the intent  of the legislature  to provide                                                                         
     temporary   emergency   financial  assistance   to                                                                         
     municipalities for the  purpose of meeting certain                                                                         
     extraordinary  operating  and capital  improvement                                                                         
     expenditures  necessitated by  NPR-A  oil and  gas                                                                         
     development."  (Section 1.  LEGISLATIVE INTENT  in                                                                         
     the proposed legislation.)                                                                                                 
        · Establishes a Legislative Impact Review                                                                               
          Committee (composed of 3 finance members of                                                                           
          each body)                                                                                                            
             · Consults with DCCED and then                                                                                     
               approves and forwards grant                                                                                      
               recommendations to respective                                                                                    
               finance committees.                                                                                              
     Page 39                                                                                                                    
     And to continue                                                                                                            
        · Deposits to unique funds are based on the                                                                             
          total federal NPR-A receipts                                                                                          
             · Perm Fund and Public School Trust                                                                                
        · Grants are awarded for one year, unless                                                                               
          otherwise noted                                                                                                       
        · Lapse money is appropriated to the Permanent                                                                          
          Fund, School Trust, or General Fund                                                                                   
     Page 40                                                                                                                    
     Now is the time...                                                                                                         
     To consider SB 171                                                                                                         
     ...and establish a  method to fairly allocate                                                                              
     the  financial  benefits   of  NPR-A  to  all                                                                              
     Alaskans  while, at  the same  time, mitigate                                                                              
     the direct  impact of development  on certain                                                                              
     communities as required by federal law.                                                                                    
SENATOR WILKEN concluded the presentation.                                                                                      
2:12:36 PM                                                                                                                    
CHAIR GARY  STEVENS recapped  that under  this proposal  it would                                                               
take two  legislators from  each body to  agree so  nothing could                                                               
happen without the four votes out of the six members.                                                                           
SENATOR WILKEN  explained the  proposed review  committee is                                                                    
modeled after the  legislative conference committee process.                                                                    
Two members of  the majority and one member  of the minority                                                                    
party from each  body would serve and  two affirmative votes                                                                    
from  each body  would be  required to  fund an  award. This                                                                    
standing  committee would  review  all  requests and  submit                                                                    
recommendations   to  the   full   finance  committees   for                                                                    
inclusion in the annual capital appropriation.                                                                                  
SENATOR   WAGONER   asked  why   there   would   be  no   federal                                                               
participation since it's a federal program.                                                                                     
SENATOR WILKEN  told him to  write his Congressman.  He continued                                                               
to  say,  "I   don't  think  there's  any   question  that  these                                                               
communities are like  any other community in our  state. They get                                                               
lots of federal help."                                                                                                          
SENATOR  ALBERT KOOKESH  questioned  whether there  is a  federal                                                               
definition of "impact" or whether it  had been entirely up to the                                                               
Senate and House to determine the definition of "impact."                                                                       
SENATOR WILKEN  said that's  how he viewed  it and  originally it                                                               
appears  that  the Legislature  asked  the  department to  define                                                               
CHAIR GARY  STEVENS asked  how the  proposal would  handle grants                                                               
differently than they are handled currently.                                                                                    
SENATOR WILKEN replied  the department would send  out notices as                                                               
it does today  asking whether the community  has impact according                                                               
to   certain   criteria.   The  department   would   handle   the                                                               
applications  administratively.  Following a  filtering  process,                                                               
the applications  would be submitted  to the new  committee. That                                                               
committee  would  score  the  applications   and  report  to  the                                                               
respective Finance  Committees. "The  final say on  funding would                                                               
be the Finance Committees in the Capital Budget."                                                                               
2:16:26 PM                                                                                                                    
SENATOR KOOKESH asked if there was ever any leftover money.                                                                     
SENATOR WILKEN acknowledged that was a good question and he                                                                     
would get the numbers, but he didn't think any money had ever                                                                   
dropped to the General Fund.                                                                                                    
2:17:51 PM                                                                                                                    
CHAIR GARY STEVENS called a brief at ease from 2:18:45 PM to                                                                  
2:19:15 PM                                                                                                                    
CHAIR GARY STEVENS called Susan Burke forward.                                                                                  
2:19:27 PM                                                                                                                    
SUSAN BURKE, Attorney representing  the North Slope Borough, said                                                               
she would  like to speak to  some of the legal  issues associated                                                               
with the NPR-A  grant program - particularly as it  relates to SB                                                               
MS. BURKE continued:                                                                                                            
     There is  one primary  source and one  secondary source                                                                    
     of the legal  issues. The primary one of  course is the                                                                    
     federal statute that Senator Wilken  pointed out in his                                                                    
     presentation.  As he  suggested  to you,  you have  all                                                                    
     sworn  an  oath  to  uphold  the  Alaska  Constitution.                                                                    
     ...You've also  sworn to uphold the  U.S. Constitution.                                                                    
     The reason  I bring that  to your attention  is because                                                                    
     of the  provision in the  U.S. Constitution  called the                                                                    
     Supremacy  Clause.  It  says  if  any  federal  law  is                                                                    
     supreme,  any  state  law  or  state  constitution  not                                                                    
     withstanding.  So   to  the   extent  that   there  are                                                                    
     conflicts  between  the  federal   law  that  has  been                                                                    
     described   to  you   and  provisions   of  our   state                                                                    
     constitution  such as  the Permanent  Fund minimum  25%                                                                    
     deposit,  the  federal   law  takes  precedence.  Judge                                                                    
     Carpeneti  ruled that,  the  Attorney General's  Office                                                                    
     has  opined to  that effect  and Legislative  Legal has                                                                    
     opined to that effect as well.                                                                                             
     I want  to talk a  little bit about the  Permanent Fund                                                                    
     issue  and I  want  to  talk about  some  of the  other                                                                    
     issues that relate  to the grant process  and the scope                                                                    
     of the grants as it relates to the federal act.                                                                            
     ...Judge   Carpeneti   clearly  ruled   that   whatever                                                                    
     percentage amount you apply ...  that percentage has to                                                                    
     be  applied after  all the  municipal grants  have been                                                                    
     taken care of.  That's what he ruled. I  believe he was                                                                    
     correct. The State didn't appeal  his ruling and as far                                                                    
     as I'm concerned, is bound  by that ruling. ... I don't                                                                    
     think there's  very much  more that  can be  said about                                                                    
     that except as  Senator Wilken told you.  If you're not                                                                    
     happy with it you must  write your Congressman about it                                                                    
     because  that's  what  the  federal  law  requires  and                                                                    
     that's how our local  court has interpreted the federal                                                                    
     law's requirement. I view that as a closed issue.                                                                          
     Once  the municipal  grants have  been dealt  with, can                                                                    
     you  appropriate extra  money  to  the Permanent  Fund?                                                                    
     Sure  you can  but whatever  percentage you  choose, it                                                                    
     has  to be  after all  the municipal  grants have  been                                                                    
     considered and the appropriations dealt with.                                                                              
MS. BURKE passed out a sectional analysis pointing out the legal                                                                
problems with SB 171 - particularly as it relates to the scope                                                                  
of the grants. [Copy in file.]                                                                                                  
     The federal law is pretty  clear that in allocating the                                                                    
     state's  share  of  these   NPR-A  revenues  it's  50%.                                                                    
     There's  a  mandatory  duty to  give  priority  to  the                                                                    
     impacted  municipalities.   ...  This   mandatory  duty                                                                    
     includes the duty  to examine the claimed  needs of the                                                                    
     subdivisions, to  evaluate them, and it  they are found                                                                    
     to exist - to rank them in order of priority.                                                                              
     If the needs  are found to exist, then there  is a duty                                                                    
     to satisfy them out of  NPR-A funds regardless of other                                                                    
     perceived needs there are in  other areas of the state.                                                                    
     Regardless of one's  desire to put more  money into the                                                                    
     Permanent Fund.  Again because this  is what  a federal                                                                    
     law requires.                                                                                                              
2:24:24 PM                                                                                                                    
     Section 1  is intent  language and  we all  know intent                                                                    
     language isn't  binding as such  but it would  at least                                                                    
     be  used  as  a court  interpreting  other  substantive                                                                    
     provisions of  the bill. The intent  language says it's                                                                    
     the  intent to  provide  temporary emergency  financial                                                                    
     assistance  for the  purposes of  meeting extraordinary                                                                    
     operating   and    capital   improvement   expenditures                                                                    
     necessitated by NPR-A development.                                                                                         
     I'd  like to  say two  things about  that. First,  from                                                                    
     what  Senator Wilken  has told  you,  this is  language                                                                    
     that  was  drawn  almost  word  for  word  from  impact                                                                    
     legislation  in the  mid 1970s.  No federal  law within                                                                    
     that, that  is something  that was entirely  within the                                                                    
     Legislature's  discretion to  formulate what  the money                                                                    
     would be used for.                                                                                                         
     In this  instance we have  a federal act  that provides                                                                    
     for  very  broad  uses  of   NPR-A  money  -  planning,                                                                    
     construction  maintenance  and operation  of  essential                                                                    
     public  facilities and  other  necessary provisions  of                                                                    
     public service.                                                                                                            
     To  the  extent   that  SB  171  is   intended  in  its                                                                    
     substantive provisions  to narrow the  permissible uses                                                                    
     under  the  federal  act,  I   would  contend  it's  in                                                                    
     conflict  with the  federal act.  The permissible  uses                                                                    
     that can  be put to  NPR-A funds can't be  any narrower                                                                    
     under state law than they are under the federal act.                                                                       
2:26:14 PM                                                                                                                    
     Section  2   establishes  the   legislative  committee.                                                                    
     That's  perfectly fine.  I would  suggest  a couple  of                                                                    
     things   to   you   though.  I   don't   think   future                                                                    
     Legislatures  wouldn't necessarily  be bound  by what's                                                                    
     in   essence  an   organizational  provision.   There's                                                                    
     nothing in  the provision that sets  up the legislative                                                                    
     committee  that tells  it the  rules  it's supposed  to                                                                    
     follow. We  know there  are rules  that must  be follow                                                                    
     from   Judge  Carpeneti's   decision.  The   duties  of                                                                    
     examining the  claimed needs, evaluating  them, ranking                                                                    
     them in  order of priority  and if the  committee fines                                                                    
     that they  have been met,  to recommend to  the Finance                                                                    
     Committees  that they  be  funded.  The Legislature  is                                                                    
     just as much  bound by the requirements  of the federal                                                                    
     act  as  the  department  is in  its  review  of  these                                                                    
     I would suggest to you -  if you're going to switch the                                                                    
     initial  review process  from the  Executive Branch  to                                                                    
     the Legislative  Branch - [that]  you need to  have the                                                                    
     standards by  which the Legislative Branch  is going to                                                                    
     evaluate those grants in the statutes somewhere.                                                                           
     Section  3  makes  several   changes  in  the  existing                                                                    
     statute that governs the  allocation of NPR-A revenues.                                                                    
     I didn't  understand what was contemplated.  On page 3,                                                                    
     lines 3-7  - reading it  with the new language  and the                                                                    
     existing  language  -  it talks  about  the  department                                                                    
     adopting  regulations under  which municipalities  that                                                                    
     are  most  directly  and  severely  impacted  by  NPR-A                                                                    
     That does  not track  the federal statute.  The federal                                                                    
     statute says,  "directly or severely." To  me those are                                                                    
     two very  different things. At  a minimum, if  that new                                                                    
     language  were  to  stay  in   there,  I  think  to  be                                                                    
     consistent with  the federal act those  two words would                                                                    
     have  to   be  in  the  alternative   rather  than  the                                                                    
     cumulative as they are here.                                                                                               
     There's   an  additional   one  that   says  "or   that                                                                    
     demonstrate  extraordinary  municipal  and  educational                                                                    
     operating  expenditures  attributable  to oil  and  gas                                                                    
     development    in   NPR-A    that   are    beyond   the                                                                    
     municipalities  reasonable  capability   to  meet  from                                                                    
     growth  in  receipts  from  current  municipal  revenue                                                                    
     I'm not  sure what  the intent here  is. If  the intent                                                                    
     was  to  limit municipal  grants  from  all sources  to                                                                    
     address   extraordinary   municipal   and   educational                                                                    
     operating  expenditures, I  would  suggest  that is  in                                                                    
     conflict  with the  federal  act. If  you  look at  the                                                                    
     kinds   of   things   the   federal   act   says   that                                                                    
     municipalities and  the state for that  matter, can use                                                                    
     NPR-A revenues  for it's very,  very broad  - planning,                                                                    
     construction    and   maintaining    essential   public                                                                    
     facilities and the provision of necessary services.                                                                        
     To   the  extent   that's  it's   intended  to   be  an                                                                    
     alternative to that, I don't  thing you need it because                                                                    
     the  federal act  is  broad enough  to  cover not  only                                                                    
     extraordinary   municipal  and   educational  operating                                                                    
     expenditures, but regular ones it  they can be shown to                                                                    
     have  reasonable  connection  with impacts  from  NPR-A                                                                    
     development.   While   we're   looking  at   the   word                                                                    
     "development"  and in  looking  at  the slides  Senator                                                                    
     Wilken  prepared, it  seemed to  be  looking at  actual                                                                    
     wells and actual drilling.                                                                                                 
2:30:57 PM                                                                                                                    
     One  of  the  arguments  the state  made  in  the  1985                                                                    
     litigation -  which I was involved  in representing the                                                                    
     North   Slope  Borough   -  the   state  said,   'These                                                                    
     municipalities  aren't  entitled  to  any  money  until                                                                    
     there's actually development  and commercial production                                                                    
     from the NPR-A. Judge  Carpeneti said, 'No, development                                                                    
     can mean  many things."  Furthermore, if you  only look                                                                    
     at current development you  are also misconstruing what                                                                    
     the federal  statute says. Remember, one  of the things                                                                    
     you  can  use  it  for  is  planning.  To  me  planning                                                                    
     suggests   that  you're   looking  forward   to  future                                                                    
     development. Development isn't just  sucking oil out of                                                                    
     the   ground  from   oil  well.   It's  seismic,   it's                                                                    
     exploration - there are all  kinds of things that go on                                                                    
     throughout the  whole region that  can have  impact far                                                                    
     in  advance   of  actual  development   and  commercial                                                                    
2:31:56 PM                                                                                                                    
     On page  3, lines  21 -  27 the  bill would  delete the                                                                    
     language that  in my view  is what  provides compliance                                                                    
     with  the federal  act under  the current  law. If  you                                                                    
     take that  out, I'm not  sure what you're left  with in                                                                    
     terms  of  compliance.  It deletes  the  language  that                                                                    
     there  be  a  requirement   to  give  priority  in  the                                                                    
     allocation  of   grants  to  municipalities   that  are                                                                    
     experiencing  or will  experience  the  most direct  or                                                                    
     severe impact  from NPR-A development.  That's straight                                                                    
     out  of  the  federal  act. That's  a  mandatory  trust                                                                    
     responsibility. These  are trust  funds. It's  like the                                                                    
     Mental Health Trust in that sense.                                                                                         
     Secondly,  it would  delete  the  requirement that  the                                                                    
     department   shall    fund   all    meritorious   grant                                                                    
     applications  out  of  the money  appropriated  to  it.                                                                    
     Judge  Carpeneti said  that among  the mandatory  trust                                                                    
     duties  that   the  State   of  Alaska   including  the                                                                    
     Legislature  has  is  that  once  you  go  through  the                                                                    
     evaluation  process and  you determine  that a  need is                                                                    
     there and has merit, there's a  duty to fund it. ... If                                                                    
     you  think  it's  unfair,  again,  it's  a  write  your                                                                    
     Congressman   issue.  That's   what  the   federal  act                                                                    
     requires. You  get this money  in from NPR-A,  but it's                                                                    
     subject to this trust condition.                                                                                           
2:33:53 PM                                                                                                                    
     Section 4, page 4, lines 23  -2 4 would add a provision                                                                    
     to existing  law to prohibit municipalities  from using                                                                    
     any  NPR-A  money   for  basic  government  operations.                                                                    
     That's not  defined in the  bill and I'm not  sure what                                                                    
     was intended to  be covered. To the  extent that's it's                                                                    
     just basic government operations,  I would suggest that                                                                    
     a  prohibition against  use of  NPR-A  funds for  those                                                                    
     purposes would  again be in  conflict with  the federal                                                                    
     act,  which   permits  NPR-A  funds  to   be  used  for                                                                    
     planning, construction  of essential  public facilities                                                                    
     or any  necessary provisions of  public service.  To me                                                                    
     that  sounds a  lot like  basic government  operations.                                                                    
     Again,  there's going  to have  to  be some  reasonable                                                                    
     demonstration  of   cause  and  effect   between  NPR-A                                                                    
2:35:07 PM                                                                                                                    
     Section 5 ...  says grants may not be  used directly or                                                                    
     indirectly  to reduce  current municipal  tax rates.  I                                                                    
     think that is very likely  in conflict with the federal                                                                    
     act as  well. There's nothing  in the federal  act that                                                                    
     says,  'We're only  going to  allocate  NPR-A funds  to                                                                    
     poor communities.  We're only  going to  allocate NPR-A                                                                    
     funds  for things  that they  absolutely cannot  afford                                                                    
     otherwise.  It's an  impact program  and  if the  grant                                                                    
     request  is reasonably  related to  impacts from  NPR-A                                                                    
     activity there's  a duty  to fund  them and  I honestly                                                                    
     don't know  how you're going to  tell whether something                                                                    
     is  indirectly  reducing the  mil  rate.  I think  what                                                                    
     you're going to end up  with is municipalities that are                                                                    
     otherwise eligible  to apply  for NPR-A funds  never to                                                                    
     be   able  to   reduce   their  mil   rate  under   any                                                                    
     circumstances for  fear they'll lose  their eligibility                                                                    
     for  NPR-A grants.  So  I'm not  sure  in practice  how                                                                    
     that's going to work.                                                                                                      
2:36:22 PM                                                                                                                    
     [Section 6] The last thing  I want to mention, and this                                                                    
     is the only  way I read SB 171 that  the Permanent Fund                                                                    
     issue is  directly implicated and  that has to  do with                                                                    
     if  you've got  more meritorious  requests than  you've                                                                    
     got  NPR-A  money  to  cover   them  then  you  ratchet                                                                    
     everything down  on a pro-rata  basis. That, to  me, is                                                                    
     clearly  in  conflict  with  the  federal  law  because                                                                    
     you're putting the impact  grants for municipalities on                                                                    
     an  absolutely equal  footing  -  that's what  pro-rata                                                                    
     means - with the Permanent  Fund deposits in the Public                                                                    
     School Trust Fund deposits and  the federal law clearly                                                                    
     tells us  that the  municipal grants  have to  be given                                                                    
     priority over any other state uses.                                                                                        
2:37:23 PM                                                                                                                    
MS.  BURKE concluded  her remarks  saying she  is not  conversant                                                               
with particular  grant programs on  a day-to-day  basis. Although                                                               
she couldn't speak to particular  grants, she could address legal                                                               
2:37:49 PM                                                                                                                    
SENATOR WAGONER questioned whether  she said municipalities could                                                               
use the funds to do seismic and exploration.                                                                                    
MS.  BURKE clarified  her point  was that  the area  of potential                                                               
impact is broader  than the area in which an  oil well is located                                                               
or drilling occurs.                                                                                                             
SENATOR STEDMAN  remarked that  under the  strict interpretation,                                                               
not much could be excluded.                                                                                                     
MS. BURKE  disagreed saying reasonable minds  could conclude that                                                               
any number of things could  be excluded because they have nothing                                                               
to do with  NPR-A impact. However, without  looking at individual                                                               
grant applications she couldn't make specific comments.                                                                         
SENATOR  STEDMAN opined  that in  reviewing  lists from  previous                                                               
years, it appears as though the system has been abused.                                                                         
MS.  BURKE said  she couldn't  comment because  it isn't  a legal                                                               
issue. He was referring to judgments the department made.                                                                       
SENATOR STEDMAN  stated that it's  apparent that  something needs                                                               
to be  done. He  would expect to  see applications  equivalent to                                                               
available funds and that's not the case.                                                                                        
MS.   BURKE  disagreed   saying  there   is  no   obligation  for                                                               
applications to  meet a  particular percentage  of the  total but                                                               
because the  state is acting  as a trustee,  it must make  a good                                                               
faith evaluation  of the  projects. The uses  of the  funds under                                                               
the federal  law are very  broad and if that's  unacceptable then                                                               
it's a  matter of going to  Congress to carry on  the discussion.                                                               
"Having Congress enact this law and  impose upon you - this trust                                                               
obligation - you're stuck with having to fulfill it."                                                                           
SENATOR KOOKESH  asked if the  state or an  affected municipality                                                               
would  have to  go to  court to  get a  clarifying interpretation                                                               
since these are federal lands and it's a federal program.                                                                       
MS.  BURKE agreed  they  are  federal lands  and  that's why  the                                                               
federal government  keeps the revenue.  She explained  that under                                                               
the  old  federal  mineral-leasing  act  the  state  received  90                                                               
percent of the revenue, but for  NPR-A the state receives just 50                                                               
percent of  the revenue.  She suggested  that if  the Legislature                                                               
were  to  enacted  new  NPR-A  allocation  legislation  that  the                                                               
communities believed to  be in violation of  the trust obligation                                                               
it's likely that there would be a lawsuit.                                                                                      
CHAIR GARY  STEVENS asked  for a brief  description of  the trust                                                               
MS. BURKE replied this is a  trust obligation that was imposed by                                                               
it is receiving the federal  money. Certainly it's not absolutely                                                               
clear and  that's the  reason behind the  1985 court  case. Judge                                                               
Carpeneti did  put some sideboards  on it but every  question was                                                               
not answered and  it's still not absolutely  clear. However, from                                                               
the community perspective,  the program has been  working the way                                                               
they believe Congress intended.                                                                                                 
2:47:17 PM                                                                                                                    
CHAIR  GARY STEVENS  noted  there were  no  further questions  or                                                               
testimony. He held SB 171 in committee.                                                                                         
          HB 229-REINSTATEMENT OF NATIVE CORPORATIONS                                                                       
2:47:39 PM                                                                                                                    
CHAIR GARY STEVENS announced HB 229 to be up for consideration.                                                                 
PAUL LABOLLE,  Staff to  Representative Richard  Foster, Sponsor,                                                               
described  the  bill as  a  one-time  window for  village  Native                                                               
corporations to  reincorporate after involuntary  dissolution. If                                                               
a  corporation doesn't  reincorporate, it  wouldn't own  the same                                                               
assets granted in the Native Alaska Lands Claims Settlement.                                                                    
CHAIR GARY STEVENS noted there were no questions and held HB 229                                                                
in committee.                                                                                                                   
There being no further business to come before the committee,                                                                   
Chair Gary Stevens adjourned the meeting at 2:49:10 PM                                                                        

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