Legislature(1993 - 1994)
03/12/1993 09:20 AM Senate FIN
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
MINUTES
SENATE FINANCE COMMITTEE
March 12, 1993
9:20 a.m.
TAPES
SFC-93, #36, Side 1 (300-end)
SFC-93, #36, Side 2 (000-250)
CALL TO ORDER
Senator Drue Pearce, Co-chair, convened the meeting at
approximately 9:20 a.m.
PRESENT
In addition to Co-chairs Frank and Pearce, Senators Jacko,
Rieger, and Sharp were present. Senators Frank and Kelly
arrived while the meeting was in progress.
ALSO ATTENDING: Jack Fragnoli, Office of Management and
Budget, Governor's Office; Shelby Stastny, Director, Office
of Management and Budget, Governor's Office; Kent Swishet,
Alaska Municipal League; Dave Tonkovich, Fiscal Analyst, and
other analysts, Legislative Finance Division; and aides to
committee members.
SUMMARY INFORMATION
CSSB 88(CRA) - An Act relating to grants to municipalities,
named recipients, and unincorporated
communities; establishing capital project
matching grant programs for municipalities
and unincorporated communities; establishing
a local share requirement for capital project
grants to municipalities, named recipients,
and unincorporated communities; and providing
for an effective date.
CSSB 88(CRA) and SB 89 were heard
concurrently.
SB 89 - An Act making appropriations for capital
project matching grant programs; and
providing for an effective date.
Testimony was heard in support of SB 89 by
Jack Fragnoli, Office of Management and
Budget, Governor's Office; and Shelby
Stastny, Director, Office of Management and
Budget, Governor's Office. Kent Swishet,
Alaska Municipal League, testified in support
of SB 89 but noted areas of concern.
Discussion was held between Senators
Kerttula, Kelly and Rieger. CSSB 88(CRA) and
SB 89 were HELD in committee.
CS FOR SENATE BILL NO. 88(CRA):
An Act relating to grants to municipalities, named
recipients, and unincorporated communities;
establishing capital project matching grant programs
for municipalities and unincorporated communities;
establishing a local share requirement for capital
project grants to municipalities, named recipients, and
unincorporated communities; and providing for an
effective date.
SENATE BILL NO. 89:
An Act making appropriations for capital project matching
grant programs; and providing for an effective date.
C0-CHAIR DRUE PEARCE invited Jack Fragnoli, Office of
Management and Budget, Governor's Office, to speak to the
committee regarding CSSB 88(CRA) and SB 89. JACK FRAGNOLI
apologized for Shelby Stastny, Director, Office of
Management and Budget, Governor's Office, who was unable to
attend because of a conflicting meeting. He said that Mr.
Stastny would possible join the meeting later.
Co-Chair Pearce asked Mr. Fragnoli to give a brief overview
of the bill, and speak to the changes made in the CSSB
88(CRA) version. Mr. Fragnoli said that CSSB 88(CRA) and SB
89 were a high priority for Governor Hickel, and like bills
had been brought before the legislature in the two prior
sessions. He stated that Governor Hickel had three purposes
in presenting this legislation. The main reason was that
the Governor would like to see local communities identify
their own projects and bring them forward to the
legislature. He said the Governor believes that local
communities are best able to identify their own needs and
resources, and best suited to set their own time tables. In
earlier versions of the bill, money would have been
appropriated to the communities and the communities would
have selected projects. This year's legislation would
establish a process where communities would identify and
prioritize their projects, and propose those projects in the
Governor's capital budget. This would leave the ultimate
selection of projects with the legislature. The bill would
provide that if the Governor departed from the priority
sequence, he would have to explain to the legislature his
reason for reprioritization.
Secondly, Mr. Fragnoli explained that Governor Hickel feels
that CSSB 88(CRA) and SB 89 would help establish a sense of
local ownership with the selection of capital projects by
communities. The communities are usually not opposed to
contributing to their projects and, in fact, already do
provide moneys from different sources for many projects.
Thirdly, Mr. Fragnoli said that Governor Hickel felt this
legislation helps leverage state dollars either by saving
state dollars or by extending coverage to the number of
projects that can be financed. Mr. Fragnoli reiterated that
the Governor felt this was important legislation.
Mr. Fragnoli went on to explain that the CSSB 88(CRA) and SB
89 could be looked at as two distinct but related issues.
First, it would establish a new capital matching grant
program, and secondly, apply the match principles and the
same percentages used in that matching grant program to our
existing funding for municipal and unincorporated grants
through Title 37. The main emphasis is the matching grants
programs that would be created under this bill. It would
create two funds - one in the Department of Administration
(DOA), and one in the Department of Community and Regional
Affairs (DC&RA) paralleling existing Title 37 programs. The
DOA fund would be for municipalities, and DC&RA would fund
unincorporated communities. He said that a block grant
title approach would be used. Block appropriations would be
proposed into each fund per formulas in the bill. Those
monys would be distributed to each municipality or
unincorporated community in the state. The underlying
intent is to remove local capital project grant financing
from the political arena. Communities would receive moneys
annually, be able to accumulate it up to five years, and be
better able to plan in advance for projects. The two-fold
process is that the Governor would use a block appropriation
for the program, and the legislature would make its own
recommendations according to specific projects.
Mr. Fragnoli added that the moneys going into the two funds
would be spread among all the municipalities in the state.
Under the terms of the bill, a pro rata basis by population
is proposed using the factors of:
under 1,000 - 1.5,
1,000 but less than 5,000 - 1.4,
5,000 but not greater than 10,000 - 1.2, and
over 10,000 - 1.0.
Mr. Fragnoli explained that this factor in the allocation
formula would compensate smaller municipalities and
unincorporated communities by giving them a larger
percentage share. The rationale is that municipalities of
different sizes have different capabilities in regard to
access to capital, and human resources. He also identified
the project cost differences that exist between rural and
urban areas. He proposed this as the administration's best
strategy for capturing these differences.
Mr. Fragnoli explained that moneys would go into the fund,
remain in the account, and then would be appropriated out in
a "revolving sense." Some communities would use their money
each year and some would hold it in the fund. If the moneys
were not used within five years it would return to the
general fund. Interest earnings made on that money would
stay with the individual accounts. When money is withdrawn
from the fund, there would be a matching requirement by the
community. One set of percentage requirements would be in
place for the first two years, and then those percentages
would be elevated. The local share percentage requirement
for the first two years would be:
30% for a municipality with a population of 5,000 or
more;
15% for a population of 1,000 - 4,999; and
5% for a population under 1,000.
After two years, the percentages would increase to 50, 25
and eight percent, respectively. Mr. Fragnoli stated that
the Governor would like to see a 50-50 match, but proposed
the lower percentages to effect more acceptance for the
legislation. The same percentage rates would apply to Title
37 and unincorporated community grant programs already in
place. He explained that under Title 37, there is another
population of grantees that is not in the Governor's
matching grant program - the main recipient grants. These
would be governed by the same percentages as the community
in which they are located.
End SFC-93 #36, Side 1
Begin SFC-93 #36, Side 2
SENATOR JAY KERTTULA proposed that the Department of
Administration should be bookkeepers and not handle or
advocate certain programs. He also suggested that CSSB
88(CRA) and SB 89 would not solve any problems or accomplish
any major projects in the bush since the costs there are so
high. He said geography, population, and the ability to pay
should be taken into consideration when figuring the
percentage factor. He felt that a separate budget, which
included the addition of four positions in DOA and two
position in DC&RA, was unnecessary.
In answer to Senator Kerttula's remarks, Mr. Fragnoli said
that in the last two years, elaborate formulas had been
proposed. Since those formulas were considered too complex,
the percentage weights in the present bill were chosen to
correspond to the fiscal capacity in the municipalities. In
answer to Senator Kerttula, Mr. Fragnoli said this
legislation would provide for allocation of money by the
Governor, but the appropriation process would still occur.
Senator Kerttula remained unconvinced that this bill would
solve the problem of taking allocations out of the political
arena.
Co-chair Pearce invited Shelby Stastny, Director, Office of
Management and Budget, Governor's Office, to join the
committee at the table to address any questions. SHELBY
STASTNY said that the Governor's main concern in regard to
CSSB 88(CRA) and SB 89 was the equitable allocation of
"some" dollars, not the total allocation of dollars in the
capital budget. He pointed out that last year's proposed
legislation did not provide for legislative approval of
community projects. Mr. Stastny reiterated that CSSB
88(CRA) and SB 89 provided equity for "some" of the capital
dollars spent around the state. He agreed to work with the
legislature to make the bill more equitable.
SENATOR STEVE RIEGER asked what happened to a direct
appropriation outside of this program. Mr. Stastny said
that all other capital appropriations would stay in place.
This legislation would ensure that the allocated funds would
be spent equitably across the state, and would require a
matched contribution from that district. Mr. Fragnoli
explained that if a grant was made under Section 37, a local
match was required, but a grant outside of Section 37 would
not require one. Senator Rieger spoke to the number of
programs, such as organizational grants, that are designed
to encourage the formation of municipalities. He felt that
this legislation might undo some advantages gained by
incorporating, such as having to pay more for capital
grants. He asked someone to speak to that.
Mr. Stastny said that the communities within the borough
still receive their allocation based on the size of their
community. Senator Rieger asked if cities could exist
outside of boroughs. Mr. Stastny explained that the cities
and the borough would each get an allocation. The borough
would subtract the cities' populations and the net would be
the borough allocation.
Co-chair Pearce invited Kent Swishet, Alaska Municipal
League (AML), to speak to CSSB 88(CRA) and SB 89. MR.
SWISHET directed attention to a handout titled "AML Position
on Matching Capital Grants" (copy on file). He said that
the AML does support the concept of matching grants, and the
criteria for that support is: 1) providing project
determination at the local level; 2) providing a minimum
entitlement that is a meaningful amount, 3) providing
equitable distribution of funds according to population,
services, and/or need, 4) provide for differentials in
construction costs in various communities around the state,
5) providing for accountability, and 6) requiring a local
match that is weighted based on local ability to pay. He
agreed that these bills do meet some of the above mentioned
items. However, the AML is concerned about the extension of
match requirements and the administrative regulations
surrounding these grants. At this time, a match is not
required for Section 315 grants, and AML would be opposed to
additional requirements imposed on those grants. AML is
also concerned that administrative and management effort,
and Section 315 grants would not be able to be included as
part of the match of the proposed grants. He felt that
reasons for requiring local match made better sense when a
project is purpose specific, for example, the construction
of a large number of local sewage treatment plants. He
stated that when communities receive a fixed amount on a
formula basis, the value of a local match cannot be as
easily defined as when it achieves some public purpose.
This makes it harder for the communities to use the money.
Perhaps, the local match is a good idea, but not at the
level as suggested in CSSB 88(CRA). He pointed out that in
some cases, population is not really a good indicator of the
wealth of a jurisdiction. He felt the ability to pay is an
important criteria, if, in fact, the formula is going to be
fair. He could not offer any solutions to that problem but
did not want it to go unrecognized.
SENATOR TIM KELLY asked how Mr. Swishet would structure the
ability to pay. Mr. Swishet answered that with existing
information, AML would probably take existing budgets as a
reflection of a community's ability to pay. Senator Kelly
asked if a community refused to tax themselves should they
get a larger ratio. Mr. Swishet said that was a problem,
but he felt urban communities in that situation could be
identified without too much difficulty. Mr. Swishet said
his concern was more with the communities that lacked the
ability to pay and asked for a solution to that problem.
Senator Sharp said that the community's ability to pay was
based on an assessed evaluation which does not take into
consideration any debt owed on that assessed evaluation.
Since the net asset on the community or on private ownership
then is not clear, assessed evaluation is not necessarily a
good way to determine the ability to pay.
Co-chair Pearce requested a brief recess.
Recess 10:00am
Reconvene 10:03am
Co-chair Pearce directed that CSSB 88(CRA) and SB 89 be HELD
in committee. She said that the committee was working with
the administration on the capital budget and these two bills
would come before the committee again.
ADJOURNMENT
The meeting was adjourned at approximately 10:05 a.m.
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