Legislature(1995 - 1996)
03/08/1995 09:00 AM Senate FIN
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
MINUTES
SENATE FINANCE COMMITTEE
March 8, 1995
9:00 a.m.
TAPES
SFC-95, #10, Side 1 (000-575)
SFC-95, #10, Side 2 (575-800)
CALL TO ORDER
Senator Rick Halford, Co-chair, convened the meeting at
approximately 9:00 a.m.
PRESENT
In addition to Co-chair Halford, Senators Donley, Phillips,
Rieger, Sharp, and Zharoff were in attendance. Senator
Frank joined the committee at approximately 9:45 a.m.
Also Attending:
Senator Taylor, Joe McCormick, Executive Director,
Postsecondary Education Committee, Jim Baldwin, Assistant
Attorney General, Department of Law, and Mike Greany,
Director, Legislative Finance Division.
SUMMARY INFORMATION
SB 59 REGULATIONS FOR STUDENT LOANS
HB 135 STUDENT LOANS
Discussion was had with Joe McCormick, Executive
Director, Alaska Committee on Postsecondary
Education Committee. HB 135 was REPORTED OUT of
committee with a "do pass" recommendation and
zero fiscal note from the Department of
Education.
SB 21 FINES FOR COMMERCIAL FISHING VIOLATIONS
SB 21 REPORTED OUT of committee with a "do pass"
recommendation and zero fiscal note from the
Dept. of Law, Alaska Court System, and Dept. of
Public Safety.
SB 39 MEMORIAL SCHOLARSHIP LOANS
Discussion was had with Senator Taylor.
Amendment
ADOPTED to CS 39. SB 36 to roll into SB 39.
Working
Draft was requested, to be taken up at the next
meeting.
SJR 14 CONFIRMATION OF MEMBERS OF PUBLIC CORP
Discussion was had with Jim Baldwin, Assistant
Attorney
General, Department of Law. The Bill was
referred to
the Judiciary Committee.
SENATE BILL NO. 59
"An Act authorizing the Alaska Commission on
Postsecondary Education to adopt
regulations necessary to determine and set an
interest rate applicable to a student loan for
which money is disbursed on or after July 1,
1995, and regulations necessary to implement
certain loan default sanctions and consolidation of
loan provisions beginning July 1, 1995; and providing
for an effective date."
HOUSE BILL NO. 135
"An Act relating to student loans; and providing
for an effective date."
Co-chair Halford announced that SB 59 is the companion bill
to HB 135 which passed out of the House. Joe McCormick was
invited to speak to the committee. Mr. McCormick spoke to
HB 135. He stated it is a technical bill that requires
transition language be enacted by the legislature before the
commission can pass regulations regarding legislation that
passed this legislative body last year in HB 506. Most
specifically, he said, the transition language would allow
the commission to pass regulation setting the interest rate
on student loans beginning July 1, 1995. If the regulations
are not in place legally, funds cannot be disbursed after
July 1.
Senator Rieger stated he has a reservation on the servicing
of the student loans. He said that this bill would make it
more possible to set an interest rate which covers not only
the interest cost of the borrowed funds, but also the
servicing costs. His concern comes from a Pete Marwick
Study that the commission on postsecondary education
commissioned. Discussion followed regarding out-sourcing.
Mr. McCormick responded that the adoption of this
legislation has nothing to do with that recommendation.
This legislation, if adopted, would allow the commission to
set the interest rate on the loans that will be disbursed on
July 1 and thereafter. Neglecting to pass HB 135 would
impact 13,000 Alaskan students for an approximate sum of
disbursement of $50 million. The issue of the
recommendation to the Pete Marwick Study says that while it
is the most attractive offer from a cost benefit analysis
standpoint, it is probably not a practical offer. With a
very small loan program located in a remote part of the
United States, and the likelihood of obtaining good out-
sourcing service at a reasonable cost is unlikely. The
recommendation is to fix the problem in-house. Mr.
McCormick reiterated that this is another issue, but that he
would be happy to discuss it further.
Senator Rieger testified that the bill enables adoption of
regulations to implement 1443120F, which includes charging a
fee which is sufficient to cover the cost of servicing. Mr.
McCormick responded that in his professional experience
there is a loan program that has historically never been a
part of, or close to, the way the general student loan
programs in the lower 48 operate. In order to out-source the
servicing of loans, there would have to be major
modifications in order to service Alaska student loans
according to Alaska law. The problem is further complicated
by the fact that it is a small loan program. Servicers
would be asked to serve a portfolio of approximately $500
million. Most of the out-sourcing companies, that would be
considered and who are experienced in servicing student
loans, serve federal student loans which have different
requirements. The servicers maintain portfolios in the
billions of dollars. The Pete Marwick reports that this
would be a major problem to finding an out-sourcing entity
that could perform the service on a cost-benefit basis. Mr.
McCormick supports the opportunity to build a software
system that the committee thought it was getting in 1991.
He stated that it didn't happen because it was contracted
with a company in Anchorage Alaska, that had no experience
in the student loan industry. The company purchased
software that was not related to the proper servicing of
student loans. To make matters worse, six months into the
development of that project, the company went broke. Mr.
McCormick stated that when he started with the commission in
December of 1993, there was not even one data processing
employee on the staff of the commission. There are now four
data processors, which he recruited from a student loan
servicing operation in Denver, Colorado. The commission now
has the infrastructure, experience and expertise on the
payroll in-house to implement the Pete Marwick
recommendation successfully. The commission projected for
the LB&A committee in December that upon completion of that
installation, within 5 years, the staff would be reduced by
9. Total cost would be paid for in lower cost of servicing.
Senator Donley questioned if local people are being trained.
Mr. McCormick stated there are no open positions at this
time. There is existing staff who will receive training
within the commission to support the new system.
Senator Rieger asked what the interest rate on the loans
will be when the regulations are adopted? Mr. McCormick
responded that the interest rate based on the 1994 bond
issue which was 5.83%, will be in the range of 8 to 8-1/2%
interest rate. The administrative portion of that amount is
2.5%. He stated that there is legislation pending that
would help defray losses to the fund, especially default
costs. Senator Rieger asked when the last bond was issued?
Mr. McCormick stated it was in July 1994. He said it was a
$50 million bond issue fully insured, based on changes being
made in servicing loans. The 1993 issue of $43 million was
uninsured because of the lack of confidence that New York
had in the ability of the commission to service loans.
Based on the management plan which includes the upgrading of
the servicing system, they issued the $50 million fully
insured. If the loan defaults, it is not covered by
insurance and is a loss. The State of Alaska is not
responsible for any of these loans, the collateral for these
bonds are the assets of the fund itself.
Co-chair Halford called for additional testimony on the
bill. None was forthcoming. Senator Phillips MOVED for
passage of HB 135 with individual recommendations. No
objection having been raised, HB 135 was REPORTED OUT of
committee with a zero fiscal note from the Department of
Education. Co-chairs Halford and Frank along with Senators
Phillips and Sharp signed the committee report with a "do
pass" recommendation. Senators Rieger, Donley and Zharoff
signed "no recommendation."
SENATE BILL NO. 21
"An Act relating to penalties for violations of
commercial fishing laws."
Co-chair Halford remarked that SB 21 is a lesser version of
a bill that passed both houses in the last legislature and
was not transmitted back from the house. It increases the
penalty for commercial fishing violations after the second
violation. The bill that passed last year was more
stringent than this. It has a zero fiscal note.
Senator Zharoff stated the Finance Committee Report is
better than the original bill, but he still had some
concerns. Co-chair Halford assured him that this bill
addresses the maximum kind of violation. When the maximum
kind of violation can gain $20-$30,000, a maximum fine of
$6,000 is not a very significant deterrent. This bill is
aimed for closed period, closed waters violations.
Senator Donley reiterated how difficult it is to get close
to the maximum in the fine situations because of the
standard set by the court, so it almost never happens. Co-
chair Halford responded by saying that this bill is an
improvement over existing law. At some point there is a
problem because these are violations not misdemeanors. He
pointed out there is a standard at which intent must be
proven when the penalty gets beyond a certain level.
Co-chair Halford called for additional testimony on the
bill. None was forthcoming. Senator Sharp MOVED for
passage of SB 21 (RES) with individual recommendations and
three zero fiscal notes. No objection having been raised,
SB 21 (RES) was REPORTED OUT of committee with three zero
fiscal notes from the Dept. of Law, Alaska Court System, and
Public Safety. Co-chairs Halford and Frank along with
Senators Rieger, Phillips, Donley, and Sharp signed the
committee report with a "do pass". Senator Zharoff signed
"no recommendation".
SENATE BILL NO. 39
"An Act relating to memorial scholarship loans."
Co-chair Halford asked Senator Taylor to join the committee.
Senator Taylor expressed his appreciation in addressing this
bill. He stated that the bill passed the House unanimously
last year, it carries zero fiscal notes. The primary
purpose of the bill is to allow a slight modification in the
law which would permit the memorial scholarship, named after
Trooper Michael Murphy, to be utilized in two-year
certification programs instead of just four-year programs.
Co-chair Halford asked Senator Zharoff for an understanding
of
SB 36. Senator Zharoff stated that SB 36 would allow for
50% forgiveness and cap the interest rate. Co-chair Halford
asked the commission to join the table. Mr. McCormick
responded that the commission recommended in SB 36 to change
the law insofar as the manner in which forgiveness is
calculated from 1/5th loan indebtedness and ask that it be
changed to 1/5th principal on the loan. When cancelling the
principal and interest, it is a more complex calculation
administratively. The cancelling to the principal only
makes it much easier to calculate. The conflict arises in SB
39 as there is not an amendment to change this feature. The
term "total loan indebtedness" remains in SB 39.
However, SB 36 contains a new statement to "principal only".
He recommended it be changed to read the same in both bills.
Co-chair Halford asked how many loans exist in the special
scholarship programs? Mr. McCormick stated not many, the
numbers are small and a half-time clerk is devoted to
administering the loan programs. Co-chair Halford asked if
the change of law costs the borrower more money in payback?
Mr. McCormick stated it would represent a payback of more
money. The result being in the hundreds of dollars not
thousands.
Co-chair Frank joined the committee.
Co-chair Halford asked the will of the committee. Senator
Phillips MOVED to amend page 2 line 13, changing the word
"indebtedness" to "principal." No objection having been
raised, the Amendment was ADOPTED.
After some discussion regarding SB 36 and SB 39, Co-chair
Halford indicated that what was needed was an amendment to
roll in the provisions of SB 36 (HES) into SB 39 with three
zero fiscal notes.
Senator Zharoff MOVED to adopt a CS for SB 39 which includes
SB 36 with three zero fiscal notes. No objection being made,
the CS for SB 39 is ADOPTED and a Work Draft will before the
committee tomorrow.
SENATE JOINT RESOLUTION NO. 14
Proposing an amendment to the Constitution of the State
of Alaska relating to certain public corporations.
Co-chair Halford stated that SJR 14 did not go through
Judiciary Committee. He asked Senator Taylor for
information regarding SJR 14. Senator Taylor stated that
the bill is straight forward and didn't feel it was
necessary to go to Judiciary.
Senator Phillips asked State Affairs and wanted to get it on
the record that it didn't go through Judiciary. Co-chair
Halford stated that it could go to Judiciary after Finance
as long as the fiscal notes do not change.
Co-chair Halford asked Jim Baldwin, Dept. of Law, to step
forward. Jim Baldwin stated his concern. In 1955-56 the
framers got together and produced a spectacular state
constitution. It is considered the best in the nation if not
in the world, some very fine distinctions were made. A
system was set up of checks and balances, which was very
finely balanced. One of the checks on the governor's power
of appointment is the legislature's ability to confirm
certain appointments. He contends that the framers made
some very specific decisions to make it a limited check on a
broad power because the governor should be responsible for
the management of the executive branch of state government.
Since the adoption of the constitution, there have been some
very good amendments. He would ask the committee to proceed
very deliberately on a further amendment of the constitution
in this area because it does tip the balance in a way that
was not intended by the original framers.
Mr. Baldwin spoke about the ambiguities. He stated that a
public corporation that manages state assets is ambiguous.
He would encourage Judiciary to look at it with the thought
in mind to fine tune the language. He cited as an example,
he heard the amendment being described as one that would
apply to all public corporations. He stated that he wasn't
sure that was the case because the public corporations, as
the court has observed, are of varying degrees of under
state control. The enabling act of AHFC, says that it is a
public corporation with a legal existence that is separate
and independent from the state. If the language is applied
literally, then are the assets of AHFC really state assets,
or are they the assets of a political subdivision of the
state?
Senator Rieger asked what is the definition of a public
corporation? Mr. Baldwin stated that there isn't one
definitely. Basically, it is a corporate body that is
chartered by the state itself. Private corporations have a
code that specifies how to be chartered. The state does not
have articles of incorporation other than state law that
creates it. It's a corporate body established either by
law, such as AHFC, or the constitution, such as the
university. Co-chair Halford stated that this is exactly
the definition that this bill reaches. He stated that Mr.
Baldwin's definition of public corporation is just as he
described it, and it manages state assets.
Senator Rieger asked if a board could be set up without it
being a corporation to manage a billion dollars of state
assets? He stated that theoretically it would escape this
constitutional provision. Mr. Baldwin stated that it could.
There are two different entities that can issue bonds within
the state. Public corporations issue revenue bonds. State
agencies issue bonds for example, international airports.
He stated that the assets that belong to AHFC for example,
are not assets that the state would want to have. Mr.
Baldwin stated that he recommended that SJR 14 go to
Judiciary. Co-chair Halford asked that the resolution go to
the Judiciary Committee. He felt it should be returned in
two weeks to the committee.
ADJOURNMENT
The meeting was adjourned at approximately 10:25 a.m.
| Document Name | Date/Time | Subjects |
|---|