Legislature(1995 - 1996)
03/27/1996 09:15 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
MINUTES
SENATE FINANCE COMMITTEE
27 March 1996
9:15 A.M.
TAPES
SFC-96, #53, Sides 1 & 2
SFC-96, #54, Side 1
CALL TO ORDER
Senator Rick Halford, Co-chairman, convened the meeting at
approximately 9:15 A.M.
PRESENT
In addition to Co-chairman Halford, co-chairman Frank,
Senators Phillips, Sharp, Rieger and Zharoff were present
when the meeting was convened. Senator Donley arrived
later.
Also Attending: Alison Elgee, Deputy Commissioner,
Department of Administration; Kathleen Strasbaugh, Assistant
Attorney General, Governmental Affairs Section, Civil
Division, Department of Law; Laurie Otto, Deputy Attorney
General, Criminal Division, Department of Law; Wendy
Redmond, Vice-President for University Relations, University
of Alaska; John Bitney, Alaska Housing Finance Corporation,
Department of Revenue; Fred Fisher, Fiscal Analyst, Division
of Legislative Finance; and aides to committee members.
Kenneth A. Boyd, Director, Division of Oil & Gas, Department
of Natural Resources testified via teleconference.
SUMMARY INFORMATION
SENATE BILL NO. 152
"An Act relating to geographic differentials for the
salaries of certain state employees who are not members of a
collective bargaining unit; relating to periodic salary
surveys and preparation of an annual pay schedule regarding
certain state employees; relating to certain state aid
calculations based on geographic differentials for state
employee salaries; and providing for an effective date."
Alison Elgee, Deputy Commissioner, Department of
Administration; Kathleen Strasbaugh, Assistant Attorney
General, Governmental Affairs Section, Civil Division,
Department of Law; and Laurie Otto, Deputy Attorney General,
Criminal Division, Department of Law answered questions by
the committee regarding SB 152. Senator Donley moved
technical change to Amendment #1 to delete "- 10" and insert
"- 20" and it was adopted. Amendment #1 was moved by
Senator Rieger and adopted. Co-chairman Halford moved
technical change to Amendment #2 under (c)(2) after
"license..." insert "to practice as an attorney or
physician..." and it was adopted. Amendment #2 was moved by
Senator Sharp and adopted. Technical changes moved by
Senator Sharp on pages 2 and 3 of bill were adopted.
Senator Zharoff moved to insert districts "5, 6, 7, 8, 9" at
"7%" on page 2 of bill, between lines 29 - 30 and it failed.
Co-chairman Halford asked Alison Elgee to prepare new draft
CS and fiscal note for tomorrow. He HELD this bill in
committee.
CS FOR SENATE BILL NO. 163(FIN)
"An Act approving the University of Alaska's plans to enter
into long-term obligations with the Alaska Housing Finance
Corporation to borrow money from the corporation for the
construction of new student housing facilities, and
authorizing the Alaska Housing Finance Corporation to issue
its debt obligations and to make loans to the University of
Alaska to finance construction of those student housing
facilities; and providing for an effective date."
Wendy Redmond, Vice-President of University Relations,
University of Alaska and John Bitney, Alaska Housing Finance
Corporation, Department of Revenue answered questions by the
committee regarding SB 163. A technical amendment was moved
by Senator Rieger on page 2, line 3 of CSSB 163() to insert
"an amount not to exceed" after "pay..." and adopted.
Senator Rieger MOVED CSSB 163(FIN) and WITHOUT OBJECTION it
was REPORTED OUT with individual recommendations and zero
fiscal note from the University of Alaska and zero fiscal
note from Department of Revenue (AHFC).
CS FOR SENATE BILL NO. 112(RES)
"An Act establishing a discovery royalty credit for the
lessees of state land drilling exploratory wells and making
the first discovery of oil or gas in an oil or gas pool in
the Cook Inlet sedimentary basin."
Brief testimony was given by Mr. Kenneth A. Boyd, Director,
Division of Oil & Gas, Department of Natural Resources via
teleconference. Senator Sharp MOVED CSSB 112(RES) and
WITHOUT OBJECTION it was REPORTED OUT with individual
recommendations and previous fiscal note of $91.0 from the
Department of Natural Resources.
CS FOR SENATE BILL NO. 152(FIN)
"An Act relating to geographic differentials for the
salaries of certain state employees who are not members of
a collective bargaining unit; relating to periodic salary
surveys and preparation of an annual pay schedule
regarding certain state employees; relating to certain
state aid calculations based on geographic differentials
for state employee salaries; and providing for an
effective date."
Alison Elgee, Department of Administration was invited to
join the committee. She referred to 1994 salaries survey
report and geographical differential as well as Washington
comparable salaries. The amendment is in two parts. The
first part of the amendment corrects a technical error that
was made at the time the bill was drafted. It needs to be
amended to reflect the word "base salary" in order to be in
compliance with the Fair Labor Standards Act for calculation
of overtime. The second part of the amendment addresses a
particular problem that may arise in the very
farwestern/northwestern districts with professional
employees where a professional license is required for
employment. There may be problems with the non-covered
employees (Department of Law and the Public Defender's
Office), engineers and health care professionals when it is
attempted to apply this legislation to the union contracts.
Kathleen Strasbaugh, Civil Division, Department of Law was
invited to join the committee. The criminal division has a
number of staff who are placed in communities. There is
considerable difficulty in recruiting people and keeping
them in those positions. This is also a problem in the
Department of Administration for public defenders who are in
the same communities. Again, they would be required to
certify and demonstrate to the Division of Personnel that
there is a problem with recruitment before this increment is
allowed. Finally, there are maybe two collective bargaining
agreements that are tracked to this legislation should it
pass. That might affect supervisors, engineers and health
care professionals where there are recruiting problems. It
is not automatic. Senator Sharp indicated if an individual
needs a license in election districts 37-40 one could go up
to 40% over base pay. She indicated that was correct.
Senator Rieger referred to section 2 which limited the
adjustment to only the first $30,000. Probably a more
equitable way to address the problem is to adjust that
dollar base which was the point Senator Sharp raised
yesterday.
Laurie Otto, Department of Law, was invited to join the
committee. The Department of Law is the primary agency
affected by this bill along with the Department of
Administration, Office of the Public Defender because they
have the most partially exempt employees, non-covered
employees in the State. The Department of Law supports the
bill with this amendment. For example, there is a one-step
pay differential between Palmer and Anchorage. The
department is unable to transfer attorneys between the two
offices because they do not want to give up the extra pay
they get for living in Palmer. The problem is in the rural
areas, specifically, Barrow, Nome, Kotzebue, Bethel and
Dillingham. Historically it is difficult getting lawyers
to locate to the rural areas of the State. The last
sectionof the amendment requires there be a determination by
the Division of Personnel that there are specific
recruitment problems. If the amendments do not pass there
is going to be an extraordinarily difficult time filling
those positions in rural Alaska that are very important.
Co-chairman Halford asked how many people are in this total
category of exemption in all departments? Ms. Elgee said
there is a total of 243 individuals statewide that would be
impacted by this legislation. There are a number of people
who are Alaska Housing Finance employees that would be
impacted by this legislation and pioneer home directors in
Fairbanks and Sitka would be impacted as well as attorneys.
Co-chairman Halford said he was specifically talking about
the amendment for licensed professionals. Laurie Otto said
that within the Department of Law there are nine people that
would be affected. There would be a similar number affected
in the public defender agency. Co-chairman Halford asked if
it was assumed that they were all going to get this? Ms.
Otto said she would ask the director of the Division of
Personnel for the authority to give it to them because
because the single biggest problem in the criminal division
is keeping those rural offices staffed. Co-chairman Halford
said the same goal would be achieved if the $30,000 ceiling
were changed where the area differential applies to $60,000
or delete the ceiling. Ms. Otto said the concern about
doing that was it applied to everyone and every district
regardless of whether there was a particular problem with
recruitment.
Senator Sharp asked if medical people would also be
involved. Ms. Elgee indicated that they had the re-opener
clauses in the union contracts. The others they are talking
about are primarily union people but legislation is wanted
so they can apply to the union contracts through those re-
openers. Problems are anticipated down the line with
licensed health care professionals and engineers. Co-
chairman Halford asked if State engineers were required to
have a license and it was indicated they were. He asked if
there was any way bounds could be set such so no way the
certification or finding could be made for more than 100
employees total. Senator Sharp said it would be like the
merit increase. Once it is done everyone gets it. Senator
Rieger said this is an additional argument for pay
differential that is different from cost of living but it
tends to have the same set of dynamics to it. The effect of
section (b) as it reads either with or without the amendment
is to further compress State salaries which are already
overcompressed. The right thing to do would be to delete
section (b) entirely. Co-chairman Halford asked if the
second part of Senator Rieger's amendment were applied only
if the roll was open for continuous recruitment. That is
where there is trouble. Ms. Strasbaugh said it was a concept
that does not apply because there is not a list maintained
for partially exempt employees. Ms. Otto said that the
Department of Law is a small part of this problem. What
Senator Rieger suggested would take care of that problem.
Attorneys must be brought in and the cost of living is high.
Co-chairman Halford asked if a limit could be set on this
but Ms. Elgee said she would have to check and see what the
number of professionally licensed employees in these
specific areas was that this would potentially apply to.
Co-chairman Halford said this would advocate professional
licensing and would all of a sudden promote a premium pay
package item. Ms. Elgee said one of the requirements was
already that the job would have to require professional
licensing. Just holding a professional license if the job
did not require it would mean this amendment would not
apply. Ms. Strasbaugh indicated that it was expected this
legislation would affect bargaining but it will not, in most
cases, completely control it. The only automatic effect
there is going to be is for partially exempt or exempt
positions. This would include lawyers. Co-chairman Halford
indicated they were looking for limitations. All that would
have to be done is to change "professionally licensed" to
"licensed by the bar". Ms. Strausbaugh concurred and
indicated that the record should be clear. This would cover
the two largest groups that there is concern for. Senator
Frank suggested it be limited to lawyers, health care
providers and physicians. Co-chairman Halford indicated
"attorney or physician in the State" would be better.
Senator Rieger moved his amendment to page 3, Washington
State becomes -10 and a conforming amendment would be where
it says "percentage above" it would add "or below" on the
caption, page 2, line 26. Senator Donley moved to amend it
to read -20 and felt it would be more appropriate in the
second section "with the exception of Washington State a pay
differential authorized" because if "or below" is added then
the change would only relate to the first $30,000 still.
The applicability of section (b) Washington state should be
taken out all together. Co-chairman Halford said Senator
Rieger would change that. He would further support
significantly increasing section (b)'s number. Senator
Rieger felt Senator Donley's suggestion was good. But he
felt the -20 was too severe and that some number between -10
and -20 would be more appropriate. He hoped that in general
they would delete section (b). Senator Sharp asked about
the 20 highest cost urban areas. It does not have Seattle
on it. It has Anchorage, Fairbanks, Kodiak and Juneau. He
felt -20 was not enough. Senator Donley moved his amendment
to the amendment changing 10% to 20% and add on line 2 page
3 "with the exception of Washington State". He noted that
ASMI had an 18% differential and someone assessed this to
determine that it was appropriate. Therefore 20% seems
reasonable. Senator Rieger objected to the 20% moved by
Senator Rieger. Senator Sharp asked who was in Seattle
besides ASMI and it was indicated Marine Highway. Senator
Frank said they were all covered by a collective bargaining
unit. Ms. Strausbaugh said it was about 13% less. Senator
Frank asked if this were passed would that indicate they
must negotiate to 20% less? She said there was separate
legislation on the cost of living which does not address the
percentage but does address the criteria. It would affect
bargaining but not control it entirely. Senator Frank said
he thought they had collective bargaining agreements that
had re-opener clauses that will be influenced by the
legislature. Ms. Elgee indicated that was correct and this
legislation would greatly influence the bargaining position
as the contracts were reopened for the contracts for the
cost of living differential. It would not control it.
Senator Frank referred to the fiscal note and said it was a
savings of $1.2 million. He wanted to know if that included
expected reductions in the collective bargaining agreements.
She said the numbers only represented the executive branch
employees in the non-covered arena that would be impacted by
the passage of this legislation. The general government
unit has been looked at and the application of the
geographical differential as drafted could save in the
general government unit about $4 million per year. Senator
Frank said that was if it were agreed to in collective
bargaining or imposed and that Commissioner Boyer intended
to impose terms if an impasse were reached. Ms. Elgee said
that was the next action at an impasse stage.
Senator Donley's technical change to Amendment #1 was
adopted and Senator Rieger's amendment #1 amended was
adopted. Amendment #2 as technically changed was moved by
Senator Sharp and it was adopted. Co-chairman Halford
indicated that the scales accurately reflect the cost of
living in Fairbanks. He suggested that page 2, lines 28 and
29 which changes line 28 to delete "33" and add "28" which
means that goes up to south of Fairbanks and then in the
second category, which is a 5% differential insert after
"6", "29 -33". That makes a less significant change in the
Fairbanks area and more reasonable of how it works its way
through. That is a slight difference for the union and a
slight decrease for the exempt but it helps us in the
package. Ms. Elgee said that in looking at the Fairbanks
differential the union members have had a 4% differential
for ten years. This would potentially increase the cost for
union members in that region. Due to the configuration of
the districts a look was taken specifically at the North
Pole area and there are no state employees duty stationed in
North Pole. Any state employees that reside in the North
Pole and work for the state are duty stationed in Fairbanks
and the Fairbanks differential would apply to them. Senator
Sharp said it appeared Ketchikan, Sitka, Wrangell Petersburg
and Juneau did not get any cost of living allowance but now
with this new legislation they will go up to 5%. Would not
that produce some increases and demands by union personnel
for all those districts? Ms. Elgee said that currently
Sitka, Wrangell and Petersburg under the non-covered
schedule do get a differential. Juneau is not proposed for
a differential in any of these proposals. Senator Sharp
asked about the union differential and if it was incorrect.
Ms. Elgee said the union differential representation is
correct here. Co-chairman Halford said that Ketchikan is at
5% and they would actually be going up. Senator Sharp said
that contrary to what Ms. Elgee said it is going to put
pressure on them to negotiate upwards. They are proposing
pressure for five districts. Co-chairman Halford indicated
they were proposing pressure for Ketchikan, Sitka, Wrangell,
Petersburg and Lynn Canal/Icy Straits. He said he did not
support a major re-allocation to the south when the costs
are higher to the north. This proposed amendment was moved
by Senator Sharp. Senator Rieger proposed an amendment to
the amendment so the percentage number instead of "5" would
be at "4" and it would be a hold harmless for Fairbanks and
would re-allocate what happens in "1, 2, 5 and 6". Co-
chairman Halford felt it would be better to take the union
differentials that were all the way across that were fought
out at the bargaining table and apply them. Senator Frank
said that Fairbanks might have been out-voted at the last
union negotiation and may not have had anyone on their team
from Fairbanks. Co-chairman Halford felt that to go in 5%
increments was best. Senator Rieger said he would like to
know the fiscal impact of 1% across the board and asked what
the total state payroll was in Fairbanks. Ms. Elgee said
she would secure that information. In terms of the non-
covered individuals there are 91 positions in Fairbanks that
are impacted by this and the decrease from 14% to 0 was
anticipated to save $785,000 in total funds and 4528,000 in
general funds. There would be a savings of 2/3 of that
amount instead of the full amount.
Senator Frank said that it was reasonable to assume it would
be less if all the covered people in Ketchikan, Sitka,
Wrangell and Petersburg went up from 1.0 to 1.5. Senator
Donley said the first two districts should be in the zero
category because they are a big increase in expense in this
bill. Senator Frank asked where problems would be in the
union differential. He felt the problems would be in the
rural areas in terms of the cost savings features.
Specifically districts 35 through 40 there is a union
differential which is close to above 1.3 in comparison to
1.2 in some of the rural districts. Ms. Elgee said they
would be amenable to the adoption of the union differential
at this time if the legislature was interested in funding a
new area cost differential study. The problem is the
present cost differential study is ten years old. The cost
of living around the state has come down significantly since
that time. Co-chairman Halford indicated that the union
differential is not a bad way to go. The proposed amendment
by Senator Sharp failed. On a revote the amendment passed
with one abstention.
Senator Zharoff referred to sections 2 through 9 excluding 3
and 4 and they reflect a higher cost of living than what is
here. He voiced his concern over the use of availability of
a transportation system that he does not know if it has that
much of an impact on those communities and the people living
in those areas because it does not appear to be reflected in
the information that is provided here. Ms. Elgee stated the
information they had looked at was geographical similarities
and similar transportation modes. Certainly many of the
judgments made in this bill were subjective.
Senator Sharp proposed an amendment to line 3 page 3
deleting $30,000 and moved the adoption of $50,000. Co-
chairman Halford said he supported the amendment. Ms. Elgee
said she would have to re-calculate this. Co-chairman
Halford asked how much fiscal savings was reflected from the
limitation to the first $30,000 and how much was from the
scheduled changes. Ms. Elgee said she did not have the
particular information as the referenced fiscal note was
prepared by OMB. Senator Frank asked how the union
contracts were handled. She advised that the feeling of the
administration was that this was to compensate for the cost
of living and did not need to apply to discretionary income.
The $30,000 was a subjective number and they can look at
other numbers. They are interested in maintaining the
concept. He asked if they had bargained that concept. She
said they would when they reopened the contracts for
discussion of this new area of cost differential proposal
included in the re-opener clause. The re-opener clause
allows bargaining based on the legislation passed. Whatever
is included in this legislation conceptually can be taken
back to the table. It is limited however to the cost
differential.
Senator Donley said most families are two-income families
and they would get an additional benefit that is beyond
household expenses if they have this additional income. For
a one-income family this would make a lot of sense. The
majority of families now have two incomes. Both spouses are
having to work to make ends meet. The ones who are single
are going to have less of an expense so they would not need
this as much. Co-chairman Halford indicated the only
counter-argument is that the system is established and there
is a one year adjustment period in this bill. Those
adjustments may be hard if one has house payments, vehicle
payments and other payments all laid out. The percentage
changes are not as big particularly to a two-income family
as applying that percentage to $30,000 instead of $70,000.
For that reason he said he would support Senator Sharp's
amendment. Senator Frank said he was concerned about the
transition period. There are constituents that would be, in
one year's time, looking at a 10% substantial drop. Co-
chairman Halford and Senator Frank discussed a possible loss
between 10% to over 14%. Senator Frank said he understood
the union froze everyone and then over time as merit and
cost-of-living increases were approved the authorized salary
caught up to the level of the frozen salary. Ms. Elgee
concurred. She said that this legislation was a legitimate
effort to reduce costs and with the cut-backs being
experienced in State government if these costs are not
reduced along such lines it will be necessary to lay off
employees. A transition period of a year would allow
employees to adjust to the new circumstances or look for
other employment was preferable to a potential lay-off.
Senator Frank felt a transitional notice should be looked at
that gives more than one year notice that pay is going to
drop 10%.
Senator Donley said it has a despaired impact upon certain
individuals but these are also individuals way up on the
salary range. Senator Frank said these are individuals
filling important jobs and referenced the recruitment for an
attorney for Bethel. Without a transitional provision it is
unduly hard. A mitigating transitional feature needs to be
negotiated. Senator Donley felt the individuals on the low
end have been getting a bad break over the years with health
benefits. The individuals on the upper end have been
protected from that because they make such higher salaries
and there has been a very improper despaired impact on the
people on the bottom with the reduction of their health
benefits. This would be a fair adjustment for some of that
impact that has been very unfair to these individuals on the
bottom. Co-chairman Halford said if contract people are at
4% it is still a significant change and the change from
$30,000 to $50,000 mitigates that somewhat. After a vote on
Senator Sharp's proposed amendment changing $30,000 to
$50,000 it was adopted.
Senator Zharoff said he was concerned about the employees in
districts 5 through 9, particularly 7 through 9, because
they are taking a big hit there. From the information
provided here he feels uncomfortable going ahead with that
figure. He said the actual cost of living in Kenai is not
what is being projected. He felt that election districts 5
through 9 should stay at 7% instead of going down to zero
and then down to 5% of 5 and 6. He moved sections 5, 6, 7,
8, and 9 base salary schedule be 7%. Ms. Elgee pointed out
that the Kenai Peninsula districts have a zero union
differential and it has been for ten years. This amendment
failed.
Senator Frank introduced transitional language on page 3,
line 26 inserting after "by" "more than 3% annually by
provision of this act". Senator Halford asked that all July
1, 1995 dates be conformed to read July 1, 1996 and July 1,
1996 be conformed to read July 1, 1997. Senator Rieger
indicated that probably section 10 was not needed in the
bill. Senator Frank referred to the old union contract
which said pay would never be reduced and an individual
would have to wait for a cost-of-living or merit increase.
Co-chairman Halford said it should hold harmless the first
year, limit in the second year the total change, being a
combination of the application and the percentage and no
more than 5%. The transitional provision would be repealed
in the third year. Ms. Elgee indicated that the proposal
made by co-chairman Halford would be acceptable.
Senator Rieger discussed the matter with Co-chairman
Halford. He said he would leave the decisions on the
salaries and the contracts but that the bill would not take
effect on any existing employee until July 1, 1997. Senator
Frank said they had the potential of getting a 2% merit
increase and then getting a 5% reduction the next year. He
said the contract question could be set aside when there was
still the merit issue. Co-chairman Halford said the bill
could be drafted so that it applied to the total net pay
package so that there be a limitation on the amount of
decrease in the first year based on comparison to the prior
year regardless of the merit increase and regardless of what
is put in the scale to match whatever is negotiated.
Senator Donley agreed with the co-chairman. Senator Sharp
would like to see this specified in enough detail so a real
fiscal note could be made available by tomorrow. Co-
chairman Halford concurred and said he wanted an up-dated
fiscal note before moving this bill. Ms. Elgee said she
would have the language drafted according to the concept he
just laid out. He asked her specifically to work with the
Fairbanks delegation. He held this bill in committee.
CS FOR SENATE BILL NO. 163(FIN)
"An Act approving the University of Alaska's plans to
enter into long-term obligations with the Alaska Housing
Finance Corporation to borrow money from the corporation
for the construction of new student housing facilities,
and authorizing the Alaska Housing Finance Corporation to
issue its debt obligations and to make loans to the
University of Alaska to finance construction of those
student housing facilities; and providing for an
effective date."
Senator Rieger introduced SB 163. Senator Donley moved CSSB
163() work draft for discussion purposes and without
objection it was adopted.
Wendy Redmond said that the bill was changed at AHFC
suggestion to give them some flexibility to issue bonds.
The current language in the CS would not disallow them from
looking at other options if they felt that was in the
corporation's best interest.
John Bitney, AHFC testified before the committee. He said
the way the debt schedule as set up was to look at how much
was annually required to pay off the bonds or raise the
funds to construct the facility. The university's portion
is predicated on what they expect to generate from the
student fees there. AHFC would provide the subsidy on the
remaining cost of those funds on an annual basis. This was
more the criteria looked at than any type of interest rate.
The way this is arranged presently no arbitrage funds would
be used based upon the advice received from counsel.
Senator Rieger asked if when bonds were issued the interest
rate would be higher than 3%. Would the arbitrage
provisions allow the 3% to be a blended return coming back
to AHFC on this project with other higher yielding returns
on the proceeds of a bond issue for another investment and
if the overall aggregate came out within bounds would you be
fine? Mr. Bitney said this was not correct. He noted a
memorandum from legal counsel, Ken Vassar to Dan Fauske,
dated 22 March 1996. The way it is arranged now is that the
IRS code does not look at a loan or grant of arbitrage funds
to the university as an obligation. Therefore the funds
cannot be counted in terms of what is being blended to try
and stay within the 1-1/2% target number that is being
blended down to maintain the tax exempt status. Since the
loan or arbitrage funds are being given to another entity
within the State it does not incur that obligation. The
subsidy from those funds annually used would be applied to
our net profits on an annual basis that otherwise are used
to pay for capital projects in the state transfer plan.
Senator Sharp referred to page 2, line 2 annual debt
service. Without knowing what the actual debt service is
going to be how can exact figures be loaded into the bill?
Does this annual debt service include interest? Wendy
Redmond said that the university is required by statute to
provide to the legislature on revenue bonded facilities the
full cost of the facility including the debt service in a
piece of legislation that must be passed separately. This
meets our statutory requirement. It is exactly known what
the amount will be that is being bonded for with AHFC. The
rate is fixed through a 25-year period based on what the
rental revenues are expected to be with annual increases
that will be assessed for the fees. AHFC will subsidize the
balance of that based on however the rates go up.
Senator Sharp referred to lines 6 and 7 $30,000,000 will be
financed throughout AHFC under a subsidized bond
authorization and combined with lines 2 and 3 what interest
rate was used to arrive at these figures of $2,767,000. Mr.
Bitney advised it was 6%. The estimated annual subsidy
would be $1 million and that is based on the difference
between what is generated by the University from the
facility. Senator Sharp asked if line 3 established the
exact amount the university would pay for debt service at
$1,751,515 no matter what the bond interest rate is? Is
that a guaranteed amount to the university? Mr. Bitney
concurred. Senator Rieger referred to line 3, page 2 and
said the phrase should read including "...an amount not to
exceed..." and that way the issue could be explored further
for flexibility and not prevent the bill from moving
forward. He moved this amendment and Wendy Redmond
concurred. She stated that in addition to the $30 million
that is being assigned specifically to the dormitory an
additional $3 million was being collected from a community
group doing private fund-raising for the dorm. If that
money is collected ahead of time it will reduce the
$1,751,515 each year. The basic dorm rental portion of this
is $1.5 which is fixed in for 25 years. Senator Sharp has
no objection to the amendment of Senator Rieger but is
concerned the amount could go to zero and that would leave
much room for negotiation. Ms. Redmond said she never
considered that an option. Mr. Bitney said he assumed
whatever loan agreement would be negotiated with the
university would basically follow the structure of the
subsidized loan as it is laid out here. Senator Sharp feels
the exact amount should be written in. Wendy Redmond said
the amount was in the loan documents themselves.
Senator Rieger said they should find a better way to make
use of arbitrage and give a break to the students for the
rates at the dorm. This is leaving the door open for
possible creative finance it if turns out there is any way
it could be done. Co-chairman Halford concurred.
Co-chairman Halford re-iterated Senator Rieger's amendment
and with objections being duly noted it was adopted by a
vote of 4 - 3.
Senator Zharoff commented on the debt service. Mr. Bitney
explained the AHFC subsidy. Wendy Redmond said it was not
being done with any other projects around the state at this
time.
Senator Rieger moved CSSB 163 (FIN) and without objection
the bill was reported out with individual recommendations
and accompanying fiscal notes zero (previous) DOR(AHFC); and
University at Anchorage zero.
SENATE BILL NO. 112
"An Act establishing a discovery royalty credit for the
lessees of state land drilling exploratory wells and
making the first discovery of oil or gas in commercial
quantities."
Co-chairman Halford said there was a question on SB 112
regarding any cumulative effect and Senator Leman's staff
was present to answer any questions. Also Ken Boyd via
teleconference.
Annette Kreitzer, staff aide to Senate Resources Committee,
said she was not aware of any cumulative effect in the bill
that would allow for a floor lower than the 5% that is in
the bill. That is what the intent was.
Ken Boyd, Director, Division of Oil & Gas said that within
the bill itself there was no opportunity to go below 5%. He
did explain that if one were granted discovery royalties for
ten years and the bill provides for 5%, at some point in
time of the life of the field, even though there is the
discovery royalty provision, one could apply under HB 207 to
go to a floor of 3%. But that is as low as it would go.
Senator Sharp said that would have to be a separate
application with separate approval and justification. Mr.
Boyd concurred. Senator Rieger asked about the leases under
the old discovery royalty credits provisions. Mr. Boyd
advised that the discovery royalty provision came from the
Federal law when Alaska became a state and from 1959 on
lease issues had discovery royalty provisions. The law was
repealed in 1969 just prior to lease sale 23. All the
leases that were in effect during this time have a discovery
royalty provision.
Senator Sharp moved CSSB 112(RES) and without objection the
bill was reported out with individual recommendations and
previous fiscal note from the Department of Natural
Resources $91.0.
ADJOURNMENT
Co-chairman Halford recessed the meeting at 11:10 a.m. until
1:30 p.m. today pending availability of a quorum.
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