Legislature(1999 - 2000)
04/17/2000 09:30 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
April 17, 2000
9:30 AM
TAPES
SFC-00 # 94, Side A and Side B
CALL TO ORDER
Co-Chair John Torgerson convened the meeting at
approximately 9:30 AM.
PRESENT Co-Chair John Torgerson, Co-Chair Sean Parnell,
Senator Al Adams, Senator Pete Kelly, Senator Loren Leman,
Senator Gary Wilken, Senator Phillips, Senator Green,
Senator Donley.
Also Attending: REPRESENTATIVE LISA MURKOWSKI; JOHN
SHERWOOD, Division of Medical Assistance, Department of
Health and Social Services; LISA KIRSCH, Assistant Attorney
General, Department of Law.
Attending via Teleconference: STEVEN WEISE, ABA Advisor to
Article 9, Involved in drafting Revised Article 9, Heller
Ehrman White & McAuliffe, Los Angeles, California; LEONARD
ANDERSON, Representing the State of Alaska, Third Party
Recovery Agent in Medicaid Matters, Anchorage; Keith
Lauffer, Financial & Legal Affairs Manager, Alaska
Industrial Development & Export Authority (AIDEA),
Department of Community & Economic Development, Anchorage.
SUMMARY INFORMATION
HB 239-UCC SECURED TRANSACTIONS
Co-Chair Torgerson noted that HB 239 would be HELD in
Committee for further consideration.
HB 325-MEDICAL ASSISTANCE: LIENS & CLAIMS
Co-Chair Torgerson advised that HB 325 would be HELD in
Committee for further consideration.
HB 446-PCE FUND/SALE OF 4 DAM POOL/ENERGY FUND
HB 447-PCE APPROPRIATION
Co-Chair Torgerson stated that HB 446 & HB 447 would be
HELD in Committee for further consideration.
CS FOR HOUSE BILL NO. 239(FIN)
"An Act relating to the Uniform Commercial Code;
relating to secured transactions; amending Rule 79,
Alaska Rules of Civil Procedure; and providing for an
effective date."
Co-Chair Torgerson reported that objections had been raised
about the bill from the State Bond Counsel.
REPRESENTATIVE LISA MURKOWSKI explained that trillions of
dollars of commercial and consumer credit are granted each
year in secured transactions under Article 9 of the Uniform
Commercial Code (UCC). UCC Article 9-Secured Transactions
provide a statutory framework that governs transactions in
which a creditor takes a security interest in specific
property of a debtor, allowing the creditor to take the
property in the event the debtor defaults on the debt.
Article 9 of the UCC has been adopted in every state and
was last revised in 1972. Major revisions to Article 9 by
the Uniform Law Commissioners were completed in 1998. The
st
revisions will bring Article 9 into the 21 Century.
Representative Murkowski outlined the reasons that the
revised Article 9 should be adopted:
· Technology
· Volume
· New Collateral
· Certainty of Perfection
· New Liens
· Clarification of Rules
· Simplified Filing
· Consumer Impact
· Commitment to Uniformity
Co-Chair Torgerson referenced Page 121, Lines 18-21, the
"retroactivity clause" and asked what that would do.
Representative Murkowski explained that was a reference to
a complicated flow chart. It refers to an existing
security interest and does not mean that anyone would need
to refile.
STEVEN WEISE, (Testified via Teleconfernce), ABA Advisor to
Article 9, Involved in drafting Revised Article 9, Heller
Ehrman White & McAuliffe, Los Angeles, California, added
that in the uniform version, there was another section that
deals more directly with the issue, Section 705(c). That
section clarifies that if a person filed under the current
Article 9, the filing would remain valid and that person
would not be at risk.
Co-Chair Torgerson questioned why that section had been
included in the bill.
Mr. Weise replied that the bill needs to address the old
and new Article 9 and how to go about guaranteeing that
there are not misunderstandings regarding the old financing
statements.
Co-Chair Torgerson argued that section does not indicate
that concern.
Mr. Weise replied that there is another section which
identifies the security issues perfected under current
Article 9. He suggested that would be one of the
alternatives for keeping the security issue in place.
Co-Chair Parnell asked why one-section states that the
security interest becomes unperfected and then Subsection
(c) stipulates that it does not render effective.
Mr. Weise clarified that the first clause of Subsection (a)
would not apply when there is a filing of a finance
statement. In that situation, Subsection (c) would apply.
He agreed that the system was quite complex.
Co-Chair Torgerson referenced a letter included in member's
files from Cynthia Weed at the State Bond Counsel. The
letter states that the exemption would not provide a
comprehensive exclusion to exempt pledges and liens granted
by the State and local government issuing revenue bonds.
The letter indicates that the language in the bill would
impact future bond issues and would place revenue bond
issues that are outstanding in the hands of investors.
Co-Chair Torgerson recommended further work done on the
bill in regards to the impact of outstanding revenue bonds
in the hands of investors.
Representative Murkowski interjected that the project
originated during an interim committee. She noted that
Cynthia Weed had been present at that Committee meeting.
The conversation at that time indicated that this was not
significant in the event of creating or continuing the
extension. She stated that this was the first time the
issue had arisen. Representative Murkowski urged members
to pass the bill, suggesting the issue could be resolved as
an exemption next year.
Co-Chair Torgerson maintained that the language was
"strong" and that the issue must be addressed before the
bill moves from the Senate Finance Committee.
Co-Chair Torgerson stated that HB 239 would be HELD in
Committee for further consideration.
CS FOR HOUSE BILL NO. 325(JUD)
"An Act relating to priorities, claims, and liens for
payment for certain medical services provided to
medical assistance recipients; and providing for an
effective date."
JOHN SHERWOOD, Division of Medical Assistance, Department
of Health and Social Services, commented that the proposed
legislation has two main purposes.
· To improve the third party recovery effort for
medical assistance; and
· Changes to the claim filing provisions.
Mr. Sherwood mentioned that HB 325 was a companion bill to
SB 233.
Mr. Sherwood proceeded to explain the second provision of
the bill. He noted that currently, the Department allows
health care providers six months to make payments on claims
for medical assistance from the date of service or twelve
months, as the provider must bill the private insurance
company first. The legislation would extend the filing
deadline to twelve months for all claims, elevating the
Department to the industry standard.
Additionally, the bill would allow the Department to pay
100% of a late claim if the Commissioner finds that the
provider has "good cause" for missing a timely filing
deadline.
LISA KIRSCH, Assistant Attorney General, Department of Law,
explained the third party recovery provision. She noted
that the second part of the bill addresses strengthening
the existing rights in which Medicaid must recover payments
of those that have been made. Currently, there is a
subrogation right, which has been difficult to enforce as
it is not explicitly in statute.
Co-Chair Torgerson inquired if that was Section 8 of the
bill.
Ms. Kirsch stated the provision in Section 8 would allow
the State to waive the right if there were a case where
work would cause a hardship against the Medicaid recipient.
The primary section that changes authority to provide a
lien right would be to Section 9, Pages 3 & 4. The changes
requested would allow the Department flexibility to adjust
the claims.
Ms. Kirsch advised that as it stands, there are references
made to the civil rule, which is intended to clarify
existing law.
Senator Phillips referenced Section 1. He asked to what
extent would the involvement be contained in that process.
He was trying to determine if he had a conflict of
interest.
Ms. Kirsch stated that Section 1 deals with the priority of
the lien. A lien right was created for the Department and
the Division of Medical Assistance had to be placed in the
list of existing liens. She suspected that the concern
would not come up often. She interjected that Medicaid
does pay the hospital.
Senator Phillips asked for consent that he be allowed to
refrain from voting because of a conflict of interest.
Co-Chair Parnell admitted that he could have a conflict of
interest also. He voiced concern that the Department would
be receiving priority over the hospital, nurses and
physicians. He warned that there is much Medicaid money
that needs to be recovered. Co-Chair Parnell asked when
the priority would come into play.
Ms. Kirsch replied that the placement in the list would
depend on the type of placement coming up. She noted that
a number one placement would be to the list of medical
services. In most cases, if the person was Medicaid
eligible, they would be covered and the provider would be
paid.
Co-Chair Parnell questioned why that language was necessary
in the legislation.
Ms. Kirsch replied that the State has to place themselves
somewhere, a vacuum can not be left. She understood the
problem to be that when the State has a subrogation right,
the argument is that you have no right at all once the
plaintiff recovers 100%.
Co-Chair Parnell believed that requesting a right lien
priority was the most extreme way to address the concern.
LEONARD ANDERSON, (Testified via Teleconference),
Representing the State of Alaska, Third Party Recovery
Agent in Medicaid Matters, Anchorage, testified that there
are general problems with the present statute. The first
concern is the notice problem. Currently, when a Medicaid
recipient requests Medicaid, they have already signed up
and contractually agreed to include any Medicaid amount
that they received as part of the claim against a third
party. Part of the problem is getting the notice and then
action when the notice is received.
Typically, it is well into a tort case before the State of
Alaska ever finds out that there is potentially a liable
third party out there. It is not uncommon that the notice
of that fact is received after the settlement has taken
place. He stated that the new bill would address that
issue. The legislation places into statute a requirement
that the Medicaid recipient or his attorney notify the
Department of any claim that is being made against a
potentially liable third party.
Mr. Anderson added, a second portion of the proposed
legislation would address the subrogation issue. The real
issue is that attorneys privately argue that equitable
principles of subrogation apply. That means that if an
injured third party is not made whole, then the State of
Alaska can not get anything until the party is made whole.
The lien will require dialogue between the injured party,
their attorney and the State of Alaska. There is a
"hardship" waiver provision in the bill which will provide
some flexibility to it.
Co-Chair Parnell questioned the position of the insurance
companies. He used the example of a child hit on a bike.
He reiterated why should the State have a higher right than
any other party trying to recover their fees.
Mr. Anderson did not agree that the State was on a "level
playing field". Various courts have found that there are
different policy reasons for where the insurance company
sets. The courts that have addressed the issue have found
that based upon that insurance company's base "risk" into
the rates charged, they are different than the State that
does not use the risk factor. He hesitated to compare the
State and the insurance company.
Tape: SFC - 00 #94, Side B 10:17 am
Co-Chair Torgerson understood that there would only be a
couple cases a year that this clause would apply to.
Mr. Anderson argued that was inaccurate. He noted that
weekly, he is involved in subrogation issues. He
interjected, the Plaintiff's Bar is not happy with Alaska
in the recovery of funds. Based on current statute
weakness, they are waiting for the right case to bring it
to the Supreme Court. If that were to happen, the outcome
would not be good. Mr. Anderson believed that was part of
the reason that State had made it a priority to settle
claims.
Co-Chair Torgerson suggested that the most important part
of the bill was from Sections 3 on. He proposed removing
Sections 1 & 2.
Representative Murkowski stated that there needs to be some
standing in the list, otherwise, the lien right would cause
a great deal of confusion.
Senator Green declared a conflict of interest. She asked
if the legislation would address mainly the person covered
by Medicaid and/or private insurance.
Representative Murkowski stated that was a possibility. It
could also be a circumstance where a Medicaid recipient was
not covered by any other insurance but instead a third
party who was responsible for their injury.
Senator Green asked if the person had no coverage or no
secondary coverage would Medicaid then be designed to
repay.
Representative Murkowski stressed that this was "third
party" recovery.
Senator Green inquired if the State could require a payment
from a Medicaid recipient.
Representative Murkowski mentioned that a couple of years
ago, there had been a legislative change made to allow
people who are disabled to go back to work, and by virtue
of going back to work, they loose their coverage. The
legislation would allow the disabled to enter into a
contract.
Mr. Sherwood stated that the Department is allowed and that
they do charge nominal co-payments. Under federal law
those payments are restricted to 5% of the persons total
income.
Senator Green argued that it is difficult to compare
Medicaid to private insurance.
Representative Murkowski stressed that Medicaid is not an
insurer. That relationship is contractual and it is not
meant to offset insurance.
Co-Chair Parnell clarified that creating a lien would have
other ramifications. Giving the State a lien priority
impacts the collectability of the other claims by other
private parties and also puts the State in priority of
bankruptcy setting over unsecured creditors.
Representative Murkowski stated that the lien created would
be to a third party and responsible for medical expenses.
That would be in the context of a third party recovery in a
tort action if medical expenses were to be considered.
Co-Chair Torgerson advised that the bill would be held in
Committee for further consideration. He recommended that
Sections 1 & 2 be reworked. Co-Chair Torgerson questioned
Section 5 and asked why it had not been reflected in the
fiscal note.
Mr. Sherwood explained that provision related to timely
filings. In that situation, the statute would limit pay of
50% of the claim, which would allow the entire claim to be
paid. He advised that this was an equity issue for timely
filing. Mr. Sherwood noted that the fiscal costs were not
considered "material".
HB 325 was HELD in Committee for further consideration.
CS FOR HOUSE BILL NO. 446(FIN) am
"An Act establishing and relating to the power cost
equalization endowment fund; relating to the power
cost equalization and rural electric capitalization
fund; relating to the Railbelt energy fund;
authorizing and relating to the sale of the four dam
pool hydroelectric project; establishing and relating
to joint action agencies created to purchase power
projects; and providing for an effective date."
CS FOR HOUSE BILL NO. 447(FIN) am
"An Act making appropriations relating to power cost
equalization and the sale of the four dam pool
hydroelectric project and to capitalize funds; making
appropriations under art. IX, sec. 17©, Constitution
of the State of Alaska, from the constitutional budget
reserve fund; and providing for an effective date."
Keith Lauffer, (Testified via Teleconference), Financial &
Legal Affairs Manager, Alaska Industrial Development &
Export Authority (AIDEA), Department of Community &
Economic Development, provided an overview of the bill. He
stated that the bill would do three things:
· Authorize the sale of the Four Dam Pool
facilities to an entity to be formed by
purchasing utilities;
· Establish a power cost equalization (PCE)
endowment and utilitize the sales proceeds to
capitalize the endowment, while allows for other
contributions of the endowment from federal funds
or other sources; and
· Uses the endowment and other funds to provide for
a mechanism for the annual financing of the PCE
program at a $15.7 million dollar level.
Mr. Laufer addressed the perimeters of the sale transaction
of the Four Dam Pool. The negotiations for the sale of
those facilities has been in the making for about 5 years.
The negotiations have been long and difficult and the final
agreement was just made. He added that there were three
goals in approaching the final negotiations.
· The State needed to receive fair value for the
project and be relieved of all liability related
to the project.
· The sale needed to benefit the local communities
by providing them with local control of their
generation resources and stabilize long-term
power rates.
· It was important that any sale transaction would
help to solve the problem of long term funding
for PCE.
Mr. Laufer was pleased to report that the bill met all the
criteria.
He explained the perimeters of the sale. The sale price
for the project was $73 million dollars. That price falls
within the range of reasonable value that AIDEA determined
was a fair value for the projects. The manner in which the
internal fair value was determined was to recognize that
the projects are only worth what revenues the State could
generate over the long term. Recognizing that, a
calculation was based on the present value of the State's
revenue and those were used as the terms for the power
sales agreement. That amount was then reduced by the
present value of the State's risk. He reiterated that the
sales price was well within the range that AIDEA found
reasonable, utilizing the long-term assumptions.
Mr. Laufer expounded that there were other elements
involved in the sale. The reason that the sale will not be
consummated immediately is that there are federal
regulatory commission licenses that needs to be transferred
and land interests which make it more complex.
Mr. Laufer commented that AIDEA believes a reasonable time
frame for closing the sale would be December 2001. In the
interim, the utilities will be required to continue to make
their power sales agreement payments. Under the terms of
the Memorandum of Understanding (MOU) with the State and
the utilities, the utilities will be responsible for all
repairs and the payments will be 100% available for the PCE
program. The utilities do have a termination right in the
event that significant losses occur in the interim period.
Mr. Laufer noted that the next element of the transaction
involves the State insurance fund. The State currently
holds a $13 million dollar insurance fund for the projects.
That fund is used by the State to cover uninsured risks and
the deductibles. The State has a $10 million dollar
deductible on the insurance procured on these projects.
That fund is projected at about $13 million dollars. Those
monies would be freed up as of the sale date.
Mr. Laufer continued, the next monies involved in the sale
are the monies set aside for a 3% low interest loan from
the State to the utilities participating in the Southeast
intertie. Those funds were appropriated in 1993. The fund
consists of $20 million dollars. In the transaction, it
was recognized that the $20 million dollars loan funds had
a significant subsidy element. The subsidy value of that
loan was in excess of $5 to $6 million dollars. In
recognition of that, the utilities were provided a $5
million dollar credit as of the close against the purchase
price.
Mr. Laufer stated that there were two other elements of the
sale that should be addressed. He noted that the sale
completely relieved the State of all ongoing future
liabilities as an owner of the projects. He noted that was
a crucial element for AIDEA. The MOU authorized AIDEA to
finance the sale but it would be subject to AIDEA's Board
approval at an interest rate of 6.5% under commercial
terms, and would be available if they were publicly
financed. Importantly, the purchasing utilities were
required to subordinate all their rights under the power
sales agreement. If the loan was to default to the
utilities, the State should not be in a position in which
it could again receive ownership of the projects, subject
to the existing owner's power sales agreement. The
utilities will be subordinating their rights and power in
the sales agreement to the AIDEA lien.
Co-Chair Torgerson asked if that agreement would need to be
ratified by the voters.
Mr. Laufer understood that the agreement would not have to
be ratified by the individual owners. A new entity will be
created so that the power sales agreement, other than the
subordination agreement would not be altered. No
individual utility would be incurring the debt.
Mr. Laufer continued, the MOU recognizes that there are a
number of conditions, which will need to be satisfied. It
will be necessary for the governing body of each utility to
approve the transaction as well as the Legislative Body.
He added that there are a number of other detailed issues,
which will need to be completed before the transfer can be
consummated.
The second part of the bill addresses the establishment of
the PCE endowment. That is where the money goes. The
payment made in August 2000 will be deposited into the PCE
Rural Capitalization Fund. The other funds identified for
payment are for power sales, which would be deposited into
the PCE Endowment Fund. The net sale proceeds in the
insurance fund would also be deposited into the PCE
Endowment Fund. The bill provides for a transfer out of
the Constitutional Budget Reserve (CBR) into the PCE
Endowment Fund.
Mr. Laufer continued, annual PCE funding over the long-term
will come from the amounts made available from the
endowment. Under the bill, 7% of the average market value
of the previous fiscal year would be made available for PCE
funding. In the interim, the PCE Endowment Fund will not
be full until the sales proceeds come in. The earning for
the endowment of approximately $13.6 million dollars would
be made available for PCE, then interest on the PCE and the
Rural Capitalization Fund would be available and other
funds including the AIDEA dividend would be made available.
st
The bill provides that on July 1, 2004, use of the AIDEA
dividend would be deleted.
Mr. Laufer mentioned that the appropriation bill stipulates
that the $20 million dollars Southeast Intertie loan would
lapse back into the Railbelt Energy Fund from whence it
came. In addition, amounts made available for the Sutton-
Glennallen Intertie would lapse back to the Railbelt Energy
Fund. An appropriation will be made for the sales
transaction costs. Any remaining costs would lapse through
the PCE Endowment Fund.
Mr. Lauffer referenced the handouts he distributed.
[Copies not on File].
In response to Senator Phillips, Mr. Laufer explained that
AIDEA financing would be paid off over 20-25 years at a
6.5% interest. The terms of that financing would be
commercial and would require the normal security that AIDEA
demands.
Senator Phillips thought that there could be a risk to the
future.
Mr. Laufer advised that was the intent for the
subordination of the power sales agreement.
Senator Phillips understood that following the sale, the
State would then be done with this concern. He questioned
the money drawn from the CBR.
Mr. Laufer explained that the proceeds and money made
available from the sale are not sufficient to cover the
$50.7 million dollar annual PCE payment. Under the bill
that the House approved, depositing additional funds into
the Endowment Fund sufficient to produce revenues that are
close to the amount necessary on an annual basis to provide
for full funding would fill the gap.
Senator Phillips acknowledged that he had a problem with
that.
Senator P. Kelly asked the amount of the current AIDEA
dividend.
Mr. Laufer replied that the AIDEA dividend depends on
revenues and that it can be anywhere from $18-$20 million
dollars annually.
In response to Senator P. Kelly, Mr. Laufer stated that
under the proposed scenario, it would be approximately $1.4
million dollars annually.
Senator P. Kelly asked the amount of the CPR draw.
Mr. Laufer advised that the previous amount coming from the
CBR was $20 million dollars. The AIDEA dividend draw was
between $7-$8 million dollars.
Senator P. Kelly inquired the counter offer.
Mr. Laufer explained that the current offer has been in
negotiation for over a five-year period. The most recent
utility offer that was in writing was made in January for
the amount of $60 million dollars.
Senator Adams acknowledged that the CBR draw eliminated the
long-term draw from AIDEA.
Senator Leman commented that last year's settlement of
$15.7 million dollars was a compromise with the assurance
from Senator Adams that there would be money coming from
National Petroleum Reserve-Alaska (NPRA). Had that
assurance not been there, Senator Leman was confident that
the Senate Finance Committee would have pushed for other
changes in the PCE, establishing the level at somewhat
less. He suggested revisiting some of the previous
Committee actions.
Senator Leman asked why the sale was not put out to
competitive bid and if the State would have done "better"
having done that.
Senator Adams responded to the first concern voiced by
Senator Leman. He pointed out that the $12 million CBR
dollars had been included. The impact of the issues
returned those funds. Out of the $12 million dollars, $3
million was placed into the Permanent Fund. The balance
goes into the School Public Trust. Future NPRA money goes
to the impacted communities.
Mr. Laufer addressed the other concern voiced by Senator
Leman. He agreed that it was not known what the price
could have been received with a bid. However, it is clear
that only the purchasing utilities have the legal ability
to relieve the State of its risks. AIDEA is comfortable
that the price committed to is within a reasonable range
that the State could get from any third party buyer.
Mr. Laufer highlighted the distributed charts. [Not in
File].
Co-Chair Torgerson questioned if it could be balanced
without an AIDEA dividend.
Mr. Laufer advised that it is anticipated that there will
be federal funds coming available for the endowment itself,
to grow the amount in order to cover the AIDEA dividend.
Co-Chair Torgerson inquired what would happen if the fund
were to under or over perform.
Mr. Laufer suggested that there would be a 7% nominal
return long-term basis. Over or under performing funds
would remain in the endowment. The provision of the bill
provides that 7% of the market value of the endowment is
the amount transferred on an annual basis. Over the long-
term, the endowment should be able to maintain.
Co-Chair Torgerson stated that HB 446 & HB 447 would be
HELD in Committee for further consideration.
ADJOURNED
Senator Torgerson adjourned the meeting at 11:04 A.M.
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