Legislature(2001 - 2002)

05/03/2001 09:20 AM Senate FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                              MINUTES                                                                                         
                     SENATE FINANCE COMMITTEE                                                                                 
                           May 03, 2001                                                                                       
                              9:20 AM                                                                                         
                                                                                                                                
                                                                                                                                
TAPES                                                                                                                       
                                                                                                                                
SFC-01 # 93, Side A                                                                                                             
SFC 01 # 93, Side B                                                                                                             
                                                                                                                              
CALL TO ORDER                                                                                                               
                                                                                                                                
Co-Chair Pete  Kelly convened the meeting at approximately  9:20 AM.                                                            
                                                                                                                                
PRESENT                                                                                                                     
                                                                                                                                
Senator Dave Donley, Co-Chair                                                                                                   
Senator Pete Kelly, Co-Chair                                                                                                    
Senator Gary Wilken                                                                                                             
Senator Alan Austerman                                                                                                          
Senator Lyman Hoffman                                                                                                           
Senator Donald Olson                                                                                                            
                                                                                                                                
Also  Attending:   RANDALL  BURNS Chief  Executive  Officer,  Alaska                                                          
Psychiatric  Institute; RUSS WEBB,  Deputy Commissioner,  Department                                                            
of Health and Social Services                                                                                                   
                                                                                                                                
Attending   via  Teleconference:     From  Anchorage:  SAM   DICKEY,                                                          
President, University Area  Community Council, and former president,                                                            
Airport Heights Community  Council, and participant of the Coalition                                                            
for  API  [Alaska  Psychiatric  Institute];  ELAINE  PRATT,  Member,                                                            
Coalition for  API; JEFF JESSEE, Executive  Director, Alaska  Mental                                                            
Health Trust Authority, Department of Revenue                                                                                   
                                                                                                                                
SUMMARY INFORMATION                                                                                                         
                                                                                                                                
SJR 23-CONST AM: APPROPRIATION/SPENDING LIMIT                                                                                   
                                                                                                                                
The Committee considered  and adopted two amendments. The bill moved                                                            
from Committee.                                                                                                                 
                                                                                                                                
HB  76-NEW FACILITIES FOR API                                                                                                   
                                                                                                                                
The  Committee  heard  from  the Department  of  Health  and  Social                                                            
Services, the Mental Health  Trust Authority, the Alaska Psychiatric                                                            
Institute  and  other  interested  parties.  The  bill was  held  in                                                            
Committee.                                                                                                                      
                                                                                                                                
                                                                                                                                
     SENATE JOINT RESOLUTION NO. 23                                                                                             
     Proposing amendments to the Constitution of the State of                                                                   
     Alaska relating to an appropriation limit and a spending                                                                   
     limit.                                                                                                                     
                                                                                                                                
                                                                                                                                
This was  the second  hearing for  this bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
Co-Chair  Donley restated  the intent of  the resolution to  replace                                                            
the current  constitutional  appropriation,  or  spending limit.  He                                                            
noted  the   current  spending   limit  amendment   to  the   Alaska                                                            
Constitution  was adopted  in  1982 by  voters and  was intended  to                                                            
limit state  government spending and  require that one-third  of all                                                            
appropriations are allocated  to the capital budget items. He opined                                                            
that this constitutional  amendment  "has never worked" because  the                                                            
amount  is "simply set  too high".  He explained  that although  the                                                            
$2.5  billion   figure  is  specified   in  the  amendment,   annual                                                            
adjustment  for population and inflation  raises the amount  to over                                                            
$6 billion for  the current year. He pointed out the  amount subject                                                            
to the provisions  of the constitutional amendment  is approximately                                                            
$3.1 billion. This, he noted results in a $3 billion "cushion".                                                                 
                                                                                                                                
Co-Chair  Donley   added  that  a  court  decision   on  the  matter                                                            
"completely  turned  on its  head,"  the  meaning of  the  one-third                                                            
capital  appropriation  provision.  This one-third  requirement,  he                                                            
said,  has never been  followed.  He surmised  citizens reading  the                                                            
constitution  "are  led to  believe"  there  exists a  $2.5  billion                                                            
limit,  which he  stressed  is actually  $6  billion,  and that  the                                                            
capital budget  is almost $1 billion  general funds annually,  which                                                            
is also not the case.                                                                                                           
                                                                                                                                
Co-Chair Donley expressed,  "Given that the existing provisions have                                                            
never worked  and is not understandable  to any average person…it's                                                             
clear that that provision  of the constitution is certainly broken."                                                            
This resolution,  he  said, replaces  the "broken  language" with  a                                                            
provision  that is effective.  Co-Chair Donley  explained the  FY 00                                                            
budget of $3.1 billion  is used to set a new baseline. He noted that                                                            
although  this seems  to be  an increase  of $600  million from  the                                                            
language  adopted in 1982,  it is actually  a decrease of almost  $3                                                            
billion from the population and inflation adjusted amount.                                                                      
                                                                                                                                
Co-Chair Donley stated  that this resolution attempts to prevent the                                                            
problems  of  the  1982 provision  by  clarifying  which  funds  are                                                            
included  in the  spending  limit.  He added  that  this  resolution                                                            
limits  the growth in  spending to  a percentage  of population  and                                                            
inflation.  He referred  a spreadsheet, Appropriation Limit, showing                                                            
the changes  to the  base limit and  growth limit  of 50 percent  of                                                            
population and inflation.  [Copy on file.] He surmised this approach                                                            
would hold down the growth more effectively.                                                                                    
                                                                                                                                
Co-Chair Donley also noted  a provision is added allowing, through a                                                            
super  majority   vote  of   the  legislature,   that  .25   percent                                                            
inflationary growth  could be accessed. He pointed  out in the first                                                            
year  after  this  resolution  takes effect,  the  amount  would  be                                                            
approximately $31 million. He termed this to be a safety valve.                                                                 
                                                                                                                                
Co-Chair  Donley continued  that an additional  safety valve  is the                                                            
option  of  general  obligations   (GO)  bonds  to  finance  capital                                                            
projects.  He  described  how,  if  the  legislature  identifies  an                                                            
important need,  a GO bond proposal  could be placed on the  ballot,                                                            
and  if approved  by  voters at  the next  general  election,  could                                                            
relieve pressure  on the operating budget. He surmised  that this is                                                            
an appropriate method to allow for large capital expenditures.                                                                  
                                                                                                                                
Co-Chair  Donley  also  noted  the  resolution   contains  a  repeal                                                            
provision  in the form of  placing a question  before voters  in the                                                            
2010 general  election as to whether  this constitutional  amendment                                                            
should  remain  a part  of  the constitution.   He noted  that  this                                                            
encourages legislative review of the provision as well.                                                                         
                                                                                                                                
Co-Chair  Kelly asked  if there are  other provisions  in the  state                                                            
constitution that come up for public review.                                                                                    
                                                                                                                                
Co-Chair   Donley   replied  there   are   several   and  gave   the                                                            
constitutional   convention  as  an  example,  explaining   how  the                                                            
question of  whether to hold a constitutional  convention  is placed                                                            
before the voters every ten years.                                                                                              
                                                                                                                                
Senator Ward expressed  his support for this resolution and told how                                                            
he had  made earlier attempts  to support  Co-Chair Donley  in these                                                            
efforts in previous legislative sessions.                                                                                       
                                                                                                                                
Senator Ward  commented that  if this issue  had been placed  on the                                                            
ballot earlier,  he believed Alaskans "would have  taken a different                                                            
attitude toward  income tax, sales  tax, permanent funds,  petroleum                                                            
taxes,  a whole host  of things."  He stated there  is currently  "a                                                            
blank check in government."  He titled this constitutional amendment                                                            
as the beginning of "the  Alaskan Plan" and said it does not compare                                                            
to the Republican  Party's five-year budget plan that  concluded the                                                            
previous  fiscal year.  He stressed  this  is what  the citizens  of                                                            
Alaskans  have demanded and  that "they want  us to live within  our                                                            
means  and right  now they know  that there  is no  limit" to  state                                                            
government  spending.  He  surmised  that if  this  resolution  were                                                            
placed on a future ballot,  voters would become more involved in the                                                            
long-range  fiscal plan for state  government. He warned  there must                                                            
be a limit  to government spending  so citizens would have  faith in                                                            
their government. He concluded  this resolution is the answer to the                                                            
failed ballot measure in  the 1999 special election to use a portion                                                            
of the  earnings of the  permanent fund to  pay for some  government                                                            
services.                                                                                                                       
                                                                                                                                
Co-Chair Kelly  commented that whenever  a constitutional  amendment                                                            
pertaining   to   government   spending   there  would   always   be                                                            
difficulties.  He  noted  that  although   Co-Chair  Donley  gave  a                                                            
complete  presentation  of this  resolution,  there  might still  be                                                            
minor issues  to address.  However,  he remarked  that the House  of                                                            
Representatives  committee process has progressed  "frightenly slow"                                                            
this session  and he  was concerned  that the  resolution would  not                                                            
complete the process  in the next year and qualify  for placement on                                                            
the 2002  General  Election ballot.  He therefore  asked for  Senate                                                            
Finance  Committee leeway  to expedite  the resolution  through  the                                                            
Senate this year so it  could be transmitted to the House as soon as                                                            
possible. He  preferred this resolution  receive necessary  scrutiny                                                            
in House  committees  rather  than be  delayed then  rushed  through                                                            
during the last days of the legislative session.                                                                                
                                                                                                                                
Senator Hoffman  referenced page 2, lines 13 and 14,  "The operating                                                            
expenditures  of each of  the principal  departments established  by                                                            
law under  Section 22 of  Article III shall  be reduced by  an equal                                                            
percentage." He asserted  that whenever the matter of reducing state                                                            
government  has been  considered,  the method  of  across the  board                                                            
reductions  to all services  was a last result  option. He  stressed                                                            
that  across the  board reductions  "don't  make much  sense" and  a                                                            
better  approach is  to examine  and prioritize  specific  services.                                                            
Therefore,  he asked why  an across the board  method is imposed  in                                                            
this constitutional amendment.                                                                                                  
                                                                                                                                
Senator  Hoffman continued  to page  2, lines 14  through 16,  "This                                                            
subsection  does not apply  to expenditures  that are approved  by a                                                            
resolution  concurred in by  at least two-thirds  of the members  of                                                            
each  house."  He wanted  to  know if  such  a resolution  could  be                                                            
considered  and  adopted  at  the  same time  the  budget  is  under                                                            
consideration.                                                                                                                  
                                                                                                                                
Co-Chair Donley  answered yes to Senator Hoffman's  second question.                                                            
He noted  the final  result would  still be a  requirement that  the                                                            
growth remain  less than the population and inflation  requirements.                                                            
                                                                                                                                
Co-Chair Donley  addressed the first  question saying that  although                                                            
he  agreed the  equal reduction  approach  is  not a  good idea  for                                                            
general  budget  practice,  he  recommends  it  for  this  situation                                                            
because it is a provision  to be implemented only if the legislature                                                            
violates  the  spending   limits  imposed  in  this  constitutional                                                             
amendment.   He  expressed  this   provision  would  encourage   the                                                            
legislature  to  stay  within  the  spending  limit,  to  prioritize                                                            
services and would  also avoid costly litigation.  He explained that                                                            
in a  situation where  the legislature  "ignored its constitutional                                                             
duty" to appropriate within  the limit or inadvertently appropriated                                                            
more  than  the  limit allows,  a  court  would  have  to  determine                                                            
appropriate   reductions.   He   stated   this  provision   in   the                                                            
constitutional amendment  provides the court specific guidelines for                                                            
making  those  reductions  and also  gives  the  legislature  "clear                                                            
notice"  of the consequences  of  violating the  spending limit.  He                                                            
predicted that  this provision actually addresses  Senator Hoffman's                                                            
concerns  about unprioritized  reductions  because  the legislature                                                             
would be encouraged to  make budget decisions within the constraints                                                            
rather then allow for an arbitrary across the board reduction.                                                                  
                                                                                                                                
Senator Hoffman  estimated  the proposed FY  02 budget would  exceed                                                            
the spending  limit imposed by this  constitutional amendment  if it                                                            
existed  today. He  requested the  Division of  Legislative  Finance                                                            
confirm this.                                                                                                                   
                                                                                                                                
Co-Chair Donley  agreed to this, and classified the  FY 02 budget as                                                            
a "moving target" since it had not yet passed the legislature.                                                                  
                                                                                                                                
Co-Chair  Kelly  asked  for clarification  of  the  equal  reduction                                                            
provision imposed  if the legislature appropriated  an amount higher                                                            
than the spending limit.                                                                                                        
                                                                                                                                
Co-Chair Donley reiterated  how the budget would be reduced in equal                                                            
proportions to  each department in the event of a  lawsuit filed and                                                            
won against the  legislature for over-spending. He  pointed out that                                                            
the governor  is also responsible  for any  over-spending since  the                                                            
budget must be  signed into law before funds could  be appropriated.                                                            
He surmised  that the amount  of money involved  in these  instances                                                            
would be minimal.                                                                                                               
                                                                                                                                
Co-Chair Kelly  asked if the appropriation reductions  would be made                                                            
through a court action.                                                                                                         
                                                                                                                                
Co-Chair Donley  affirmed and explained  the court would  order each                                                            
department  to  reduce  its  budget   and  the  specifics  would  be                                                            
determined by the commissioners of each department.                                                                             
                                                                                                                                
Co-Chair Kelly asked if  the commissioners would have flexibility to                                                            
make these reductions within the Budget Request Units (BRU).                                                                    
                                                                                                                                
Co-Chair Donley  answered by reading  from page 2, lines  10 and 11,                                                            
"…the governor  shall reduce  expenditures  by the executive  branch                                                            
for its  operation  and administration  to the  extent necessary  to                                                            
avoid spending more than the amount that may be appropriated…"                                                                  
                                                                                                                                
Senator Hoffman opined  that in actuality, the governor would review                                                            
the budget  passed by the legislature  to ensure the appropriations                                                             
are within the limit. In  the event they are higher, Senator Hoffman                                                            
continued,  the governor  would prioritize  and make necessary  line                                                            
item reductions at this time.                                                                                                   
                                                                                                                                
Co-Chair Donley  agreed this is true, "within the  perimeters of the                                                            
constitutional   provision,  which  requires   it  to  be  equal  by                                                            
department." He  asserted the way to avoid this situation  is to not                                                            
violate the spending limits.                                                                                                    
                                                                                                                                
Amendment  #1: This  conceptual amendment  deletes  a sentence  from                                                            
Section 1 (c),  on page 2, lines 13 and 14 of the  resolution, which                                                            
reads,  "The  operating  expenditures   of  each  of  the  principal                                                            
departments  established  by law  under Section  22  of Article  III                                                            
shall be reduced by an equal percentage."                                                                                       
                                                                                                                                
Co-Chair  Kelly  expressed  his  concern  that some  items  such  as                                                            
contracts  negotiated in  good faith  and entitlements,  would  be a                                                            
priority and  could not be reduced,  but that other, less  desirable                                                            
reductions would be required  elsewhere. He predicted there would be                                                            
a  small  number  of  budget  items  available  to  incur  the  full                                                            
reduction.  He also warned that the  legislature would be  unable to                                                            
make these budget decisions.                                                                                                    
                                                                                                                                
Co-Chair  Donley noted  several events  would have  to occur  before                                                            
this provision would be  activated. He listed: the legislature would                                                            
pass a  budget higher  then the  appropriation  limit, the  governor                                                            
would  not exercise  veto authority  in reducing  appropriations  to                                                            
meet the limit, a lawsuit  would be filed against the state, and the                                                            
court would rule against  the state in this suit. Only at this time,                                                            
he explained,  would  the governor  be  required to  make the  equal                                                            
reductions  in accordance  to the constitutional  amendment  and the                                                            
court order.                                                                                                                    
                                                                                                                                
Senator  Green understood  the primary intent  of the appropriation                                                             
limit is to become  the "guiding principal" by which,  the budget is                                                            
formulated and  policies set. By knowing the appropriation  limit at                                                            
the  start  of the  budget  process,  she  surmised  the  department                                                            
representatives would have  to submit proposed budgets that meet the                                                            
predetermined  amount. She stated  the message would be sent  to the                                                            
executive branch, "This  is the principal under which we're going to                                                            
operate.  You  have   some  information  and  you   work  from  that                                                            
principal."  She expressed  this method starts  with the  governor's                                                            
office.  If  nothing   else,  she  predicted  this   intent  of  the                                                            
constitutional  amendment would  ensure there  is leadership  in the                                                            
budget process rather then a compilation of reactions.                                                                          
                                                                                                                                
Co-Chair  Donley applauded  this point, and  noted that in  the last                                                            
six years, the  governor has been proposing large  budget increases.                                                            
Under the appropriation  limit, Co-Chair Donley stated, the governor                                                            
would have to meet the  cap or there could be consequences. He noted                                                            
this also addresses  Senator Hoffman's  concerns about prioritizing                                                             
expenditures.                                                                                                                   
                                                                                                                                
Co-Chair Donley  stated he had no  objection to the deletion  of the                                                            
sentence as proposed.                                                                                                           
                                                                                                                                
Co-Chair Donley moved for adoption of Amendment #1.                                                                             
                                                                                                                                
Without objection the amendment was ADOPTED.                                                                                    
                                                                                                                                
Co-Chair Donley  requested Committee advice on the  last sentence in                                                            
Section 2 on page 2, lines  23 through 25, "If the majority of those                                                            
voting  on the  proposition  rejects  the amendment,  the  amendment                                                            
shall be repealed  and Section 16  of Article IX shall be  reenacted                                                            
to read  exactly as it did  when it was  first adopted in  1982." He                                                            
explained this  applies to the provision placing the  constitutional                                                            
amendment,   if   initially   adopted,   back  before   voters   for                                                            
reconsideration  in the year 2010 and every eight  years thereafter.                                                            
He commented that  the language adopted in 1982 is  "pretty bad" and                                                            
thought   it  might   be  preferable   to  completely   repeal   the                                                            
constitutional   amendment  rather  then  revert   to  the  previous                                                            
language.                                                                                                                       
                                                                                                                                
Co-Chair Kelly asked for  clarification of how this resolution would                                                            
affect the existing constitutional amendment.                                                                                   
                                                                                                                                
Co-Chair Donley  explained if this resolution were  adopted, and its                                                            
provisions incorporated  into the constitutional amendment governing                                                            
spending  limits,  but the  voters  later  elected to  repeal  these                                                            
provisions,  the  constitutional  amendment  would  remain  but  the                                                            
language  would  revert  to  that  in the  original  constitutional                                                             
amendment.  An  alternative,   he  said,  is  to  provide  that  the                                                            
constitutional amendment  is repealed in its entirety if voters fail                                                            
to retain the language contained in this resolution.                                                                            
                                                                                                                                
Co-Chair  Kelly  recommended  repealing  the  entire constitutional                                                             
amendment, saying it is ineffectual.                                                                                            
                                                                                                                                
Senator  Leman  agreed. He  stated  the provision  proposed  in  the                                                            
resolution   could  be  confusing   and  he   wanted  to  keep   the                                                            
constitution as simple as possible.                                                                                             
                                                                                                                                
Senator Leman  referred to  the "safety valve"  language on  page 2,                                                            
lines  14   through  16,   "This  subsection   does  not  apply   to                                                            
expenditures  that are approved by  a resolution concurred  in by at                                                            
least two-thirds  of the  members of each  house." He asked  if this                                                            
provision  would  preclude  the  current  legislative   practice  of                                                            
separately voting  to pass the budget and the subsequent  withdrawal                                                            
from  the  Constitutional  Budget  Reserve  fund  (CBR) to  pay  the                                                            
difference   between   available   funds   and  the   total   budget                                                            
expenditures.  He noted this  method is established  in statute  and                                                            
wanted to know if an additional  resolution would be required before                                                            
funds could be withdrawn from the CBR.                                                                                          
                                                                                                                                
Co-Chair Donley replied  that a resolution "keeps the power with the                                                            
legislature"  with regard  to  CBR draws.  He explained  if the  CBR                                                            
withdrawal  were included  in the  budget legislation,  it would  be                                                            
subject to  a line-item veto.  He gave a scenario  of a budget  bill                                                            
passed  that  included  the  CBR  withdrawal.  He  warned  that  the                                                            
governor could  veto this section of the bill, which  would activate                                                            
the budget reduction provision  and the governor would determine the                                                            
reductions rather then the legislature.                                                                                         
                                                                                                                                
Senator Leman  asked how this compares  to the Alaska Supreme  Court                                                            
interpretation of the existing constitutional amendment.                                                                        
                                                                                                                                
Co-Chair Donley replied  this resolution specifically authorizes the                                                            
legislature's  intent that the governor  could not veto legislative                                                             
approval of CBR draws.                                                                                                          
                                                                                                                                
Amendment #2:  This amendment deletes,  "…and Section 16  of Article                                                            
IX shall be  reenacted to read exactly  as it did when it  was first                                                            
adopted in  1982." from Section  2, page 2,  lines 24 and 25  of the                                                            
resolution.                                                                                                                     
                                                                                                                                
Co-Chair Donley moved for adoption.                                                                                             
                                                                                                                                
There was no objection and the amendment was ADOPTED.                                                                           
                                                                                                                                
Senator  Wilken   stated  that  he  would  support  reporting   this                                                            
resolution  from  Committee,  but  stressed that  it  is  a work  in                                                            
progress.  He voiced  concerns with  "the half  and half"  provision                                                            
that  calculates   the   allowable  spending   increases  based   on                                                            
population  and inflation, saying  it is too ambitious and  too low.                                                            
He admitted he  did not have a recommendation as to  what the amount                                                            
should be.  He noted the predicted  13 percent per capita  reduction                                                            
over nine years and emphasized  the difficulty in making one-percent                                                            
budget  reductions under  the Republican's  five  year budget  plan,                                                            
which concluded  the previous  year. He thought  the issue  could be                                                            
addressed with an additional  safety valve; one that would be easier                                                            
to enact then the currently proposed provision.                                                                                 
                                                                                                                                
Senator  Wilken  expressed  there  is  a  need  to  address  capital                                                            
spending  versus   operating  expenditures.   He  opined   that  the                                                            
operating budget  is the result of  an "arduous process that  serves                                                            
to restrain  government."  He remarked  this  is entirely  different                                                            
from the process  of allocation for capital expenditures,  which are                                                            
intended  to encourage  the state's  economy.  He stressed  Alaskans                                                            
need to  understand that  the intent in funding  operation  items is                                                            
one of  restraining  government but  the intent  in funding  capital                                                            
items  is to  build  Alaska. He  characterized  the  two budgets  as                                                            
mutually exclusive.  He was concerned  with the proposal  to combine                                                            
the  two into  one spending  limit  provision.  He warned  that  the                                                            
result  could be  favoring  government at  the expense  of  building                                                            
Alaska.                                                                                                                         
                                                                                                                                
Co-Chair Kelly concurred.                                                                                                       
                                                                                                                                
Senator  Wilken  listed  that  his  third  concern  relates  to  the                                                            
University of  Alaska, which he was unsure if it was  subject to the                                                            
spending  limits. He predicted  if tuitions  were increased,  "we're                                                            
back to the old  statutory designated receipts problem,"  explaining                                                            
that  any revenue  increases  with the  intent of  funding  specific                                                            
state  services  would  affect the  total  appropriation  amount  in                                                            
relation  to  the  spending  limits.   He  stated  there  are  other                                                            
instances where additional  revenues could be generated to assist in                                                            
paying for and expanding a service.                                                                                             
                                                                                                                                
Senator Wilken  shared his final concern  with "federal indices"  as                                                            
it appears  in Section 1 (a). He pointed  out there are few  federal                                                            
indices for comparison  and those impacted by this resolution should                                                            
be clarified.                                                                                                                   
                                                                                                                                
Senator   Wilken   assured  he   is   "fully  supportive"   of   the                                                            
constitutional spending  limit, stressing he wanted to guarantee the                                                            
one adopted is acceptable.                                                                                                      
                                                                                                                                
Senator   Austerman  associated   himself   with  Senator   Wilken's                                                            
comments. He emphasized,  "the devil is in the details"  on any such                                                            
proposal.  He considered  this resolution  "a tool  for us to  start                                                            
getting a handle  on where we're going on government."  He noted his                                                            
interest in  pursuing a long-term  financial plan and stressed  this                                                            
is a key element  to that plan. He  was reassured that because  this                                                            
resolution requires  a two-thirds vote from each body,  the problems                                                            
would  be adequately  addressed  before it  passed.  He hoped  there                                                            
would be  constructive  discussions on  the matter  in the House  of                                                            
Representatives over the interim.                                                                                               
                                                                                                                                
Co-Chair Kelly  noted Co-Chair Donley's  tendency to "work  on a lot                                                            
of projects all  very much in depth." He requested  the sponsor work                                                            
on  this resolution  with  the same  intensity  given  to his  other                                                            
legislation.                                                                                                                    
                                                                                                                                
Senator  Austerman invited  Co-Chair  Donley to  participate in  the                                                            
long-term financial planning group.                                                                                             
                                                                                                                                
Senator  Ward offered  a motion to  move from  Committee SJR  23, as                                                            
amended,  with a zero fiscal  note from the  Division of  Elections,                                                            
Office of the Lieutenant Governor.                                                                                              
                                                                                                                                
Co-Chair Donley  remarked he was in agreement with  all the comments                                                            
raised during  this hearing  and that he would  continue to  work on                                                            
this resolution.                                                                                                                
                                                                                                                                
Without objection the bill MOVED from Committee.                                                                                
                                                                                                                                
                                                                                                                                
     CS FOR SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 76(FIN)                                                                       
     "An  Act  providing   for  and  relating  to  the  issuance  of                                                            
     certificates of participation  to finance construction of a new                                                            
     facility  to  be known  as the  Alaska  Psychiatric  Institute;                                                            
     giving notice of and  approving the entry into and the issuance                                                            
     of certificates of  participation in a lease-purchase agreement                                                            
     for construction  of a new facility  to be known as  the Alaska                                                            
     Psychiatric   Institute;  giving  notice   of  the  intent  and                                                            
     approval   to   retain   investment   income   from   pertinent                                                            
     appropriations  to be applied to the cost of  construction of a                                                            
     new facility  to be known as the Alaska Psychiatric  Institute;                                                            
     relating  to the construction of a facility to  be known as the                                                            
     Alaska  Psychiatric Institute;  and providing for an  effective                                                            
     date."                                                                                                                     
                                                                                                                                
                                                                                                                                
This was  the second  hearing for  this bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
SAM  DICKEY,  President,  University  Area  Community  Council,  and                                                            
former   president,   Airport   Heights   Community   Council,   and                                                            
participant   of  the   Coalition   for  API   [Alaska  Psychiatric                                                             
Institute],  testified via teleconference  from Anchorage  about his                                                            
involvement in this matter  since the state's pursuit of the Charter                                                            
North  purchase option.  He described  the  Coalition  for API  as a                                                            
group  of   "families,  friends,   consumers,  providers   and  just                                                            
concerned citizens"  who would like  a resolution to the  situation.                                                            
He emphasized  his support  for the  Shared Vision  document  as put                                                            
forth by the state and  "all the major stakeholders in the area" and                                                            
therefore encouraged passage of HB 76.                                                                                          
                                                                                                                                
ELAINE   PRATT,   Member,   Coalition   for   API,   testified   via                                                            
teleconference  from Anchorage  to encourage  passage of this  bill.                                                            
She stated that additional  funding is desperately needed for a new,                                                            
asbestos-free  building. She relayed  this project has been  ongoing                                                            
for over 15 years  and adoption of this legislation  is necessary to                                                            
"bring it to closure."  She noted this legislation, coupled with the                                                            
recently signed, Shared  Vision Memorandum of Understanding, creates                                                            
"win-win solutions for all parties involved."                                                                                   
                                                                                                                                
Senator Ward understood  that a structural engineer  report was done                                                            
on the  existing facility.  He requested  a copy  of this report  to                                                            
assist him  in determining  the remaining  life expectancy.  He also                                                            
requested  information  related  to the  option of  remodeling  this                                                            
facility and the cost of such a project.                                                                                        
                                                                                                                                
JEFF  JESSEE,  Executive   Director,  Alaska  Mental   Health  Trust                                                            
Authority, Department of  Revenue, testified via teleconference from                                                            
Anchorage that this information exists and would be provided.                                                                   
                                                                                                                                
Senator Ward asked the  life expectancy of the building according to                                                            
the structural engineers.                                                                                                       
                                                                                                                                
RANDALL   BURNS  Chief   Executive   Officer,   Alaska  Psychiatric                                                             
Institute,  testified in Juneau  about the  reports in question.  He                                                            
stated  one report  was completed  this  year and  reviews  previous                                                            
studies  on  renovation  costs.  He detailed  Option  One,  to  move                                                            
patients and staff from  the hospital for two years and renovate the                                                            
facility,  that would cost  an estimated  $74 million not  including                                                            
the cost of the  temporary relocation. Option Two,  he explained, is                                                            
a phased renovation  of three to four years with patients  remaining                                                            
in the facility and would cost approximately $81 million.                                                                       
                                                                                                                                
Mr. Burns told  of another study commissioned  by the Alaska  Mental                                                            
Health Trust  Authority (AMHTA) that  reviewed due diligence  of the                                                            
Trust's property.  This report, he  shared, found that the  facility                                                            
has two to  five years remaining of  service and that "it  would not                                                            
be reasonable  to consider continued use of the improvements,  which                                                            
is the hospital,  beyond the two to  five year timeframe."  He noted                                                            
this report  also warned  that the physical  risks of continued  use                                                            
beyond this time should be of significant concern.                                                                              
                                                                                                                                
Senator Ward  referred to  the latest report  released on March  22,                                                            
2001, which states,  "This estimate has been prepared  and developed                                                            
from the 1989  report." He noted the 1989 report gives  estimates of                                                            
remodeling  costs  based on  square  footage. He  again  asked if  a                                                            
structural engineers report  on the building has ever been conduced.                                                            
                                                                                                                                
Mr. Burns responded  there were several  studies done, two  of which                                                            
occurred in 1989 and 1993.  He corrected Senator Ward's reference is                                                            
to the study completed  in 1997. Mr. Burns stated  the 1989 and 1993                                                            
studies  examined  the  structural   aspects  of  the  facility  and                                                            
reported  that  since  the  facility  was  not seismically   braced,                                                            
additional  structural  problems affected  the  recommendations  for                                                            
continued use.                                                                                                                  
                                                                                                                                
Senator Ward requested these reports as well.                                                                                   
                                                                                                                                
Senator Wilken  shared estimates of population projections  recently                                                            
given to him. [Copies on file.]                                                                                                 
                                                                                                                                
Co-Chair  Kelly announced the  bill would be  held in Committee  for                                                            
further consideration.                                                                                                          
                                                                                                                                
Senator Wilken  relayed his question of whether a  larger a facility                                                            
should  be   built  to   address  the  future   needs  rather   than                                                            
constructing  a building  only adequate for  today's population.  He                                                            
informed  that  over the  previous  two years,  the  population  has                                                            
exceeded  capacity 65  percent of  the time. He  referred to  future                                                            
estimates  and noted that  in FY 10, at a  cost of $60 million,  the                                                            
new facility would  be full. He expressed there would  be a need for                                                            
an additional  facility five years  after this one is completed.  He                                                            
surmised, "We're penny-wise and pound foolish here".                                                                            
                                                                                                                                
RUSS WEBB,  Deputy  Commissioner,  Department of  Health and  Social                                                            
Services,  testified   in  Juneau  to  address  misconceptions.   He                                                            
clarified that  over the previous  two years, the existing  facility                                                            
has  operated  at  or below  the  planned  72-bed  capacity  of  the                                                            
proposed  facility 94  percent  of the time.  He noted  that it  had                                                            
operated over the 72-bed  projection only six percent of the time, a                                                            
total of 43 of 670 days.                                                                                                        
                                                                                                                                
Mr.  Webb noted  that the  size of  the new  facility  had been  the                                                            
subject of extensive  discussion and studies before  the 72-bed size                                                            
was decided.  He showed  the declining trend of average daily census                                                            
of the hospital over the  past 23 years. He explained that increased                                                            
knowledge of mental illness,  and improved technology primarily with                                                            
medication,  has  made it  possible  to treat  mental  illness  more                                                            
effectively than  in the past and thus reduce the  need for, and the                                                            
length of, hospitalization  stays.  At the same time,  he continued,                                                            
community service alternatives  have been developed that also reduce                                                            
the length of hospital stays and provide alternatives.                                                                          
                                                                                                                                
                                                                                                                                
SFC 01 # 93, Side B 10:08 AM                                                                                                    
                                                                                                                                
                                                                                                                                
Mr. Webb  continued by  listing new services  that are specifically                                                             
planned to  reduce the need  for hospitalization  at API. He  shared                                                            
that  a  single point  of  entry  agreement  recently  reached  with                                                            
Providence Hospital would  provide an opportunity to divert up to 25                                                            
percent  of admissions  to  API. He  noted  enhanced detoxification                                                             
service  has  been  implemented  to  provide  treatment  for  people                                                            
suffering a  combination of mental  illness and substance  abuse. At                                                            
the same  time,  he stated,  API has  implemented a  system of  dual                                                            
diagnosis treatment to  serve the same patients. He said this allows                                                            
these  patients  to be  treated  within the  community  and  without                                                            
hospitalization.                                                                                                                
                                                                                                                                
Mr.  Webb  continued,  telling  of  enhanced  crisis  treatment  for                                                            
persons  with  mental illness  in  other  programs,  which  provides                                                            
community-based  alternatives  to API.  He said  a solicitation  had                                                            
been made for  specialized intensive  services targeted to  treat 80                                                            
patients who have been  hospitalized for 30 or more days in the past                                                            
year at API with the goal  of reducing their future hospital days by                                                            
one-half.   He  spoke  of  special   needs  housing  opportunities,                                                             
explaining  that some people  are hospitalized  because they  do not                                                            
have appropriate  housing.  He detailed a  proposal with the  Alaska                                                            
Housing Finance  Corporation (AHFC) to address these  housing needs.                                                            
                                                                                                                                
Mr. Webb reminded that  a critical element of community services was                                                            
recently addressed  in the Senate Finance Committee  through SB 154,                                                            
which  continues  designated   evaluation  and  treatment   services                                                            
throughout  the  state.  He  stated  the intent  is  to  provide  an                                                            
additional  18 beds in Anchorage through  this legislation.  He said                                                            
there have been  some difficulties in getting this  service to other                                                            
communities,  but that some of these  problems have been  addressed.                                                            
He gave as an example the  Providence Medical Center, which has been                                                            
prevented  from expanding  due to land availability  but noted  this                                                            
funding allows for the purchase of the needed land.                                                                             
                                                                                                                                
He summarized  how  the aforementioned  factors  contributed to  the                                                            
determination  that  the new  facility  would  contain  72 beds.  He                                                            
stated this  amount of beds  is adequate to  meet the future  needs,                                                            
including  the occasional  spikes in admissions.  He calculated  the                                                            
average daily bed need at 54 beds.                                                                                              
                                                                                                                                
Senator  Wilken asked  if the  board of  trustees of  the MHTA  have                                                            
reviewed the proposal and support the proposed 72-bed size.                                                                     
                                                                                                                                
Mr. Jesse replied  that the board had reviewed the  building and the                                                            
program  capacity. He  noted  that in the  early  1980s, API  housed                                                            
approximately  200 patients  and by the 1990s,  the number  had been                                                            
reduced by  half. He relayed the board's  opinion that the  proposal                                                            
is realistic and  told of his "very firm direction"  by the trustees                                                            
to  proceed  with  the  plan  as  presented.   He  pointed  out  the                                                            
expectation  is  not  to  operate  a  facility  such  as  Harborview                                                            
Developmental  Center, which  had served  people with developmental                                                             
disabilities in an institutional setting.                                                                                       
                                                                                                                                
Mr. Jesse warned  against building too large a facility,  noting the                                                            
increased operating costs  for a facility with numerous unused beds.                                                            
                                                                                                                                
Senator Wilken  requested written analysis of the  draft as detailed                                                            
by Mr. Webb, noting he  counted five alternative programs that would                                                            
lessen the demand for API facilities.                                                                                           
                                                                                                                                
Senator  Olson wanted  to know  if the new  state-operated  facility                                                            
would affect  delivery of  mental health  care services provided  by                                                            
the private sector.                                                                                                             
                                                                                                                                
Mr. Webb described the  private community hospitals in Fairbanks and                                                            
Juneau that  provide designated  evaluation,  which he stressed  are                                                            
short-term evaluations  and treatment services of  up to 30 days. He                                                            
stated that  SB 154 allows  for continuation  of these services  and                                                            
for future expansions.                                                                                                          
                                                                                                                                
Senator Olson asked specifically about Charter North Hospitals.                                                                 
                                                                                                                                
Mr. Webb  replied  that Charter  North has  not been  a provider  of                                                            
designated  evaluation  and  treatment  services  in  the  past.  He                                                            
informed  that the company  is in bankruptcy  at the national  level                                                            
and that there  has been some discussion about selling  the facility                                                            
in Alaska,  but qualified  that he did no  know the future  business                                                            
plans.                                                                                                                          
                                                                                                                                
Co-Chair Kelly ordered the bill HELD in Committee.                                                                              
                                                                                                                                
RECESS                                                                                                                      
                                                                                                                                
Co-Chair Pete Kelly recessed the meeting at 10:18 AM to the call                                                                
of the chair.                                                                                                                   

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