Legislature(2001 - 2002)
03/20/2002 09:44 AM Senate FIN
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
MINUTES
SENATE FINANCE COMMITTEE
March 20, 2002
9:44 AM
TAPES
SFC-02 # 37, Side A
CALL TO ORDER
Co-Chair Pete Kelly convened the meeting at approximately 9:44 AM.
PRESENT
Senator Dave Donley, Co-Chair
Senator Pete Kelly, Co-Chair
Senator Jerry Ward, Vice Chair
Senator Lyda Green
Senator Gary Wilken
Senator Alan Austerman
Also Attending:
Attending via Teleconference: From Anchorage: SARA FISHER-GOAD,
Alaska Industrial Development and Export Authority and Alaska
Electric Association
SUMMARY INFORMATION
SB 182-PRO RATA REDUCTIONS IN BENEFIT PROGRAMS
The Committee adopted an amendment and the bill moved from
Committee.
SB 185-PCE BASED ON HIGHEST COST
The Committee heard from the Alaska Electric Association. A
committee substitute and an amendment were adopted. The bill was
held in Committee.
SENATE BILL NO. 182
"An Act requiring reductions in payments to individuals under
certain benefit programs if appropriations are not sufficient
to fully fund the statutorily established levels of payments."
This was the second hearing for this bill in the Senate Finance
Committee.
AT EASE 9:45 AM / 9:46 AM
Co-Chair Donley reminded this legislation implements a pro rata
process. He noted testimony indicated that some funds should not be
included in this provision, such as the fisherman's fund.
Amendment #1: This amendment inserts additional statutory
references in Section 1, page 2, line 2. The amended language reads
as follows.
(j) The provisions of (i) of this section do not
apply to payment under AS 23.30 (Workers' Compensation
Act), AS 23.35.060-23.35.100, AS 25.23.190 - 25.23.240,
loan programs, state employee retirement benefit
programs, or benefit programs for which other provisions
of law address underfunding.
Co-Chair Donley moved for adoption, explaining this amendment
addresses the aforementioned concerns.
There was no objection and the amendment was ADOPTED.
Senator Austerman referenced a memorandum by the sponsor relating
to SJR 43 [copy on file.]
Co-Chair Donley spoke of discussions that some federal programs
might have "maintenance of efforts requirements" that could prevent
pro rata from being implemented. He pointed out SJR 43 requests the
federal government to impose a moratorium on maintenance of efforts
requirements for a short period each year to allow states to
"readjust their levels" for various federal programs.
Co-Chair Donley offered a motion to move CS SB 182 (FIN) from
Committee with a forthcoming indeterminate fiscal note from the
Department of Administration, and eight new indeterminate fiscal
notes from the Office of Management and Budget, All Agencies, and
the Department of Health and Social Services: Public Assistance,
Alaska Temporary Assistance Program; Public Assistance, General
Relief Assistance; Public Assistance, Adult Public Assistance;
Purchased Services, Foster Care Base Rate; Purchased Services,
Foster Care Augmented Rate; Purchased Services, Foster Care Special
Need; and, Public Assistance, Tribal Assistance.
Senator Austerman informed he would not object to reporting the
bill from Committee but that he might vote against its passage from
the Senate.
The bill MOVED from Committee without objection.
SENATE BILL NO. 185
"An Act relating to the basis for determining eligibility for
and the amount of power cost equalization payments; and
providing for an effective date."
This was the second hearing for this bill in the Senate Finance
Committee. Co-Chair Donley reminded that a Senate Finance
subcommittee heard statewide public testimony on this legislation.
Co-Chair Donley stated one goal of this bill is to restructure the
power cost equalization (PCE) program so that it could be fully
funded by the PCE endowment fund. He indicated the "target" annual
cost is approximately $13 million. He stressed considerable effort
has been made to "simplify those revisions and to make them as fair
as possible."
Co-Chair Donley stated the PCE endowment fund lost money in the
previous year and that even if the fund posted earnings it could
not generate enough income to fund the PCE program. He commented
that when the endowment was established, the funds were
appropriated under the condition that it would "solve the problem."
He pointed out the state does not have an endowment for education,
public safety or public health. He continued that "one of the
components that did not materialize, as was represented at the
time" was contributions from the National Petroleum Reserve-Alaska
(NPRA) in the form of federal impact aide to rural communities. He
attributed this, plus the failure of the endowment to produce "what
I think of as a very, very over-optimistic return rate" of seven
percent, to the inability of the endowment to fully fund the PCE
program. He pointed out the average return rate for large
foundations and endowments is approximately four to five percent.
Co-Chair Donley furthered the intent of this legislation is also to
"bring some true fairness to the program." He informed that several
Alaskan communities are not eligible to participate in the PCE
program although the rates in those communities are higher then the
rates in qualifying communities.
Co-Chair Donley indicated that a proposed committee substitute,
Version "W", addresses these goals in two ways. First, he stated,
it increases the rate that electricity is "subsidized down to". He
spoke to the complication of the current PCE formula and attempts
to assess the average usage of medium and small communities and
establish that amount as the amount the state would subsidize. He
pointed out this method is more fair than the current method of
comparison to Anchorage, Juneau and Fairbanks. He qualified, "there
are some ambiguities" but that the range is between 15.69 and 18.84
cents per kilowatt-hour, and the rate set in committee substitute
is the average of 16.75 cents per kilowatt-hour.
Co-Chair Donley spoke to the other significant change in the
committee substitute, which addresses the consumption limit. He
explained the current consumption limit is 500 kilowatts per month
and the average use is approximately 450 kilowatts per month. He
remarked the current limit does not encourage conservation nor does
it consider seasonal usage. Therefore, he said the committee
substitute stipulates a limit of 450 kilowatts per month for the
six winter months and 350 for the six summer months.
Co-Chair Donley stated these changes would result in savings for
the program and lower the annual cost to approximately $12,840,000.
He commented this amount "is still very generous" and "is within
the realm of reasonable expectations of the endowment." He asserted
that for the "long-term health" of this program, it is essential to
lower the annual expenses to an amount that could be paid from the
endowment.
Co-Chair Kelly asked the actual dollar amount this year.
Co-Chair Donley replied the answer depends upon who is asked. He
noted over $15.7 million was funded to the PCE program for FY 02
and the Governor requested $17 million for FY 03. He noted the PCE
program contains a pro rata provision, and the endowment did not
earn money in the past year. He stressed it was made clear when
the endowment was established that the level of funding for the
program was not guaranteed and would be partially based on
contributions from the NPRA and the performance of the endowment.
Co-Chair Donley moved for adoption of CS SB 185, 22-LS0465\W as a
working draft.
Senator Wilken asked about a federal economic stimulus package and
pending federal energy legislation, which might contain funds for
the PCE program.
Co-Chair Donley replied there is a possibility that the federal
government would make an appropriation to the PCE endowment of
approximately $5 million per year for "several years". He qualified
that this would not be significant to raise the balance of the
endowment to meet the current level of expenditures, although it
could have an impact over time. He stated that if the federal funds
were appropriated and the endowment generated enough money to fund
the program at the current formula level, the higher level could be
reinstated. He suggested the Legislature revisit the issue at a
later time.
Senator Wilken asked if a fiscal note was available for the
proposed committee substitute.
Co-Chair Kelly answered there is not.
Co-Chair Donley referenced handouts: Table A, PCE Estimates,
Committee Substitute for Senate Bill 185; Table B, PCE Estimates,
Comparison of CS SB 185 with existing statute funded at
$15,700,000; Table 1, Alaska Residential Electric Usage and Cost-
Fiscal Year 2001, Sorted by Utility; Table 2, Alaska Residential
Usage and Cost-Fiscal Year 2001, Sorted by Effective (After PCE)
Rate per kWh; and, Table 3, Alaska Residential Electric Usage and
Cost-Fiscal Year 2001, Sorted by Pre-PCE Rate per kWh [copies on
file.] He explained this information shows the affect of this
legislation on each community. He noted the proposed changes would
result in some communities receiving a small increase.
SARA FISHER-GOAD, Alaska Industrial Development and Export
Authority and Alaska Electric Association, testified via
teleconference from Anchorage that the tables are based on
information she provided to Co-Chair Donley's office.
Senator Austerman informed he had been active in the process to
establish the PCE endowment. He had understood that the endowment
was funded "based upon what we thought we could get into it at the
time" and that additional funds would be sought to contribute to
the endowment. He recalled original estimates of $35 million
federal funds that could be received over five to seven years.
Senator Austerman did not oppose the "floor concept" of limiting
the PCE program spending to $12.8 annually, although he was unsure
16.75 cents per kilowatt-hour is an accurate figure.
Senator Austerman next compared the United States and portions of
Alaska located along the rail belt, which have access to a power
grid and the ability to secure the most economic power sources, to
rural areas of Alaska, which have limited access to power sources.
Because of this, he said, the PCE program should be continued.
Senator Austerman voiced a concern that the PCE program spending
would be limited to $12.8 million without a "buffer" in the event
the endowment grew and could sustain the proposed annual $15.7
million expenditures. He expressed interest in discussing methods
to accomplish this without appropriating additional state funds.
Co-Chair Kelly asked the amount necessary for the endowment to
ensure an adequate rate of return sufficient to fund the PCE
program.
Senator Austerman answered that $190 million was established as the
maximum amount the state would contribute to the endowment and
would consist of $90 million from the sale of the Four Dam Pool
project and $100 million from the Constitutional Budget Reserve
(CBR) Fund. He furthered an additional $40 million would be
necessary for the endowment to fully fund the PCE program at $15.7
million annually, and that these funds were to be secured from
other sources.
Senator Austerman emphasized the investment market did not perform
as anticipated. He pointed out that although it was predicted the
sale of the Four Dam Pool would take two years to finalize, it took
longer and the funds were not actually deposited into the endowment
until January 2002.
The committee substitute was ADOPTED without objection.
Co-Chair Kelly asked what impact the potential $35 million federal
appropriation would have on the endowment.
Senator Austerman replied this amount would increase the endowment
almost enough to adequately fund the PCE program $15.7 annually. He
noted that if the appropriations were allocated over several years,
more time would be necessary before the endowment fund was
sufficient.
Senator Wilken calculated that to fund the program at the FY 03
Governor's request of $17.2 million, using a five-percent rate of
return, the endowment balance must be $345 million. He furthered
that at a seven-percent rate of return the balance would have to be
$245 million to fund the program. He then calculated that funding
the program $15.7 million annually, using five-percent earnings,
the endowment must be $315 million.
It was established the current balance of the endowment is $190
million and the estimated required need to fund the program is $230
million.
Co-Chair Kelly reiterated that an annual rate of return of seven
percent is too optimistic.
Co-Chair Donley noted that even if the program spending were
reduced to $12.8 million, the earnings of the endowment would be
inadequate to fully fund the program. He opined, "The original
endowment theory… didn't work without the NPRA money being
involved."
Senator Austerman clarified $9 million from NPRA was appropriated
the year the endowment was established, although it was not
deposited to the endowment and was used to fund the program itself.
Ms. Fisher-Goad affirmed $9,163,000 million was deposited into the
PCE program fund
Senator Austerman asked if it was anticipated that additional funds
would be appropriated to the endowment.
Co-Chair Kelly replied that funds would be appropriated each year
from the NPRA.
Co-Chair Donley recalled discussions were held in the Senate
Finance Committee regarding reforming the PCE program and that "a
commitment was made for the NPRA money" and the decision was
reached that if the NPRA funds were received, the program spending
would not have to be reduced. He remembered the co-chair
emphasizing this point.
AT EASE 10:13 AM / 10:15 AM
Amendment #1: This amendment adds intent language to the committee
substitute to read as follows.
It is the intent of the legislature that if the amount
available for appropriation from the Power Cost Equalization
Fund under AS 42.45.085 is more than required to fund the
Power Cost Equalization program, the legislature will review
the statutory provisions to consider adjustments the maximum
eligible KWL usage, the minimum and maximum charges allowed
for calculating Power Cost Equalization payments and other
provisions of the program.
Co-Chair Donley explained this language is in the event federal
funds are appropriated to the endowment. He moved for adoption.
Senator Austerman objected for discussion purposes. He expressed he
did not know the "overall intent" of the Committee with regard to
the PCE program. He suggested if the intent is to continue to
control the process, this amendment is appropriate. However, he
advised if the intention is to establish a self-sufficient program,
this amendment is not necessary.
Co-Chair Kelly relayed discussions he had with the sponsor and
another affected Committee member where he learned the sponsor's
intention to establish an operable PCE formula with an endowment
that is protected. He also shared conversations with community
members indicate the fund should be protected as well. He remarked
the difficulty is that the state does not have the funds available
to deposit into the endowment to allow the program to be self-
sufficient. He suggested the program should therefore be scaled
down to allow the endowment to grow through federal appropriations,
with the intention of readdressing the formula when the endowment
is better established.
Senator Austerman did not oppose the concept of "pulling back" but
did not want to have to address the matter of funding the PCE
program every year.
Co-Chair Donley understood and expressed similar desires for
municipal assistance and funding for education. However, he
asserted that the state constitution requires the Legislature to
address every expenditure each year and prohibits the dedication of
funds, which he supported. He explained there could be a year when
not all programs could be funded and the Legislature must
prioritize education, public safety and public health.
Co-Chair Kelly commented that technically "everything is on the
table every year" with regard to funding for the PCE program, but
assured that if the endowment were operating properly, it would
probably not be revisited.
Senator Ward asked if the proposed level of services is the same as
the amount provided currently under the pro rata provisions. He
noted the current division director [director not specified] is the
first to implement the pro rata provision.
Co-Chair Donley replied, "The director's pro ration target this
year is 15.7 " million dollars. He noted this is with the intent of
withdrawing $7 million from the corpus of the endowment, which
defeats the long-range goal of the endowment.
Co-Chair Kelly commented this is an improvement over previous
practices of funding the program at "whatever level". He qualified
earlier intentions relating to the original endowment "went out the
window" when it was learned the NPRA appropriations "would not
materialize". He stressed an act of congress would be necessary to
secure this funding. He opined the goal of the Committee should be
to achieve a healthy endowment that is self-supporting. He
indicated that unpredictable funding is a health and safety issue.
Senator Austerman asserted that regardless of NPRA funding, it was
understood there would be a period of time before the endowment
began earning interest.
Co-Chair Donley commented this was one reason he voted against the
legislation establishing the PCE endowment because it was portrayed
as eliminating the need for general funds, although he knew
otherwise. He admitted the delay in the sale of the Four Dam Pool
was unanticipated.
Senator Austerman clarified it was understood that the interest
earnings of the endowment would not totally fund the PCE program.
Senator Austerman reemphasized the need to protect the principal of
the endowment. He asked the amount of general funds necessary to
fund the program.
Co-Chair Donley answered it depends on the revenue of the endowment
in the upcoming fiscal year.
Senator Austerman removed his objection to the adoption of
Amendment #1.
The amendment was ADOPTED without objection.
Co-Chair Kelly ordered the bill HELD in Committee.
ADJOURNMENT
Co-Chair Pete Kelly adjourned the meeting at 10:28 AM
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