Legislature(2003 - 2004)
05/07/2003 09:01 AM Senate FIN
| Audio | Topic |
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
MINUTES
SENATE FINANCE COMMITTEE
May 07, 2003
9:01 AM
TAPES
SFC-03 # 79, Side A
SFC 03 # 79, Side B
SFC 03 # 80, Side A
SFC 03 # 80, Side B
SFC 03 # 81, Side A
CALL TO ORDER
Co-Chair Gary Wilken convened the meeting at approximately 9:01 AM.
PRESENT
Senator Gary Wilken, Co-Chair
Senator Con Bunde, Vice Chair
Senator Ben Stevens
Senator Lyman Hoffman
Senator Donny Olson
Also Attending: JEFF OTTESEN, Acting Director, Statewide Planning,
Department of Transportation and Public Facilities; PAT WALKER,
Staff to Senator Lyman Hoffman; DAN FAUSKE, CEO and Executive
Director, Alaska Housing Finance Corporation, Department of
Revenue; JOE DUBLER, Chief Financial Officer and Finance Director,
Alaska Housing Finance Corporation, Department of Revenue; JOHN
ALCANTRA, Government Relations Director, NEA-Alaska; BRUCE JOHNSON,
Representative, Alaska Association of School Boards; MARY FRANCIS,
Representative, Alaska School Administrators Association; EDDY
JEANS, Finance Manager, School Finance and Facilities Section,
Education Support Services, Department of Education and Early
Development; RICHARD SCHMITZ, Staff to Senator John Cowdery; MARK
O'BRIEN, Chief Contracts Officer, Contracting, Procurement and
Appeals Section, Office of the Commissioner, Department of
Transportation and Public Facilities; DICK CATTANAUGH, Executive
Director, Associated General Contractors of Alaska; WENDY REDMAN,
Vice President of University Relations, University of Alaska; LANDA
BAILY, Auditor, Department of Revenue; JOHN MACKINNON, Deputy
Commissioner of Highways & Public Facilities, Department of
Transportation and Public Facilities; KEVIN JARDELL, Assistant
Commissioner, Department of Administration
Attending via Teleconference: From an Offnet Site: DUANE BANNOCK,
Director, Division of Motor Vehicles, Department of Administration;
From Anchorage: STEVE KALMES, Director of Transportation,
Municipality of Anchorage School District; BARBARA SCHUHMANN,
Parent; PHYLLIS JOHNSON, Vice President and General Council, Alaska
Railroad Corporation, Department of Community and Economic
Development; From Fairbanks: JOHN BINKLEY, Chair, Board of
Directors, Alaska Railroad Corporation, Department of Community and
Economic Development
SUMMARY INFORMATION
SB 100-APPROP: CAPITAL PROJECTS
The Committee heard from the Department of Transportation and
Public Facilities, rescinded action on one amendment, adopted six
amendments, failed to adopt one amendment, and one amendment was
offered but withdrawn from consideration. The bill was held in
Committee.
HB 170-MOTOR VEHICLE REGISTRATION FEES
The Division of Motor Vehicles presented testimony, and the bill
was reported from Committee.
HB 256-DIVIDEND PAYMENT TO STATE BY AHFC
The Committee heard testimony from the Alaska Housing Finance
Corporation. One amendment was adopted and the bill reported from
Committee.
SB 202-EDUCATION FUNDING &PUPIL TRANSPORTATION
The Committee heard from the Department of Education and Early
Development and took public testimony. The bill was held in
Committee.
SB 125-STATE CONTRACTS
The Committee heard from the sponsor, the Department of
Transportation and Public Facilities, the University of Alaska, and
the industry. Two amendments were adopted and the bill reported
from Committee.
SB 112-INCREASE MOTOR FUEL TAX
The bill heard testimony from the Alaska Railroad, the Department
of Revenue, the Department of Administration, and the Department of
Transportation and Public Facilities. The bill was held in
Committee.
SB 31-RAILROAD UTILITY CORRIDOR TO & IN CANADA
The committee heard testimony from the bill's sponsor and the
Alaska Railroad. The bill was held in Committee.
SENATE BILL NO. 100
"An Act making capital appropriations and reappropriations;
capitalizing a fund; making appropriations under art. IX, sec.
17(c), Constitution of the State of Alaska, from the
constitutional budget reserve fund; and providing for an
effective date."
This was the thirteenth hearing for this bill in the Senate Finance
Committee.
Amendment #8: This amendment is outlined in a memorandum from Mike
Barton, Commissioner, Department of Transportation and Public
Facilities to Cheryl Frasca, Director, Office of Management and
Budget dated May 2, 2003, which reads as follows.
The Department of Transportation and Public Facilities is
requesting amendments to the capital budget bills (HB 150 and
SB 100) before the Legislature.
Rural Airport Projects
The Department is requesting the following changes to rural
airport capital projects:
Amend
Chevak: Snow Removal Equipment Building
Increase from $50,000 to $200,000 federal receipt
authority. The cost to build this structure has increased over
previous estimates. This amount is needed in addition to an FY
03 appropriation to bring the total estimated cost to
$750,000.
Add
Scammon Bay: Airport Snow Removal Equipment Building
$100,000 federal receipts. Reflects revised Airport
Improvement Program request. This project will upgrade the
Scammon Bay Snow Removal Equipment Building.
Statewide: Various Airport Snow Removal Equipment
$4,300,000 federal receipts. This was inadvertently
omitted from the Department's original request. The project
provides federal authority to purchase new or replacement snow
removal equipment at several rural airports.
Surface Transportation Projects
The Department's current AMATS [Anchorage Metropolitan Area
Transportation Study] and Surface Transportation requests are
$68,734,000 and $416,092,600.
The following reductions are being requested to various
highway projects:
($39,906,000) Over the past year there has been a
decrease in the amount of federal fuel tax revenues collected,
which have caused a corresponding reduction in the highway
construction program. A reduction in specific projects is
being requested to reflect delays due to the decreased federal
funding.
($48,125,000) This amendment requests project
reductions where the Department has determined that adequate
project authority already exists to continue work through FH
04.
($1,205,000) Also being requested is a reduction in
TRAAK [Trails and Recreation Access for Alaska] projects to
reflect a program allocation decrease.
The following additions are being requested:
$55,416,000 New or increased federal project authority
is being requested where scope changes, funding breakdown,
updated estimates or priorities have changed.
$21,700,000 Project authority is needed for earmarks
contained within the recently approved congressional
appropriation bill.
Finally, the amendment contains the elimination of individual
pavement and bridge projects and combines them into regionwide
allocations. This will provide the regions flexibility in
determining their greater need, pavement or bridge repair.
Similar adjustments are taking place for AMATS and FMATS
[Fairbanks Metropolitan Area Transportation Study] projects.
The net effect of these amendments is a reduction of
$12,220,000 to the AMATS and Surface Transportation
appropriation requests. A spreadsheet with the changes is
attached [copy on file].
Co-Chair Wilken moved for the adoption of Amendment #8 and objected
for discussion. He shared that the Department of Transportation and
Public Facilities has submitted this amendment as the result of an
expected decrease in FY 04 federal funding.
Amendment to Amendment #8: This amendment to the amendment proposes
to alter the funding methodology regarding Anchorage Metropolitan
Area Transportation Study (AMATS) and Fairbanks Metropolitan
Transportation Study (FMATS).
Co-Chair Wilken moved to amend Amendment #8. He stated that this
motion is in response to Committee questions regarding the
amendment's affect on AMATS and FMATS. Furthermore, he stated that
the effective date of June 30, 2003, as referenced on page two,
line eight of Amendment #8, should be correctly identified as July
1, 2003. Co-Chair Wilken objected to the motion in order to allow
for further explanation.
At Co-Chair Wilken's request, Senator B. Stevens explained that the
amendment to the amendment would address Committee concerns
regarding proposed funding reductions to AMATS and FMATS. He stated
that upon discussion with the Department, the determination was
made to combine sections of the budget pertaining to pavement and
bridge refurbishment improvements and to divvy up that combined $46
million in funding between the National Highway System and non-
National Highway System entities also referred to as non-
Metropolitan Planning Organizations (non-MPOs) and MPOs. He
continued that due to the uncertainty of the actual amount of
federal funding that would available, intent language is included
to specify that AMATS would be allocated its historical funding
level of 27 percent and FMATS would be allocated 6.9 percent of the
forthcoming federal funds. He stated "this is a good solution to
the issue," and he urged the Committee to support the amendment to
the amendment.
JEFF OTTESEN, Acting Director, Statewide Planning, Department of
Transportation and Public Facilities stated that the amendment to
the amendment would compress the three regional projects breakouts
into a single line item in the budget. Subsequently, he continued,
the intent language would specify that a pro-rata system, based on
the Statewide Transportation Improvement Plan (STIP) formula, be
used to distribute money to the MPOs. Therefore, he concluded, the
federal funds received by the State would be "fairly" appropriated
to the non-MPOs and MPOs as these federal funds "rise and fall."
Senator Hoffman asked whether the intent language would negatively
affect the flexibility of the Department to allocate funding and
potentially jeopardize construction projects that might incur cost
overruns in either Fairbanks or Anchorage.
Mr. Ottesen responded that MPOs are allocated a specific quantity
of money to manage. He stated that were a project to incur cost
overruns, the MPO could shift funding to it. However, he noted that
by doing so, the MPO might be required to delay another project.
Additionally, he noted that historically, when large projects have
incurred cost overruns, MPOs have submitted additional funding
requests to the State. He communicated that, on occasion, the State
has awarded additional monies to the MPO.
Co-Chair Wilken removed his objection to the motion.
There being no further objection, Amendment #8, as amended, was
ADOPTED.
Amendment #10: This amendment deletes the "Alaska Boating Safety
(ED [Election District] 99)" component and the $720,000 other funds
appropriation from the Department of Natural Resources on page 27,
lines 15 and 16.
Co-Chair Wilken moved for adoption of Amendment #10 and objected
for purposes of explanation. He stated that when the original
Boating Safety bill was adopted a few years earlier, the
Legislature understood that the program would be 100 percent
federally funded and that no additional funds would be required to
administer the program. He communicated that, without affecting the
federal contribution, the State annually collects approximately
$120,000 in user fees, which are deposited into the general fund.
Senator Bunde asked which boating safety programs would be impacted
by the funding reduction.
Co-Chair Wilken clarified that the program's overall funding was
decreased from the requested $720,000 to $600,0000. He mentioned
that, at the $600,000 level, the program would receive essentially
flat funding, as its historical funding levels were $600,000 in FY
03 and $660,000 each for FY 02 and FY 01.
Senator Hoffman questioned the Amendment's wording as it indicates
that the entire funding amount of $720,000 would be eliminated.
AT EASE 9:12 AM / 9:13 AM
Amendment to Amendment #10: This amendment specifies that the
funding level for the Boating Safety Programs would be $600,000.
Co-Chair Wilken moved to amend Amendment #10. He concurred that the
dollar amount specified in the amendment is in error. He moved to
amend the amendment to retain the "Alaska Boating Safety (ed 99)"
component and appropriate $600,000 in federal funds. He noted that
the language being altered is located on page 27, line 15 of the
bill.
There being no objection, Amendment #10, as amended, was ADOPTED.
Amendment #11: This amendment adds a "Juneau Public Health Center
Heating and Ventilation Upgrades, Phase 2 (ED 3)" component in the
Department of Health and Social Services and appropriates $647,191
general funds and $142,066 federal funds on page 24. Accompanying
explanatory language reads as follows.
The heating and ventilation systems at the Juneau Public
Health Center are on the edge of failure. Restoring funding
for this Governor's request will complete a phased project for
which the legislature has appropriated startup money in recent
years.
The current systems at the Public Health Center are inadequate
for patient care, staff comfort, and the air quality necessary
at a medical facility. The systems are in such dire need of
work that they are out of compliance with building codes. The
existing stopgap measures are expensive electric baseboard
heaters and opening and closing windows. Should the systems
fail completely, patient care will be compromised and the
center may face closure.
Because the heating and ventilation systems must be completely
replaced, further phasing of this project is not possible.
Senator Olson moved for adoption of Amendment #11.
Co-Chair Wilken objected.
Senator Olson explained that this amendment would address local
concerns regarding an inadequate and non-compliant air quality
system at the medical facility.
Co-Chair Wilken reminded that the State has previously spend
approximately $750,000 on air quality improvements at this
facility. He voiced concern that, were this amendment adopted, the
total amount spent on addressing the system would exceed one
million dollars. He suggested that perhaps the Center should
consider relocating to another facility, as the current system's
expense would be "extraordinary." He asked the Committee to not
adopt this amendment.
Senator Hoffman referenced previous comments made by Co-Chair
Wilken whereby he had specified that the State would capitalize all
federal matching funds. Senator Hoffman continued that the
amendment denotes that $142,000 in federal funds would be available
for this funding request. Therefore, he asked Co-Chair Wilken to
comment about not "capturing" these federal funds.
Co-Chair Wilken stated that he was "in error" when he voiced that
the State would match all federal match money. He stated that even
capturing $142,000 in federal money "would not make this project
better."
A roll call was taken on the motion.
IN FAVOR: Senator Hoffman and Senator Olson
OPPOSED: Senator B. Stevens, Senator Taylor, Senator Bunde, Co-
Chair Green and Co-Chair Wilken
The motion FAILED (2-5)
Amendment #11 FAILED to be adopted.
Amendment #12: This amendment adds a "Division of Sport Fish
Lower Kenai River Public Use Impact Study" component and $100,000
Fish and Game Fund appropriation to the Department of Fish and Game
and inserts intent language to read as follows.
It is the intent of the Legislature that the Department of
Fish and Game enter into an agreement for services with the
Department of Natural Resources to conduct a public analysis
on the impact of overcrowding on the lower Kenai River by
recreational user groups.
Accompanying explanatory language reads as follows.
This project and accompanying intent language, allows the
Department of Fish and Game to contract with the Department of
Natural Resources (Department of Natural Resources) for an
analysis on the impact of overcrowding on the lower Kenai
River by recreational user groups. The previous Administration
imposed a hasty guide moratorium on the Kenai River and the
current Administration rescinded that moratorium. This project
will enable the Department of Natural Resources to seek the
input of recreational users and businesses before any further
use restrictions are imposed.
This amendment also adds a "Division of Wildlife Conservation
Laboratory Remodel" component and $150,000 Fish and Game Fund
appropriation for the Department of Fish and Game. Accompanying
explanatory language reads as follows.
This project was submitted by the Office of Management and
Budget on March 24, 2003. Backup is attached [not provided.]
Co-Chair Wilken moved to adopt Amendment #12. He commented that
this amendment would result in a net zero change in the capital
budget. He clarified that in order to act upon Amendment #12, the
Committee would be required to rescind its previous action on
Amendment #6 which specifies that the fund recipient be the
Department of Natural Resources. He explained that Amendment #12
correctly specifies that the recipient of the funds be the
Department of Fish and Game. He clarified that the change is
required because State statutes require Department of Fish and Game
funds to be tunneled through the Department of Fish and Game.
In order to act on Amendment #6, Co-Chair Wilken withdrew his
motion to adopt Amendment #12.
Without objection, Amendment #12 was WITHDRAWN.
Amendment #6: This amendment adds a "Division of Parks Lower
Kenai River Public Use Impact Study" component and $100,000 Fish
and Game Fund appropriation to the Department of Natural Resources
on page 27. Accompanying explanatory language reads as follows.
This project allows the Department of Natural Resources to
conduct a public analysis on the impact of overcrowding on the
lower Kenai River by recreational user groups. The previous
administration imposed a hasty guide moratorium on the Kenai
River and the current administration rescinded that
moratorium. This CIP [Capital Improvement Project] will enable
the Department to seek the input of recreational users and
businesses before any further use restrictions are imposed.
This amendment also adds a "Division of Wildlife Conservation
Laboratory Remodel" component and $150,000 Fish and Game Fund
appropriation to the Department of Fish and Game on page 23.
Accompanying explanatory language reads as follows.
This CIP request was submitted by the Office of Management and
Budget on March 24, 2003. Backup is attached [copy on file.]
Senator Taylor moved to rescind Committee action on Amendment #6.
There being no objection, the action to adopt Amendment #6 was
RESCINDED.
Amendment #12 was again before the Committee.
Co-Chair Wilken moved for the adoption of Amendment #12. He
clarified that the language in Amendment #12 specifies that that
the funds be allocated to the Department of Fish and Game rather
than the Department of Natural Resources as incorrectly identified
in Amendment #6.
In response to a question from Senator Taylor, Co-Chair Wilken
stated that the funds in question are Department of Fish and Game
funds monies and would result "in net zero" affect on the budget.
There being no objection, Amendment 12 was ADOPTED.
Amendment #13: This amendment deletes the "Municipality of
th
Anchorage Laurel St. Upgrade, Dowling Rd. to 64 Avenue (ED 17-
32)" component in the Grants to Municipalities (AS 37.05.315) BRU
and $270,000 general fund appropriation on page 9, lines 13 16.
This amendment also inserts a "Municipality of Anchorage
Raspberry Road Upgrade, Minnesota Drive to Arctic Boulevard (ED 17-
32)" component in the in the Grants to Municipalities (AS
37.05.315) BRU on page 9, lines 13 16 and appropriates $270,000
general funds.
Accompanying explanatory language reads as follows.
According to the Municipality of Anchorage, sufficient local
bond funding is available to complete the Laurel Street
Upgrade. This amendment would utilize $270,000 previously
identified for Laurel Street Upgrade to fund the State owned
portion of the Raspberry Road Upgrade project.
Co-Chair Wilken moved for the adoption of Amendment #13 and
objected for explanation. He stated that this is a technical
amendment to redirect funding to upgrade Raspberry Road rather than
Laurel Street in Anchorage. He noted that the funding element would
remain constant.
Co-Chair Wilken removed his objection.
There being no further objection, Amendment #13 was ADOPTED.
Amendment #14: This amendment to the Department of Transportation
and Public Facilities budget is outlined in a letter to the co-
chairs of the Senate Finance Committee and the House Finance
Committee from Cheryl Frasca, Director, Office of Management and
Budget, dated May 6, 2003, as follows.
Amendment 1
Amends the title of the Surface Transportation Program
allocation
From:
"Anchorage Metropolitan Area Transportation System 2004
Preventative Maintenance on State Roads"
To:
"Anchorage Metropolitan Area Transportation System 2004
Preventative Maintenance State and Local Roads"
Amendment 2
Amends the title of the Surface Transportation Program
allocation
From:
"Fairbanks Metropolitan Area Transportation System 2004
Preventative Maintenance on State Roads"
To:
"Fairbanks Metropolitan Area Transportation System 2004
Preventative Maintenance State and Local Roads"
[Note: The components are not specified in the committee substitute
as indicated.]
Co-Chair Wilken presented Amendment #14 on behalf of Governor
Murkowski's Administration.
Co-Chair Wilken communicated that this is a technical amendment in
that it would expand some previously adopted AMATS and FMATS
project titles to include preventive road maintenance for local
roads, in addition to State roads.
Senator Taylor asked for clarification that this is a title change
rather than a reappropriation of funds.
Senator Stevens verified that the projects have previously been
approved in the legislation and that this action "is simply a
technical correction."
There being no objection, Amendment #14 was ADOPTED.
Amendment #15: This amendment adds a "City of Palmer Eagle Avenue
Improvement (ED 1316) component and $200,000 general fund
appropriation to the Grants to Municipalities (AS 37.05.315) BRU on
page 3, lines 21 and 22.
This amendment also reduces the general fund appropriations in the
following amounts to the following components in the Grants to
Municipalities (AS 37.05.315) BRU.
Page 5, lines 23 - 25
City of Wasilla Gravel to Asphalt Road Program (ED 13-16)
Reduce $250,000 to $150,000
Page 5, lines 26 28
City of Wasilla Maintenance Building (ED 13-16)
Reduce $200,000 to $150,000
Page 5, lines 29 and 30
City of Wasilla Sports Arena Equipment (ED 13-16)
Reduce $75,000 to $25,000
Accompanying explanatory language reads as follows.
The net impact of this amendment to CS SB 100 (FIN) is zero.
Eagle Avenue is a significant collector street connecting the
Glenn Highway with north Palmer neighborhoods and the Sherrod
School and Swanson School complex. The street is presently a
gravel street. This project will reconstruct approximately
2,000 feet of Eagle Avenue from the Glenn Highway to the North
Valley Way intersection to a paved street with drainage and
sidewalk improvements. This project is important to the City
as a new elementary school located at the end of Eagle Avenue
is opening in the fall of 2003.
Co-Chair Green moved to adopt Amendment #15.
Co-Chair Wilken objected for an explanation.
Co-Chair Green stated that this amendment would shift some funds
from the City of Wasilla to support a street project in the City of
Palmer. She noted that the amendment is supported by both
communities and would produce a net zero affect on the budget.
Co-Chair Wilken removed his objection.
There being no further objection, Amendment #15 was ADOPTED.
Amendment #16: This amendment adds a "Federally Funded Landowner
Incentive Program Bristol Bay/North Aleutians project" component
and $1,642,500 federal funds to the Department of Fish and Game on
page 23, line 21.
Senator Hoffman moved to adopt Amendment #16.
Co-Chair Wilken objected.
Senator Hoffman spoke to the amendment by specifying that the
amendment would provide $1.6 million in federal funds to purchase
land. He informed the Committee that several land user groups are
participating in this project.
Co-Chair Wilken noted that a $500,000 [unspecified] match would be
required in order to receive $1.6 million in federal funds with
which to purchase conservation easements on private land in the
Dillingham/Bristol Bay region. He reminded the Committee of its
"considerable discussions" regarding the removal of private land
from tax rolls and from potential development. He stated that these
are the primary reasons for his objection to the amendment.
Senator Hoffman understood that the vast majority of the affected
land would remain in private ownership.
Co-Chair Wilken agreed, but asserted that the conservation easement
might hinder future development of the land.
PAT WALKER, Staff to Senator Lyman Hoffman, informed that a
coalition comprised of fishing guides, local Native Corporations,
and local community entities has been formed in Southwest Alaska
with the intent of furthering fishing and sporting endeavors to
provide future economic development opportunities in the region.
Co-Chair Wilken understood that a conservation easement "would not
allow future development of the land."
Ms. Walker responded that the intent of the coalition is to open up
the region to these activities.
Senator Taylor inquired as to how an easement would affect the
viability of the land; specifically how would it "make property
better or worse."
Ms. Walker stated that the coalition is working to avoid adverse
impacts on the land.
Senator Taylor asked for further information regarding possible
adverse impacts.
Ms. Walker responded that pollution might be an adverse impact.
Senator Taylor stated, "that development could only happen" if
private owners chose to sell the land to developers or develop it
themselves.
Ms. Walker clarified that the Southwest Alaska coalition is
comprised of a multitude of people in the area including private
landowners. She noted that a resolution [copy on file] in support
of the easement has been provided with the amendment.
Senator Hoffman stated that, without these funds, the land could
not be purchased and utilized to enhance the economy of the region.
He asked Ms. Walker how the status of the land would be affected
were it not purchased.
Ms. Walker responded that she is unsure of the affect.
Co-Chair Wilken understood that 10,000 acres of land could be
purchased; however, he attested that the acreage has not been
identified.
Senator Bunde commented that, "realistically ? the only industry"
that could be developed in this region would be sport fishing and
sport hunting. He voiced that granting conservation easements would
have "little negative impact."
Co-Chair Wilken characterized this situation as a "policy call,"
since this transaction would involve mainly federal funds.
Senator Taylor asked for examples of the entities that would
provide the matching funds.
Ms. Walker stated that, in addition to the $1.6 million in federal
funds, a $500,000 local match, including money from the
Conservation Fund, would be required. She stated that the
Department of Fish and Game has been working with the Conservation
Fund on this issue.
Senator Taylor asked for further information regarding the
Conservation Fund organization.
Co-Chair Wilken noted that he could provide information [copy not
provided] regarding the Conservation Fund and the Southwest Alaska
Coalition to Committee members.
Senator Stevens asked the current titleholder of the land in
question.
Senator Hoffman responded that the land is private property and he
assumed that it belonged to a Native corporation.
Senator Hoffman removed his motion to adopt Amendment #16 in order
to obtain further information to present to the Committee.
There being no objection, the motion to adopt Amendment #16 was
WITHDRAWN.
Co-Chair Wilken stated that the information regarding the
Conservation Fund and the Southwest Alaska Coalition would be
provided to Members.
Co-Chair Wilken ordered the bill HELD in Committee.
HOUSE BILL NO. 170(efd fld S)
"An Act increasing certain motor vehicle registration fees."
This was the first hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken noted that the House Rules Committee presents this
legislation at the request of the Governor. He stated that this
bill would increase motor vehicle registration, title, and lien
filing fees.
DUANE BANNOCK, Director, Division of Motor Vehicles, Department of
Administration testified via teleconference from an offnet location
in Anchorage to note that while the current vehicle licensing fees
have "barely changed" in thirty years, the expenses associated with
providing the service have been increasing. He explained that one
of the three primary sections addressed by the bill pertains to
non-commercial vehicles, which account for approximately 70 percent
of the licensed vehicles in the State. He stated that this
classification of vehicles would be assessed a $100 biennial
registration fee, which he stated would be a slight increase in
fees. Furthermore, he shared that existing pick-up truck or non-
pick-up truck subsections within the non-commercial vehicle
classification would be eliminated.
Mr. Bannock continued that the second section addressed in this
legislation specifies that commercial vehicles would experience a
ten-dollar annual registration fee increase. He noted that
commercial vehicle owners would have the option of paying their
fees on an annual or biennial basis.
Mr. Bannock noted that the third section would provide for an
increase in title, duplicate title, and lien fees.
Senator Taylor asked for more information regarding how vehicle
weight would affect the registration fees charged for commercial
vehicles, as specified in Section 2 of the bill.
Mr. Bannock responded that the State has established four
commercial class fee structures, based on vehicle weight. He stated
that the amount of the increase being proposed would equate to a
ten-dollar across the board annual increase of current fees.
Additionally, he noted that an existing one-dollar annual reduction
incentive would be eliminated.
Senator Bunde moved to report the bill from Committee with
individual recommendations and accompanying fiscal note.
Senator Taylor objected to the motion. He voiced concern that
issues might develop regarding a disproportionate fee between some
of the various classes of commercial vehicles such as semi-tractor
trailers.
Senator Taylor withdrew his objection.
There being no further objection; HB 170(efd fld S) was REPORTED
from Committee with zero fiscal note #1 from the Department of
Administration.
HOUSE BILL NO. 256
"An Act relating to a dividend payment to the state made by
the Alaska Housing Finance Corporation each fiscal year; and
providing for an effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken stated that the House Finance Committee sponsors
this legislation, which "amends and codifies the existing agreement
between the Alaska Housing Finance Corporation (AHFC) and the
Legislature regarding an annual AHFC dividend." He continued that
this legislation would provide for a $103,000,000 dividend while
maintaining AHFC's strong bond rating.
Amendment #1: This amendment changes the fiscal year date from FY
2007 to FY 2008 in Sec. 2, subsection (5)(B) on page 4, line 13 in
HB 256, Version 23-LS0838\I. This language would read as follows.
(B) minus the amount of money from the Alaska Housing
Finance Corporation used during fiscal year 2008 for bond
repayments and other costs related to the bonds issued under
Co-Chair Wilken moved to adopt Amendment #1. He stated that this
amendment addresses a technical change in the bill and is offered
at the request of AHFC.
There being no objection, Amendment #1 was ADOPTED.
DAN FAUSKE CEO and Executive Director, Alaska Housing Finance
Corporation, Department of Revenue spoke in support of the bill. He
reviewed that the AHFC dividend transfer plan was established in
1995 as a means of transferring some of the Corporation's net
profits to the State to support, in particular, State capital
projects. He stated that a major concern addressed in those initial
discussions was that the specified transfer amount not affect the
Corporation's credit ratings. For numerous years, he declared, the
total annual transfer amount has been $103 million, based on a
variety of factors including net income levels.
Mr. Fauske expressed that, in recent years, the reduction in
lending interest rates has resulted in a significant increase in
the Corporation's lending activities as well as "investment
earnings on short-term monies." However, he informed that, while
"the business profile is excellent, the Corporation's net income
has fallen."
Mr. Fauske explained that in 2002, in anticipation of continuing
lower net income levels, AHFC requested that the Legislature
readdress the amount of the AHFC dividend paid to the State. He
informed that the Corporation's FY 03 net income is projected to be
approximately $75.6 million; and therefore, he asserted that a plan
must be developed to enable the Corporation to continue to
contribute the $103 million amount "that the State has grown
accustomed to." Additionally, he stressed that the plan must allow
the Corporation to be sustained at a level that would not adversely
affect its ability to conduct its business. He stressed that the
level must also be acceptable to the financial community and
investors.
Mr. Fauske noted that this legislation would address these concerns
by proposing that "a percentage of net program" be implemented that
would allow a gradual reduction in the amount of dividend being
paid to the State. The proposed plan, he explained, would allow the
total dividend that would be paid to the State for the next three
fiscal years to remain at the current $103 million level and that,
by FY 09, the amount of the dividend would be calculated at a 75-
percent of net income level. He reminded that the final payment on
a $50 million debt service that AHFC assumed on behalf of the State
would be paid off in December of 2006.
Mr. Fauske communicated that this proposal would allow the
Corporation to increase its equity position; would allow dividends
to be paid to the State, which is its parental entity; and would
provide the Corporation with sufficient monies to reinvest in AHFC
programs in order to continue its viability and continue to retain
its healthy and predictable profile with financial entities. He
opined that in consideration of the Corporation's current status,
"this is a good bill." He assured that, as the financial market
progresses, the issue could be revisited.
Senator Taylor asked whether a separate proposal for a five-percent
of market value annual dividend program would provide the stability
and continuity that AHFC would require. Furthermore, he asked
whether a program of this type would be more acceptable to the New
York City Wall Street financial market than this legislation.
JOE DUBLER, Chief Financial Officer and Finance Director, Alaska
Housing Finance Corporation, Department of Revenue stated that the
amount of the FY 04 transfer, based on this bill's language, would
amount to 5.8 percent of the Corporation's total liquidity as of
June 30, 2002. He stated that this bill would allow the Corporation
to implement a payout policy based on net income as opposed to a
payout based on net assets. He noted that this predictable payout
would be acceptable to Wall Street investors and would, therefore,
enable AHFC to continue to fulfill its mission of providing access
to housing for Alaskans. He opined that paying a dividend "based on
percentage of net income is the appropriate approach" for AHFC.
Senator Taylor acknowledged that a dividend based on a percent of
net income would be more appropriate program as, he calculated that
a percent of asset formula "would eventually, significantly erode"
the Corporation's asset base.
SFC 03 # 79, Side B 09:49 AM
Senator Taylor furthered that a dividend program that might erode
the Corporation's asset base would negate the ability of the
Corporation to lend money, which is the basis of the Corporation's
mission.
Mr. Fauske agreed.
Senator Hoffman stated that the proposal specifies that the
dividend to be paid in fiscal years 2007 through 2009 would be 95,
85, and 75 percent of net income, respectfully, based on the "prior
year's income minus debt service." He asked for a recap of the
formula specified for FY 04 through FY 06.
Mr. Dubler clarified that the annual dividend for fiscal years 2004
through 2006 would be $103 million rather than a percentage of net
income.
Senator Hoffman asked how $103 million would equate to a percentage
of net income basis.
Mr. Dubler explained that the annual dividend determination would
be calculated as a percent of the net income of the base fiscal
year, which is the fiscal year ending two years before the end of
the current fiscal year. In response to Senator Hoffman's question,
he calculated that the $103 million dividend in FY 04 would equate
to 147 percent of the FY 02 net income; the FY 05 dividend would be
150 percent of the projected FY 03 net income, and the FY 06
dividend would equate to 147 percent of the projected FY 04 net
income.
Senator Hoffman asked how these dividend levels, which are higher
than 100 percent of net income, would affect the Corporation's bond
ratings with consideration given that, as of FY 07; the dividend
would be determined at a lower percentage of net income rate.
Mr. Fauske qualified that the Corporation has been paying out more
than it has been earning for several years. He asserted that the
dividend program specified in this legislation recognizes that AHFC
is a strong financial institution and that, while the FY 04, FY 05,
and FY 06 dividends would exceed net income, "relief" would be
forthcoming in later years.
Mr. Fauske relayed that "there has always been apprehension" in the
Stock Market that the State would request dividends in excess of
$103 million. He communicated that "the strength" in this
legislation is that it "would place in statute a predictable and
sustainable payout to the State." He communicated that while the
investment market is unpredictable, expectations are that, in
contrast to the current refinancing trend, the next market "cycle"
would allow the Corporation to experience an increase in net
profits due to an increase in conventional loans to first-time home
buyers and an increase in the interest levels earned on
Corporation's investments. He stated that during discussions with
the rating agencies, it is recognized that AHFC must begin making
contributions into its "equity positions" over time.
Mr. Dubler commented that this legislation is based on AHFC's
historical financial projection methodology that takes into
consideration such things as the Corporation's long-term bonds. He
noted that while AHFC's longer-range financial projection mode is
atypical to the normal State financial projection methodology, it
"has worked very well" for the Corporation.
Co-Chair Wilken asked the Corporation to distribute to Committee
members a pro forma document titled "Summary of Projected Amounts
Available for Appropriation" [copy on file] that was developed
during initial discussions on this bill. He stated that this
document would provide Members with projected dividend amounts
based on a percent of net income formula.
Co-Chair Wilken pointed out that other material in the Members'
packet includes a Moody's Investors Service report [copy on file]
dated March 2003 that specifies that, of the 15 states with a
Housing Finance Corporation (HFC), Alaska's program is ranked
number two "in its contribution back to the State." Furthermore, he
noted that the report highlights the concern that states are
demanding higher levels of contribution from their HFCs. He called
to the Committee's attention the fact that AHFC contributes a
"significantly" higher amount per capita than other HFC programs.
Co-Chair Green voiced that the sponsor's statement "implies" that
the AHFC dividend would fund debt service for certain bonds and
capital projects. However, she noted that language in Section 1,
page 1, beginning on line 7, specifies that, "the legislature may
appropriate the dividend for capital projects." She questioned
whether this language should be changed to include the phrase debt
service.
Mr. Dubler responded that debt service is addressed in Section 1,
subsection (2) that reads as follows.
(2) minus the amount of money from the corporation used during
that current fiscal year for bond repayment and other costs
related to the bonds issued under
(A) ch.26, SLA 1996, up to a maximum of $1,000,000;
(B) sec. 10(b), ch. 130, SLA 2000;
(C) sec. 1, ch. 1, SSSLA 2002; and
Co-Chair Green surmised, therefore, that this language provides for
the inclusion of the debt service in the calculation.
Mr. Dubler concurred.
Co-Chair Green noted that separate legislation being entertained by
the Committee contains a different definition of the term "net
income." Therefore, she questioned "the appropriateness" of there
being multiple definitions of this term in State regulations.
Mr. Dubler explained that the difficulty in arriving at a single
definition of the term net income arises from ongoing changes in
the nationally recognized General Accounting Standards. He stated
that programs have been formulated using whatever definition was in
effect at the time. Therefore, he attested that to adjust to one
terminology would be tedious; and therefore, each situation
involving net income is defined accordingly.
Co-Chair Green continued to voice concern that State statutes
incorporate numerous definitions of net income. She asked whether
crafting one definition would be possible.
Mr. Dubler stated that a goal of financial accountants is to
develop one definition. Unfortunately, he stated, the process might
be lengthy due to the multitude of entities and terminologies that
would be affected.
Co-Chair Green voiced frustration at being required to determine
which net income definition is specific to each piece of
legislation being addressed.
Senator Hoffman asked the present AHFC financial rating as well as
what bond rating projections the Corporation expects after FY 04.
Furthermore, he asked what type of housing loans would be expected
based on State population growth forecasts.
Mr. Fauske stated that currently the Corporation has an AA and AA+
rating by two major rating agencies; however, he voiced that were
the ratings determined by statistical analysis, AHFC would be rated
AAA as it is one of the strongest performing HFAs in the nation. He
voiced that the official rating is affected by subjective criteria
based on such things as the State's economy, the State's fiscal
gap, the activity in Prudhoe Bay, and the fishing industry in
Bristol Bay. He credited the Legislature for honoring the intent
language specified in every AHFC appropriation bill, as he stated
that that action has allowed AHFC to maintain its high credit
rating.
Mr. Fauske predicted that were this legislation adopted, AHFC's
credit rating would further improve and that the Corporation would
be able to contribute more to the State without jeopardizing its
ability to carry out its mission or negatively affecting its credit
rating.
Mr. Fauske continued that AHFC tracks the economy closely in order
to effectively anticipate future business opportunities. He
attested that such things as unemployment and demographics changes,
including an aging population, are monitored. He stressed that the
job market is critical to a healthy economy, as jobs are necessary
to attract younger people who might purchase homes and require
loans. He avowed that because AHFC is a strong entity with a good
market share, financial programs such as Fanny Mae and Freddie Mac
and other major lenders are able to operate in the State. He voiced
confidence that the Legislature would adequately address the
State's fiscal situation, as he qualified that a healthy State
fiscal plan is important to the State and to the success of AHFC.
Mr. Fauske stressed that the housing market must be sustained, as
it is a "big player" in the State's economy in that it "occupies 25
percent of the State's domestic product."
Senator Hoffman concluded therefore, that AHFC does not anticipate
a drop in their bond ratings through FY 09.
Mr. Fauske affirmed.
Senator Taylor voiced that this legislation would establish policy
regarding AHFC dividends today and for the future. He allowed that
while the proposed formula could be changed in the future, the
proposal currently "gives an illusion to the market and to the
people of Alaska" that the State "would not get so desperate as to
liquidate an asset" that provides funds to the State. "As a fiscal
conservative," he argued that the legislation should be altered to
eliminate the requirement of a $103 million dividend in FY 04, and
immediately set in motion the proposed percentage of net income
payout as, he declared, that continuing the status quo dividend for
three years would be an invasion of the Corporation's corpus.
Co-Chair Green asked regarding the recurring phrase "unrestricted,
unencumbered money of the corporation" in Sec. 2 subsection (2)(C)
located on page 3, lines 1 3 and Sec. 2, subsection (3) (C) on
page 3, lines 25-27 that reads as follows
(2)(C) minus any appropriation of unrestricted,
unencumbered money of the corporation during fiscal year 2005,
other than an appropriation for the corporation's operating
budget;
(3)(C) minus any appropriation of unrestricted,
unencumbered money of the corporation during fiscal year 2006,
other than an appropriation for the corporation's operating
budget;
Mr. Dubler responded that this language is included "in an attempt
to make an all encompassing reference" to all funds transferred to
the State by the Corporation in order to prevent the Legislature
from classifying some of those funds as non-dividends, and saying
that "they don't count."
Co-Chair Green asked whether this language is a change from the
historical recognition of transferred funds, and she asked whether
it would allow funds to be "manipulated."
Mr. Dubler responded that the concept of this language is to define
which funds being transferred from AHFC to the State should be
recognized as "a dividend."
Senator Taylor ascertained, therefore, that other funds the State
might receive from AHFC would be classified as "operating
expenses."
Mr. Dubler reiterated that the intent of the language is to clarify
which of the funds being transferred to the State would be
considered dividends. He communicated that the bill could be
amended to provide further clarification.
Senator Taylor moved to report the bill from Committee with
individual recommendations and accompanying fiscal note.
There being no objection, SCS HB 256 (FIN) was REPORTED from
Committee with zero fiscal note #1 from the Department of Revenue.
SENATE BILL NO. 202
"An Act relating to school transportation; relating to the
base student allocation used in the formula for state funding
of public education; and providing for an effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken stated that the Senate Finance Committee sponsors
this legislation. He shared that this legislation would change the
methodology of the grant program that the State has used to
reimburse K-12 public education school districts for local pupil
transportation expenses. In addition, he stated that the bill would
increase the per student base allocation funding to $4,169, an
increase of $159 per student, by absorbing Learning Opportunity
Grants that total $2.2 million into the student education
foundation formula. Co-chair Wilken suggested that the Committee
address these two bill components separately.
JOHN ALCANTRA, Government Relations Director, National Education
Association of Alaska (NEA-Alaska) stated that the State's 12,700
public school employees who belong to NEA-Alaska realize that the
Committee's recently adopted operating budget bill is contingent on
the two issues addressed in this bill. He voiced appreciation for
the Committee's efforts toward increasing the level of the base
student allocation funding which he declared would provide school
districts "stability of funding and help them reach some of the
requirements of the State (Education) Standards."
Mr. Alcantra voiced appreciation for the $159 per student increase,
but announced that NEA-Alaska's "ultimate" base student allocation
goal is $4,280 per student. He communicated that according to
nationally recognized business research [not provided], the $4,280
funding level would assist school districts in addressing projected
"one-year inflationary costs and just one year of unmet needs."
Continuing, he informed the Committee that this research recommends
a five-year phased in increase of $365 per student, plus additional
funds to address the inflationary erosion of funding. However, he
stated, that in recognition of the State's fiscal situation, NEA-
Alaska is limiting their funding request to the one-year funding
request of $4,280 per student. He stated that this request would
cost the State an additional $23 million in FY 04 and would assist
in accomplishing the State's constitutionally mandated provision to
provide quality public education.
Mr. Alcantra reminded Committee members that the FY 03 budget was
based on a specific crude oil barrel price along with a specified
draw on the Constitutional Budget Reserve (CBR). He attested that
because the average price per barrel for the initial ten months of
the fiscal year exceeded the specified price, the amount drawn from
the CBR account was reduced. Therefore, he suggested that some of
those CBR savings could be used to support the proposed $23 million
FY 04 funding increase that would be needed to adequately support
student education funding.
[NOTE: At this point, a brief and indiscernible dialogue between
Senator Bunde and the testifier transpired.]
Senator Bunde asked whether a "guarantee of results" such as the
majority of high school students passing the State's High School
Graduation Qualifying Examination (HSGQE), could be provided were
this funding request approved.
Mr. Alcantra remarked that education standard requirements are
important. He stated that no guarantees could be provided to ensure
that all students, including those identified by measures such as
the federal No Child Left Behind Act, would pass the high school
exit exam; however, he avowed that an appropriate education funding
level would assist districts in providing the most important aspect
of an education which is providing quality teachers, quality
support professionals and other necessary resources.
Co-Chair Wilken mentioned that Senator Bunde was one of the prime
sponsors of the HSGQE legislation.
BRUCE JOHNSON, Representative, the Alaska Association of School
Boards, thanked the Committee for consolidating the Learning
Opportunity Grants into the total funding allocated to the base
student allocation formula as it would assist school district
funding. He testified that while the issue of flat funding remains,
it could be addressed at another time.
Senator Hoffman voiced concern regarding "the eroding floor" of
unmet funding needs, as referenced in the "Change to Floor" column
in the Department's fiscal note #1 analysis. He noted that were
this legislation adopted, $1.4 million would be allocated toward
that eroding floor; however, he asked the Department to provide the
Committee with the remaining "unmet" funding need level for each
school district.
Co-chair Wilken stated that the Department of Education and Early
Development would address Senator Hoffman's concern during its
forthcoming testimony.
MARY FRANCIS, Representative, Alaska School Administrators
Association, testified that the administrators "add their voice to
those who support the increase in the base student allocation" as
it assists in addressing the funding "erosion" that has been taking
place. She avowed that, "this is a more protected mechanism for
raising the student allocation
Co-Chair Wilken stated that this concludes the testimony regarding
the base student allocation funding. He specified that the
transportation component of the bill would now be addressed.
EDDY JEANS, School Finance Manager, Department of Education and
Early Development, responded to Senator Hoffman's "eroding floor"
question by stating that the Department would develop and
distribute to Members a schedule that would reflect "the remaining
balance of the supplemental funding floor" were this bill to take
effect. He estimated that, were this legislation adopted,
approximately $1.5 million could be allocated toward the remaining
supplemental funding floor balance of approximately $9.5 million.
Co-Chair Wilken read from a school transportation cost schedule
[not provided] that denoted the increase in pupil transportation
expenses from FY 97 to FY 03. He stated that transportation costs
in FY 97 amounted to $32.8 million in general funds and a total of
$53.9 million in general funds in FY 03. He stated that this
equates to an eleven-percent increase per year. He stated that
numerous options, such as awarding contracts, are being proposed to
address this expense.
Mr. Jeans explained that currently the State reimburses districts
for transportation expenses according to specified percentage
levels that are determined by such things as whether the route
meets the minimum distance from a school or meets the minimum
number of students per route requirements. He pointed out that
exceptions are currently in place to allow reimbursement for
situations wherein a local school board might authorize a bus route
in an area that does not meet the minimum distance requirement but
is deemed to have hazardous conditions.
Mr. Jeans stated that, in an effort to contain transportation
expenses, this proposal would provide a grant to each district
based on the total amount of the district's FY 03 transportation
expenses divided by the number of students enrolled that year. He
continued that the resulting number would be identified as the base
per student dollar. This base dollar amount, he continued, would
then be multiplied by the current year's enrollment to determine
the grant total, specific to that district. He mentioned that were
the district to lower its transportation costs by, for instance,
consolidating routes, the resulting savings could be used by the
district for other purposes.
Mr. Jeans pointed out that, even though the Department has
encouraged districts to seek transportation efficiencies, costs
have continued to increase. He noted that in addition to
reimbursing districts for their transportation expenses, the
current program includes a provision that provides a built-in
inflation factor allowance.
Mr. Jeans attested, that, in his experience, these transportation
contracts have not provided savings because "there was little
incentive" to the school district to negotiate the price of the
contract with the transportation provider. He stated that this
grant program would provide the district with "the flexibility" to
negotiate with the provider.
Co-Chair Wilken referred the Committee to the Department of
Education and Early Development fiscal note #2 which denotes the
impact of the grant program on each school district.
Co-chair Wilken asked Mr. Jeans to explain the "$1,200 cap per
student" as noted in the fiscal note #2 spreadsheet.
Mr. Jeans responded that the Department is making a "policy
statement" by specifying $1,200 as the maximum limit the State
would pay per student for transportation expenses. He communicated
that five districts currently exceed this limit: the Alaska Gateway
District with a rate of $1,464 per student; the Bristol Bay
District with a rate of $1,322; the Copper River District with a
rate of $1,300; the Delta/Greely District with a rate of $1,351;
and the Southeast Island District with a rate of $1,234. He pointed
out that private entities are under contract in these districts to
provide student transportation. He commented that, "it is
conceivable" that districts could reduce transportation costs by
conducting that service "in-house."
Mr. Jeans allowed that costs would be more difficult to negotiate
in areas where there is a single bidder or limited competition.
Senator Taylor summarized that this legislation would allow
individual school districts to receive transportation funding, but
at a level based upon their FY 03 funding.
Mr. Jeans affirmed that the determination would be based on the FY
03 per student transportation funding amount as it relates to
current student enrollment. He voiced that were student enrollment
to lower or increase, the amount allocated would follow suit.
Co-Chair Wilken opined that this methodology, if adopted, would
continue until such time as the Legislature changes it.
Mr. Jeans concurred. He forecast that the Legislature might alter
the amount as a result of school district lobbying for a percentage
increase that would be allocated across the board.
Senator Taylor asked whether this legislation could "lock in a
number" on a statewide basis.
Mr. Jeans stated that rather than designating a specific amount,
the grant level would fluctuate according to a district's student
enrollment each year. He stated that this proposal is projected to
cost the State $54 million in FY 04.
Senator Taylor surmised that were the number of students to remain
the same, the grant total would remain constant.
Mr. Jeans concurred.
Senator Taylor argued, therefore, that this proposal would reward
districts with increasing enrollment and "punish" those with
lowering enrollment.
Mr. Jeans countered that the current reimbursement program is
viewed by school districts as a punishment "because their contracts
have inflationary adjustments built into them." He stated that this
"vested interest" proposal would provide districts with the ability
to negotiate contracts and to revisit their current transportation
system in order to reduce costs or generate savings. These savings,
he attested, could then be used for other purposes in the district.
Mr. Jeans expressed that, under the current system, were the
Municipality of Anchorage to lower its transportation costs, the
savings generated at the State level would then be distributed to
other areas of the State as opposed to being allocated toward other
Anchorage expenses. He stated that were this legislation adopted,
in this scenario, Anchorage would retain those savings and could
use them as determined by the district.
SFC 03 # 80, Side A 10:37 AM
Senator Taylor agreed that this would be beneficial to districts
that have this ability; however, he expressed that districts
experiencing a declining enrollment would suffer. He argued that
the proposal does not address the fact the districts with declining
enrollment would still be required "to pick up students at the end
of the road." Districts with declining enrollment, he attested,
would receive "a double hit" as they would receive less
transportation money and less money from the base student
allocation factor. He stated that this proposal should include a
hold harmless clause for districts with decreasing enrollment.
Senator Hoffman acknowledged Senator Taylor's concern regarding the
expenses and requirements that face districts with declining
enrollment. Furthermore, he voiced concern that this legislation
would punish rather than reward those districts that have already
lowered their transportation expenses, by receiving a lower per
student amount than awarded to those districts that have exerted
little effort toward addressing the issue. He commented that this
raises a question of fairness.
Mr. Jeans verified that the proposal is based on current district
expenditures. He acknowledged that some districts with single
transportation bidders have experienced substantial increases in
expenses as opposed to districts with competitive situations. He
continued that, by providing their own transportation, some
districts might experience "cheaper transportation."
Mr. Jeans remarked that the Administration's position is that the
current reimbursable system does not promote cost containment, and
he commented that this proposal would allow local districts to make
independent decisions regarding transportation. Furthermore, he
stated that current regulations allow districts to charge user
fees, but he remarked that because districts are reimbursed for
their expenses, this option is not utilized. He stated that this
option would continue to be available under the new system.
Senator Hoffman reiterated that districts whose expenses approach
the $1,200 per student limit could realize "substantial savings;"
however, he contested that the districts "that are well below" that
limit would not have similar options. He suggested that a flat rate
per student be provided to all districts as he attested this might
address the inherent problem with this proposal.
STEVE KALMES, Director of Transportation, Anchorage School District
testified via teleconference from Anchorage to voice that contrary
to the Department's testimony, he does not contribute the rising
costs of student transportation to the current reimbursement
program, as he contended, such things as the cost of buses, wages,
driver training, fuel, and insurance drive expenses. He noted that
adherence to the Department of Education and Early Development's
mandate that transportation must be provided for special needs
students incurs enormous expense to the District.
Mr. Kalmes disclosed that, in order to contain costs, the District
has actively sought bidders and, with five bidders, "the prices
were what they were." He communicated that one of the District's
largest concerns regarding this grant proposal is how to address
the high cost of transporting special needs students. He disclosed
that the costs associated with transporting special needs students
amount to approximately 42 percent of the District's total
transportation expenses and equates to ten times the cost of
transporting a regular program child. He exampled that "the most
expensive route in the district" is the one that transports special
needs students from the Mat-Su valley to the Alaska State School
for the Deaf that the District operates for the Department of
Education and Early Development.
Mr. Kalmes understood that the grant amount would increase as
enrollment climbed; however, he voiced surprise that funding would
decrease were the opposite to occur. He stated that as enrollment
increases, those students are absorbed within an existing bus
route. However, he contended that were the number of students on a
particular route to decline, that route would still be required to
operate. He suggested that, were the grant program implemented, the
FY 03 base level be used as the level that funding not drop below.
Co-Chair Green communicated that she had served on a committee that
addressed the needs of special education programs in the State. She
noted that the Anchorage School District met with that committee
regarding the numerous education programs the District conducted.
She identified that many of those programs were optional rather
than mandatory programs. Therefore, she asked whether the District
was mandated to operate the Alaska School for the Deaf (ASD).
Mr. Kalmes responded that the District is under contract with the
Department of Education and Early Development to operate the ASD.
He could not verify whether the program was mandated or optional.
Co-Chair Green identified ASD as being an optional program, and she
asserted that the costs associated with running that program,
including transportation costs, are included in the base student
allocation calculation. She stated that the District should
identify which programs are conducted on an optional, contractual
basis verses those that are mandated.
Senator Olson asked whether the special needs bus transportation is
provided by the District.
Mr. Kalmes responded that the transportation is comprised of a
combination of District and contracted routes.
BARBARA SCHUHMANN, Parent, testified via teleconference from
Fairbanks to suggest that the Department of Education and Early
Development leave the current program in place. She opined that
other cost containment options such as a route analyses, exist. She
continued that this legislation contains assumptions such as that
the same percentage of students rides buses in every district and
that all costs are equal in all districts. She specified that
parents rely on school bus service, and she expressed that the
service should be viewed as a transportation and public safety
service rather than being viewed as an education system service.
She stressed that the risks involved in reducing routes should be
investigated.
Senator Bunde asked whether school districts, particularly the
Anchorage School District, have considered charging user fees to
assist in offsetting the cost of school transportation.
Mr. Kalmes responded that an Anchorage citizen review panel
recently asked the Department of Education and Early Development
how a user fee program would affect the current reimbursement
system. He commented that the current policy tends to be a
disincentive to this approach because the Department determined
that the reimbursement amount would be lowered by the same amount
collected from the user fees.
Mr. Jeans verified that other districts have not pursued this
option for that very reason.
Senator Bunde asked whether this option would be possible under the
grant program system being proposed.
Mr. Jeans responded that a rider fee could be collected without an
impact on the proposed grant system.
Senator Taylor countered that there is no language in the proposed
grant system that would require a transportation system to be
operated; therefore, he declared that a District could eliminate
transportation and keep the money.
Co-Chair Wilken stated that this scenario would be a local issue.
Co-Chair Wilken ordered the bill HELD in Committee.
RECESS 10:56 AM / 5:38 PM
CS FOR SENATE BILL NO. 125(TRA)
"An Act relating to protests of state contract awards, to
claims on state contracts, to the arbitration of certain state
construction contract claims, and to hearings and appeals
under the State Procurement Code; making conforming amendments
in the State Procurement Code; and providing for an effective
date."
This was the first hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken informed that this legislation would reform the
method through which construction claims against the State are
addressed. He relayed that, approximately a year prior at a Senate
Transportation committee meeting in Anchorage, the committee heard
testimony regarding the construction industry's frustration on this
issue. He continued that, as a result of that meeting,
representatives from the Department of Transportation and Public
Facilities and the Associated General Contractors of Alaska (AGC)
worked together to develop a consensus on how the construction
claims process against the State could be revised.
RICHARD SCHMIDZ, Staff to Senator John Cowdery, the bill's sponsor,
informed the Committee that the Department of Transportation and
Public Facilities and the AGC would present this legislation.
MARK O'BRIEN, Chief Contracts Officer, Division of Contracting,
Procurement and Appeals, Office of the Commissioner, Department of
Transportation and Public Facilities, informed the Committee that
the Department has been working with AGC to improve the
construction claims process. He stated that AGC originally
presented three suggestions toward making the claims process
"faster, fairer, and less expensive," and he contended that this
legislation would adequately address their concerns. He explained
that in order to quicken the claims process, specific timeframes
"where none existed and shortened timelines where ones did exist"
as well as implementation of an arbitration process as opposed to
the current hearing officer process have been incorporated into the
proposal. He stated that specific timelines for resolution would be
identified in the arbitration process. These timelines, he noted,
"would serve to speed up the process and reduce costs" as compared
to the costs resulting from attorney and consultant fees in the
current litigation process.
Mr. O'Brien specified that the arbitration decision would be final.
He noted that with the exception of appeals based on charges of
fraud, misapplication of the law, and a few other narrow issues,
there would be no lengthy court appeal process.
Mr. O'Brien communicated that the arbitration process would include
regulations regarding the selection of an arbitrator who would be
acceptable and fair to both parties. He stated that implementation
of an arbitration system would reduce costs as it would shorten the
process and limit appeals.
Mr. O'Brien acknowledged that the award of costs and fees is the
lone point of dissention remaining between the Department and AGC.
He noted that Rules 79 and 82, as referenced in the Department's
fiscal note #1, require payment of attorney fees and claims costs.
He commented that these provisions would incur costs at "a baseline
average" of $145,000 per year based on an eleven-year average in
which expenses ranged from a high of $340,000 to a low of $7,000.
He explained that this expense would be subject to such factors as
the complexity of the case and the length of litigation.
Furthermore, he explained that in addition to these expenses, the
cost of additional attorney fees associated with litigating these
awards is estimated to be approximately $6,000 per year or 20 hours
per claim. He specified that another factor is the Rule 68
provision that allows for an "offer of judgment." He stated that
this factor is considered to be "a driver" in settling a claim.
Mr. O'Brien informed that while most construction claims are
associated with federally funded projects, no federal funding
support exists for expenses associated with Rules 79 and 82.
Therefore, he stated that an award of costs and fees would require
general fund dollars.
Senator Hoffman asked the dollar amount of claims currently being
processed.
Mr. O'Brien responded that he is unsure of the current outstanding
claims amount.
DICK CATTANACH, Executive Director, Associated General Contractors
of Alaska, spoke in support of this "fair and balanced" bill. He
stated that while he appreciates the concern regarding the
potential level of the fiscal note, he asserted that the proposed
process would speed things up and would be less expensive. He noted
that AGC worked diligently with the Department of Transportation
and Public Facilities, the Department of Law, and other affected
parties to address this issue.
Co-Chair Wilken asked whether the industry is satisfied with the
results of those discussions.
Mr. Cattanach confirmed.
Amendment #1: This amendment inserts a new section on page 1,
following line 5 as follows.
Section 1. AS 36.30.005 is amended by adding a new subsection
to read:
(d) Notwithstanding the provisions of AS 36.30.627, the
University of Alaska is not required to arbitrate construction
contract claims unless the university specifically agrees to
the arbitration.
Co-Chair Wilken offered Amendment #1 and objected for explanation.
Co-chair Wilken explained that this amendment would exempt the
University of Alaska from the binding arbitration requirement for
claims valued at less than $250,000 unless the claim was mutually
approved by both the University and the contractor. He noted that
no other provisions of the bill would be affected by this proposed
change.
WENDY REDMAN, Vice President of University Relations, University of
Alaska stated that the University was not involved in the
aforementioned discussions due to the understanding that the
University would not be impacted by the legislation. However, she
advised that the University is seeking the exemption for the small
claims section, and she noted that there is no opposition to this
exemption request. In addition, she expressed that the University
has a good working relationship with AGC. Continuing, she stated
that the University would be involved in the implementation of
procedures pertaining to this legislation.
Co-Chair Wilken removed his objection.
Senator B. Stevens asked whether the University utilizes a State
procurement officer.
Ms. Redman responded that the University has an in-house
procurement officer.
Senator B. Stevens asked the University's total annual construction
budget.
Ms Redman specified that the amendment addresses small claims
valued at $250,000 or less. She continued that the University's
construction budget ranges between $20 million to $40 million
annually.
Senator B. Stevens asked the importance of excluding this level of
contractor claims.
Ms. Redman explained that the bill specifies that small claim
arbitration could be initiated "solely at the discretion of the
contractor," without the approval of the University. She stated
that because the majority of University construction projects fall
into the small claim category, its attorneys have determined that
the bill's current language is not in the University's best
interest.
Senator B. Stevens ascertained therefore, that the basis of the
amendment would be to address the concern that the University would
be negatively impacted because of the multitude of small
contractors it deals with.
Ms. Redman affirmed that the majority of University projects would
be classified as small projects. She reiterated that the
University's legal council has determined that this bill might
influence small contractors to pursue arbitration measures.
Senator B. Stevens asked what the University's alternative to
arbitration would be.
Ms. Redman responded that the alternative would be the current
settlement process through which hearings are conducted. She noted
that the University's attorneys have determined that the proposed
arbitration process might remove the incentive to settle.
Senator Hoffman surmised therefore, that contrary to testimony
stating that the arbitration process would shorten the time
involved in settling claims, the University has determined that the
arbitration process would lengthen its time required to settle
disputes.
Ms. Redman clarified that this legislation would introduce binding
arbitration as a method to settle small contractor disputes. She
stated that while the State has experience with this issue, the
University has not. She acknowledged that University attorneys
might eventually conclude that it might be an acceptable
alternative. However, she stated that because the University was
not involved in the aforementioned discussions, the concern is that
the small claim arbitration mandate might increase its number of
arbitrations and litigations.
Senator Bunde voiced being nervous "that a State agency would
escape the full impact of this law." He attested that this would
set a poor precedent unless the University already has an
arbitration process in place that would be duplicated by this
mandate. He asked whether the University currently has in place a
system to adjudicate these small claims.
Ms. Redman replied that the University must adhere to and abide by
the State procurement code that has established provisions
pertaining to hearings and the appeal process.
Senator Bunde stated everything "except for this exemption."
Ms. Redman concurred.
Senator Olson agreed with Senator Bunde's comments.
Senator Olson asked AGC's position on the amendment.
Mr. Cattanach commented that the $250,000 small claims category
limit was agreed upon after six months of discussion between the
AGC and the Department of Transportation and Public Facilities that
determined that a binding arbitration determination would be a fair
method of addressing a claim. He asserted that arbitration is very
expensive and that it would not unusual to spend a quarter of a
million dollars when prosecuting a claim. He shared that after a
hearing is conducted, a contractor might determine that an
independent arbitrator could levy a fair opinion without incurring
further expense. He stated that claims below $250,000 could be
handled quicker and cheaper via the arbitration process. He
specified that claims in excess of that amount would be better
managed through the routine claims process.
Mr. Cattanach stated that AGC agrees with the University's position
on this amendment because the University was not involved in the
process. Additionally, he commented that the University has
committed to work with AGC to determine whether the binding
arbitration process would work with University projects. He voiced
confidence that it would work. Therefore, Mr. Cattanach replied
that AGC supports the amendment.
Co-chair Wilken removed his objection to the amendment.
There being no further objection, Amendment #1 was ADOPTED.
Amendment #2: This conceptual amendment addresses a technical error
in the bill whereby Sections 1 and 15 of the bill specify two
differing effective dates pertaining to the applicability of the
bill. The clarifying language being inserted into the bill reads as
follows.
Sec. 16. The uncodified law of the State of Alaska is amended
by adding a new section to read:
APPLICABILITY. Sections 1-16 and 18 of this Act apply to
a contract if the contract is entered into on or after the
effective dates of secs. 1-16 and 18 of this Act.
Co-Chair Wilken moved for the adoption of Amendment #2.
There being no objection, Amendment #2 was ADOPTED.
Senator Taylor asked whether this legislation would alleviate other
[unspecified] issues that have been discussed over the years.
Mr. Cattanach responded that by implementing a fair and quicker
process, the legislation would address other [unspecified] issues.
Senator Taylor voiced support of the legislation if it would result
in improving "the Department's reluctance to adjust claims in a
good faith and meaningful manner that has literally bankrupted"
numerous businesses. In addition, he noted that a contractor's
bonding ability is jeopardized when a timely determination is not
forthcoming.
Senator Taylor moved to report the bill, as amended, from Committee
with individual recommendations and accompanying fiscal note.
There being no objection, CS SB 125 (FIN) was REPORTED from
Committee with indeterminate fiscal note #1 from the Department of
Transportation and Public Facilities.
CS FOR SENATE BILL NO. 112(TRA)
"An Act increasing the motor fuel tax; repealing the special
tax rates on blended fuels; removing the motor fuel tax
exemption of the Alaska Railroad; relating to tax refunds for
government agency purchases of fuel; and providing for an
effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken informed that the Department of Revenue would be
presenting testimony on this legislation on behalf of the Governor.
He communicated that this legislation would increase the State's
highway motor fuel tax from eight cents a gallon to twenty cents a
gallon and would eliminate the motor fuel tax currently charged for
gasohol. He explained that the version before the Committee, CS SB
112 (TRA), Version 23-GS1118\, contains the language submitted by
the Governor as well as additional language pertaining to the
Alaska Railroad.
LANDA BAILY, Special Assistant and Legislative Liaison, Office of
the Commissioner, Department of Revenue verified that Version "U"
includes language that would exempt the Alaska Railroad from the
motor fuel tax. She communicated that Governor Frank Murkowski and
Commissioner Bill Corbus of the Department of Revenue support this
legislation.
SFC 03 # 80, Side B 06:08 PM
Ms. Baily explained that this legislation would increase the motor
fuel tax from the current eight cents per gallon to 20-cents per
gallon. She continued that, even with this increase, Alaska would
rank below the national average of 23-cents for excise tax rates on
highway motor fuel. She stated that twenty-two states have tax
rates exceeding this amount and that thirty-five states have
combined state and local tax rates that range from 21 to 38.70
cents per gallon. She shared that the Governor urges the Committee
"to agree with him" that this tax increase "would be a viable
method of generating critically needed, re-occurring revenue." She
commented that the Department of Revenue estimates that this
legislation would provide $41.16 million in additional State
revenue per fiscal year. She clarified that rather than $41.16
million, it is estimated that the additional revenue collected in
FY 04 would be approximately $37.7 million "because taxes are paid
one month after sales." She further explained that although the tax
might be effective as of July 1, 2003, the tax collected in July
would be for the status quo tax rate on June 2003 sales.
Ms. Baily continued that the off-highway motor fuel tax would
increase from six-cents to 18-cents per gallon. She reminded the
Committee that this is the first adjustment to this tax rate since
it was enacted in 1970. She stressed that the Department of Revenue
could efficiently administer the increased motor fuel tax. On
behalf of the Governor and the Department of Revenue, she urged the
Committee to adopt this legislation.
Senator Bunde stated that there has been discussion regarding a
phased implementation of this tax. Other than a reduction in the
estimated level of additional revenue, he asked what ramifications
a phased-in tax increase might incur.
Ms. Baily replied that a phased in program would create a problem
in that the Governor has requested the enactment of this
legislation in order to assist the State in addressing its fiscal
gap.
Senator Hoffman asked when the aviation fuel tax was last adjusted.
Ms. Baily stated that this information would be supplied to the
Committee.
JOHN MACKINNON, Deputy Commissioner of Highways & Public
Facilities, Department of Transportation and Public Facilities
conveyed that the Department "is in full support" of this
legislation. He shared that, currently, the Department spends
approximately $60 million in general funds to address statewide
highway and airport maintenance needs. He specified that the
current tax generates $28 million annually toward highway
maintenance and that the 12-cents per gallon increase would
generate an additional $41 million annually. He noted that, while
the total exceeds the current maintenance expenditures, the amount
in excess of current expenditures would be used to address "the
long list of deferred maintenance projects" that currently amounts
to $50 million.
Senator Bunde asked the amount of funds that would be specifically
designated for highway maintenance needs as opposed to the total
projected amount that includes both highway and airport
maintenance.
Mr. MacKinnon specified that the amount that would be spent on
airport maintenance would be: four million dollars in the Northern
Region; three million dollars in the Central Region; and
approximately one million dollars in the Southeast Region. He noted
that these amounts do not include international airport funding.
Co-Chair Wilken noted that the Alaska Railroad taxation issue is
addressed in Sec. 4, subsection (a) on page 4, lines 19-21 and in
Sec 7, subsection (G) on page 5, lines 25 and 26. He referred the
Committee to accompanying information provided by the Alaska
Railroad Corporation titled "Reasons Against Taxing Alaska's State
Railroad," [copy on file] as well as a Memorandum dated May 6, 2003
from Kathryn Kurtz, Legislative Counsel to Senator John Cowdery
[copy on file].
JOHN BINKLEY, Chairman of the Board, Alaska Railroad Corporation,
Department of Community and Economic Development, testified via
teleconference from an offnet site in Fairbanks, to voice concern
regarding a provision in the Senate Transportation Committee
committee substitute that would include "the Alaska Railroad into
the same category as the highway motor fuel users" by implementing
the twenty cent per gallon fuel tax "on all of the rolling stock of
the Alaska Railroad." He voiced concern about the resulting legal
and policy issues that might result.
Mr. Binkley stated that language in this bill could invoke a legal
challenge by violating the federal Railroad Revitalization and
Regulatory Reform Act, referred to as the 4-R Act that was
established in 1976. He explained that this Act prohibits a state
from imposing a tax relating to competitive fuel taxes "that
discriminates against a railroad." In addition, he stated that a
federal provision in the Alaska Railroad Transfer Act, that was
enacted when the federally owned railroad was transferred to the
State, mandates that the State maintain a viable railroad
transportation system to ensure that it would be available for
military and other uses. He stated that this provision prohibits
the State from taking money away from the railroad as opposed to
allowing the railroad to utilize its revenues for railroad
operations.
Mr. Binkley furthered that "on the policy standpoint, the State
should not tax itself," as he attested the railroad is owned by the
people of the State. He voiced that "the lifeblood of the Alaska
Railroad" is to utilize railroad capital to expand its lines. He
stated that the source of the railroad's capital is its net
earnings, and he advised, "if you don't invest capital back into
the asset, you don't exist."
Mr. Binkley referred to separate legislation being considered that
would provide for expansion of the railroad. He attested that,
while the Alaska Railroad supports expansion of its service areas,
it would be "extremely costly." He asserted that, were the Alaska
Railroad's net earnings to lower, the railroad would not be able to
expand. He noted that the Fairbanks North Star Borough Assembly is
on record in opposition to the taxation language in the bill
regarding the Alaska Railroad.
Senator Bunde voiced understanding of the Railroad's concern about
taxation on its rolling stock. He asked for further information
regarding the Alaska Railroad's motor fleet, specifically whether
the motor fleet fuel is purchased from a private entity and is
subject to the highway motor fuel tax.
Mr. Binkley replied that the Alaska Railroad does pay the motor
fuel tax for its vehicles using the State's highway system.
Furthermore, he noted that while the Alaska Railroad could request
a refund of that current highway motor fuel tax that it pays, it
has declined to do so.
Co-Chair Wilken voiced the intent to hold this bill in order to
entertain a committee substitute that would exclude the Railroad
from taxation. However, he voiced support for the establishment of
a dividend program whereby the Alaska Railroad would contribute
funding to the State to support its expansion plans. He voiced the
belief that this could be implemented without damaging the Alaska
Railroad. He suggested that implementation of a ten-dollar user fee
could fund the contribution, which he calculated could amount to
approximately four million dollars based on current ridership
numbers. He encouraged the Alaska Railroad to address instituting a
dividend program, as he asserted, "it is the right thing to do and
it could be done without damaging our Railroad."
Mr. Binkley voiced that this is a legitimate public policy issue,
and he asked that the legislature provide the Railroad "with the
forum" to address the Dividend issue.
Co-Chair Green asked whether the original bill, SB 112, Version 23-
GS1118\A, would adequately address some of the concerns raised by
the Version 23-GS1118\U committee substitute.
KEVIN JARDELL, Assistant Commissioner, Department of
Administration, communicated that, in addition to eliminating the
motor fuel tax exemption for the Alaska Railroad, the Version "U"
committee substitute would authorize the "recoupement of fees"
through the use of a State credit card system.
Senator Taylor asked whether use of the State credit card would be
limited to the Department of Transportation and Public Facilities.
Mr. Jardell clarified that primarily the Department of
Transportation and Public Facilities employees would use the credit
card for fuel purchases. He explained that the credit card would
enable a State employee to purchase fuel, including the motor fuel
tax, from a retailer. He continued that the credit card company
would compute the amount paid toward fuel tax fees and request the
State to reimburse them that amount.
Mr. Jardell qualified that currently a fuel retailer is required to
pay the motor fuel tax to the wholesaler at the time of purchase,
and in turn, the wholesaler pays the State. He continued that one
of two things currently occurs at the time a State employee
purchases fuel from the retailer: one, they can pay the motor fuel
tax; or, two, if a contract is in effect with the retailer, no tax
is collected. In that latter case, he explained, the retailer must
submit a statement to the Department of Revenue asking that the tax
paid to the wholesaler be returned. He stated that current statute
designates that a retailer could only recoup the paid tax. He
stated that the amendment adopted in the Senate Transportation
committee substitute, Version "U" would allow the credit card
company to be able to recoup the sales tax paid for the fuel, but
for which the State would not pay them.
Senator Taylor stated therefore that the amendment would allow the
State to reimburse either a retailer or the credit card company for
the motor fuel tax paid.
Mr. Jardell concurred. He stated that the credit card could be used
at any retailer.
Co-chair Wilken ordered the bill to be HELD in Committee.
CS FOR SENATE BILL NO. 31(RES)
"An Act relating to a transportation corridor for extension of
the Alaska Railroad to Canada and to extension of the Alaska
Railroad to connect with the North American railroad system."
This was the first hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken informed that this legislation "would authorize the
Alaska Railroad Corporation to delineate a transportation and
utility corridor from the Eielson Air Force Base near Fairbanks to
the Alaska/Canada border." In addition, he noted that authorization
would be provided to the Alaska Railroad to investigate an
extension of the Railroad from the border to connect with the North
American railway system. He specified that CS SB 31 (RES), Version
23-LS0336\U is before the Committee.
RICHARD SCHMITZ, Staff to the bill's sponsor, Senator John Cowdery,
reviewed the history of the Railroad and professed that "the dream"
of connecting the Alaska Railroad to the rest of the North American
rail system has existed since the 1870s. He stated that, while the
majority of the bill addresses the extension of the railway system
to the Canadian border, the bill would additionally allow the
Alaska Railroad to investigate a rail connection to, for instance,
Fort Nelson in British Columbia, Canada which would enable the
Railroad to connect to the rest to the North American rail system.
Mr. Schmitz informed that, as the bill progressed through the
various legislative committees, language "was added to strengthen
and qualify the bill to make certain that no natural gas pipeline
or other use" of the delineated corridor would impact "Senator
Cowdery's vision" of the bill. He specified that the transportation
of materials on the extended rail line would allow the proposed gas
pipeline to be more easily and less expensively constructed. He
stated that the Alaska Railroad, the Department of Natural
Resources, representatives of the oil and gas industry,
representatives of Governor Murkowski's Administration, and Senator
Cowdery have worked together to develop bill language that would
accomplish the goal of the bill. He referred the Committee to a
Sectional Analysis of CS SB 31 (RES) that has been provided by
Senator Cowdery [copy on file] that further defines the bill.
Co-Chair Wilken concluded that the bill would provide for a 500-
foot corridor would be identified to run from the Eielson Air Force
Base to the Canadian border. This corridor, he clarified, would be
controlled by the Department of Natural Resources until such time
as the Railroad begins to construct a railbed on a dedicated 200-
foot swath within the 500-foot corridor. He stated that the
question is whether the Alaska Railroad should be granted title to
that 200-foot swath.
Mr. Schmitz concurred.
Co-chair Wilken reiterated that the primary issue before the
Committee is whether or not to grant the Alaska Railroad title to
the 200-foot corridor. He asked the Committee to voice other
concerns that might result from the legislation.
Senator Taylor stated that the legislation contains numerous issues
such as the railroad funding mechanisms and Railroad sales to third
parties. He asked that the term "railroad land" be further defined
as the "language is very genetic." He furthered that, in addition
to the 200-foot swath in the corridor, a 200-foot right-of-way
might be required for areas around all selected railroad land
including terminals, stations, maintenance yards, and switchyards.
He specified that the railroad land issue is his biggest concern.
He continued that the question is whether the State wishes to
control access to the 500-foot right-of-way in order to consider
its usage for such things as a fiber optic cable corridor. He
voiced opposition to awarding a fee-simple title.
Senator Bunde stated that while numerous separate discussions have
addressed the issue of selling State land, this legislation "gives
away" State land, albeit to the Alaska Railroad. He characterized
the Railroad as "a quasi-State agency," rather than a State agency
because he asserted that the State does not receive any dividends
from it. He pointed out that "unless things have changed
substantially recently," the money that the Alaska Railroad has
made from its land holdings has allowed the Railroad to loose money
in its "rolling stock operations by running lost leaders" in order
to unfairly compete with private enterprise.
Co-chair Wilken stated that this concern would be addressed.
PHYLLIS JOHNSON, Vice President and General Counsel, Alaska
Railroad Corporation, Department of Community and Economic
Development, testified via teleconference from an offnet site in
Anchorage to address Senator Taylor's concerns.
Co-Chair Wilken interjected to inform that Senator Taylor has
suggested changes to Version "U" to address his concerns. He asked
that Ms. Johnson provide an opinion to those changes as they are
presented.
Ms. Johnson agreed. However, she reiterated that the bill was
cooperatively developed by the aforementioned entities.
Co-chair Wilken pointed out that discussions with the bill's
sponsor would occur prior to changing the legislation and
developing a new committee substitute.
Senator Taylor communicated that while he "very strongly supports"
the extension of the Railroad, regrettably, he has concerns that
the Alaska Railroad's "push" is to get land on which to construct a
railway but in order to also control "its use for other purposes."
He stated that during other committees' discussions on this
legislation, numerous questions arose about future uses of the
corridor, such as who would control the land were "a pipeline to go
down it, are fiber optics a concern," and who would control such
things as subsurface mineral rights to the land were other
considerations beyond building a railroad on the land identified.
Other concerns, he voiced include whether to grant the Railroad the
right of way to the land for free.
Senator Taylor opined that were the Alaska Railroad a State agency
and thereby abiding by such things as the State procurement code,
his concern would be limited. However, he declared that, "they are
not a State agency," and their independent actions "shock and
surprise [the Legislature] by discovering that railroad terminals
and tracks are being built places." Furthermore, he attested that
"the only profit" the Alaska Railroad is making "is off their
land." He stated that the Railroad "should operate as a railroad
rather than a real estate operation."
Senator Taylor reviewed that his drafting changes to the bill [copy
on file] include; foremost, language specifying that rather than
granting the Alaska Railroad right-of-way to the land, the language
should specify that the Department of Natural Resources would lease
the land to the Alaska Railroad Corporation. Furthermore, he
specified that land selection and obligation provisions should be
included, as well as language specifying that were a gas pipeline
to use the corridor, "it would be within the province of the
Department and the State of Alaska."
Senator Taylor continued that clarifying language should be
inserted in Section 1, subsection (c)(2) on page 3, line 1 to
specify that the Department of Natural Resources shall "retain
unfettered discretion regarding the use of these lands," rather
than being "subservient to the railroad on all land use within the
corridor" as "the land is developed and conveyance sought." He
stated that these changes "would be a plus to the State's interest"
as opposed to being "the only State interest remaining." He stated
that the proposed language would read as follows.
(2) the department shall continue to manage the land
reserved under (1) if this subsection; the department shall
retain unfettered discretion regarding the use of these lands,
but will consult with the corporation before disposing of an
interest in land within the transportation corridor and
associated rail land; the department may condition
authorization for activities on the reserved land to encourage
the corporation to construct the railroad or other specific
railroad uses identified for the land;
Co-Chair Wilken clarified that Senator Taylor's suggestions apply
to the Version "U" committee substitute.
Senator Taylor reiterated that all references to the word "land" in
Version "U" beginning with Section 1, subsection (e)(2) on page 4
should be changed to read "right-of-way or easements" in order to
retain the State's interest in the land as opposed to conveying the
land to the Alaska Railroad Corporation. Furthermore, he advised
that Section 1, subsections (e)(3), (4), and (5) that read as
follows, should be deleted.
(3) the Department of Natural Resources shall assign
any existing contracts within that segment of the
transportation corridor and associated rail land to the
corporation; the corporation may thereafter retain the revenue
from the conveyed land; the department shall prorate revenue
from contracts affecting both conveyed and un-conveyed land;
(4) the remaining state land in a segment of the
transportation corridor in which the corporation has received
a conveyance under this section shall be managed by the
Department of Natural Resources as a transportation corridor
unless the department determines the land is no longer needed
for that purpose; and
(5) the remaining segments of the transportation
corridor in which the corporation has not completed
construction and any associated state land designated as rail
land shall continue to be managed by the Department of Natural
Resources as a transportation corridor and associated rail
land under (c) and (d) of this section.
Furthermore, Senator Taylor advised that language in Section 1,
subsection (g) beginning on line 12, page 5 be omitted as "this is
a totally different standard than is currently in effect" on any of
the State's highways. He stated that "the inclusion of this
language has no purpose in this legislation whatsoever" as actions
by the Railroad for such things as a spill are currently
categorized as "negligence." This language reads as follows.
Neither the corporation nor the state is liable for claims
arising from public use of the transportation corridor and
associated rail land, except to the extent the claims arise
from the gross negligence of the state, the corporation, their
employees, or their contractors, respectively.
In addition, Senator Taylor suggested that Section 1, subsection
(j) on page 6, beginning on line 5 should be deleted as this
language is not required "if the Department has already retained
the land" and is only granting easements or right-of-ways in the
corridor. This language reads as follows.
(j) The Department of Natural Resources shall retain the
classifications and reservations of land identified for use as
a proposed utility corridor and railroad right-of-way under
former AS 19.02.122 until the corporation informs the
department in writing that the land is not needed by the
corporation for a utility corridor. If, under (a) of this
section, the corporation includes land identified under former
AS 19.05.122 as part of the proposed transportation corridor,
the department shall manage that land under provisions of this
section.
Senator Taylor voiced the desire to assist the Alaska Railroad in
its endeavor to extend the rail line; and he attested that he has
personally met with Canadians to further that end. He opined that
the Canadians also support this effort. However, he professed that
he could not support a fee simple conveyance of the land to the
Alaska Railroad, as it could be detrimental to furthering other
State projects in the corridor.
Co-Chair Wilken asked Ms. Johnson to review Senator Taylor's
suggestions. Additionally, he voiced that the proposed changes
should be discussed with the bill's sponsor. Furthermore, he asked
Railroad's representative whether a delay in action on this
legislation would be acceptable.
JOHN BINKLEY, Chairman of the Board, Alaska Railroad Corporation,
Department of Community and Economic Development responded that
addressing the issue further would be acceptable. He commented that
Senator Taylor presents "some compelling arguments and
observations." Furthermore, he suggested that because the land
belongs to the State, the Department of Natural Resources rather
than the Railroad should conduct the delineation work on the
transportation corridor in order to avoid a perceived conflict of
interest.
Senator Taylor opined that the Alaska Railroad has "a monopoly" on
the knowledge regarding how to lie out a transportation corridor
for a rail line because of the longevity and institutional
knowledge of the Alaska Railroad leadership. Therefore, he favored
the Alaska Railroad maintaining the lead authority in the endeavor.
Mr. Binkley informed the Committee that the prior year's Alaska
Railroad net income was nine million dollars, with five million
dollars resulting from real estate operations and four million
resulting from railroad operations. He stated that it is a
misconception to say that Railroad operations are unprofitable, and
he stated that every year, with the exception of one, the Railroad
operations "have made money."
Senator Taylor clarified that he is "not totally married to the
idea that the Alaska Railroad should receive no land out of this,"
but rather that the arrangement should be less extensive. He stated
that the focus of the discussion should address how to further the
building of the railroad as opposed to dwelling on how much land
would be divvied out to various entities.
Ms. Johnson voiced support of Mr. Binkley's comments. Additionally,
she agreed that further clarifying language would be beneficial as
she noted that it is understood that the remaining land within the
500-foot corridor could be used for other purposes. She corrected
that the 200-foot Alaska Railroad corridor would not require any
additional buffer zone; however, she verified that additional
terminal and maintenance land would be required.
Co-Chair Wilken voiced that Senator Taylor's suggestions would be
used to develop another committee substitute.
Senator B. Stevens asked the reason that Senator Taylor suggests
deleting language in Sec. 1, subsection (j) on page six of the
bill.
Senator Taylor stated that the suggestion was made based on the
termination that the State would be retaining the right to the
land. He stated that he would provide further analysis to the
Committee.
Co-Chair Wilken ordered the bill HELD in Committee in order to
develop a new committee substitute.
SFC 03 # 81, Side A 06:56 PM
ADJOURNMENT
Co-Chair Gary Wilken adjourned the meeting at 06:57 PM.
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