Legislature(2003 - 2004)
03/22/2004 09:05 AM Senate FIN
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* first hearing in first committee of referral
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MINUTES
SENATE FINANCE COMMITTEE
March 22, 2004
9:05 AM
TAPES
SFC-04 # 53, Side A
CALL TO ORDER
Co-Chair Gary Wilken convened the meeting at approximately 9:05 AM.
PRESENT
Senator Lyda Green, Co-Chair
Senator Gary Wilken, Co-Chair
Senator Fred Dyson
Senator Ben Stevens
Senator Lyman Hoffman
Senator Donny Olson
Senator Con Bunde, Vice-Chair
Also Attending: SENATOR GARY STEVENS; SENATOR TOM WAGONER; SENATOR
ALAN AUSTERMAN, Fisheries Policy Adviser, Office of the Governor;
DIANE BARRANS, Executive Director, Postsecondary Education
Commission, Department of Education and Early Development; LINDA
HALL, Director, Division of Insurance, Department of Community and
Economic Development
Attending via Teleconference: From Anchorage: JOE DUBLER, Director
of Finance, Alaska Housing Finance Corporation, Department of
Revenue; BRIAN BUTCHER, Legislative Liaison, Alaska Housing Finance
Corporation, Department of Revenue
SUMMARY INFORMATION
SB 273-ASMI BOARD/ SEAFOOD TAXES & ASSESSMENTS
The Committee heard from the bill's sponsor, and reported a
committee substitute from Committee.
SB 277-STUDENT LOAN PROGRAMS
The Committee heard from the Department of Education and Early
Development, adopted a committee substitute, and reported the bill
from Committee.
SB 276-ALASKA INSURANCE GUARANTY ASSOCIATION
The Committee heard from the Department of Community and Economic
Development, adopted a committee substitute, and reported the bill
from Committee.
SB 279-AHFC WATER & SEWER BONDS
The Committee heard from the Alaska Housing Finance Corporation and
reported the bill from Committee.
SB 274-HOUSING PROGRAMS
The bill reported from Committee.
HB 233-INCREASE EDUCATION FUNDING
The bill was scheduled but not heard.
SB 35-APPROPRIATIONS: K-12, UNIVERSITY
The bill was scheduled but not heard.
SB273
SENATE BILL NO. 273
"An Act relating to the Alaska Seafood Marketing Institute,
the seafood marketing assessment, the seafood marketing tax,
and the seafood product tax; and providing for an effective
date."
This was the second hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken explained that this bill would reduce the size of
the Alaska Seafood Marketing Institute (ASMI) Board of Directors
from the current 25 members to nine members. He pointed out that
the Finance Committee committee substitute, Version 23-LS1366\E,
which is before the Committee, would also authorize two additional
Seafood Marketing assessment rates. He stated that the bill was
held in Committee to allow further review by Members Senator
Hoffman and Senator Olson.
SENATOR GARY STEVENS, the bill's sponsor, informed that the bill
would address two issues, as it would change the size of the Board
and the ASMI funding structure. He acknowledged Senator B.
Stevens's and the Salmon Task Force's efforts in developing the
bill. He referred the members to the "Current Tax Structure"
handout [copy on file] that portrays four funding options pertinent
to this legislation. He noted that the first column depicts the
current Tax Structure, which is comprised of 25 members; the Salmon
Marketing Tax on the fishermen; the Processors assessed amount; and
the Federal Funds from Fisheries amount for a projected FY 04
Budget total of $6,474,284.
Senator G. Stevens noted that this legislation would provide
processors three funding/Board Member options: the first would
specify a .5% assessment of processors, would eliminate the Salmon
Marketing Tax on fishermen, and would reduce the Board member
numbers to seven for a total projected budget of $7 million; the
second would not approve the .5% assessment of processors, would
designate nine Board members, and would continue the salmon tax on
fishermen for a projected total of $6,575,000; and the third option
would reduce the Board to seven members and would provide the
processors the ability to eliminate the processors assessment, and
would be estimated to be a total budget of $3,575,000. He noted
that the third option already exists in regulations, and, if
approved, would indicate displeasure with "the job that AMSI is
doing." All option totals, he noted, include anticipated federal
funding of $2 million.
Senator G. Stevens noted that the numbers on the handout differ
from the numbers in the Department of Revenue's March 12, 2004
fiscal note, as the fiscal note does not separate the fishermen and
processors tax assessments.
Co-Chair Wilken noted, for the record, that the packets contain a
poem [copy on file] titled the "Twelve Days of ASMI".
Co-Chair Green moved to report the Version "E" committee substitute
from Committee with individual recommendations and accompanying
fiscal notes.
There being no objections, CS SB 273 (FIN) was REPORTED from
Committee with zero fiscal note #4, dated March 24, 2004, from the
Division of Elections, Office of the Lt. Governor and a new zero
fiscal note, dated March 12, 2004 from the Department of Revenue.
SB277
CS FOR SENATE BILL NO. 277(HES)
"An Act relating to the Alaska Commission on Postsecondary
Education; relating to the Alaska Student Loan Corporation;
relating to bonds of the corporation; relating to loan and
grant programs of the commission; relating to an exemption
from the State Procurement Code regarding certain contracts of
the commission or corporation; making conforming changes; and
providing for an effective date."
[NOTE: This bill was previously reported from Committee; however,
was returned in order to allow the Committee to address and clarify
issues that arose during the bill's hearing on the Senate floor.]
This was the third hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken explained that this legislation would allow the
Student Loan Corporation to issue bonds and utilize the proceeds
for purposes other than funding student loans. Continuing, he noted
that the bill would also create a mechanism through which the
Corporation could return money to the State.
Co-Chair Wilken explained that while the bill had previously
reported from Committee, the decision was made to return the bill
to the Committee in order to "properly" address the three technical
issues that were raised during the bill's Senate Floor session
hearing.
Co-Chair Green moved to adopt committee substitute, Version 23-
GS2003\Q as the working document.
Co-Chair Wilken objected for purposes of discussion. He noted that
the three technical issues addressed in this committee substitute
are located on pages three, five, and seven.
DIANE BARRANS, Executive Director, Postsecondary Education
Commission, Department of Education and Early Development explained
that the Version "Q" committee substitute contains technical
corrections and clarifications. The first correction, she
communicated, would alter the repealer language in Section 31, page
twelve, line 29, that corresponds to the grant program AS
14.43.500, that was eliminated. She clarified that this technical
correction would replace references to the eliminated Statute, AS
14.43.500, with AS 14.43.420 on page three, lines five and sixteen;
on page ten, lines ten, twelve, fourteen and 31; on page 11, lines
27 and 29; and on page 12, lines three and 29. This, she noted
would clarify that that grant provision is terminated.
Ms. Barrans noted that the other two changes correct Statute
references relating to the Administrative Lien Authority by
eliminating language referring to AS 14.43.149 in Sec. 9, Sec.
14.42.151 on page five and in Sec. 9, Sec 14.43.154 on page seven.
She noted that the Commission agrees with the Legislative Legal
Division's opinion that retaining the AS 14.43.149 reference in
those sections would have been "confusing."
Co-Chair Wilken removed his objection, and Version "Q" was adopted
as the working document.
Co-Chair Green moved to report the Version "Q" committee substitute
from Committee with individual recommendations and accompanying
fiscal notes.
Senator Hoffman asked whether this legislation would jeopardize the
continuation of the Student Loan Program.
Ms. Barrans responded that it would not.
There being no objection, CS SB 277(FIN) was REPORTED from
Committee with $120,000 fiscal note #5 from the Department of
Education and Early Development; zero fiscal note #2 from the
Department of Community and Economic Development; and zero fiscal
note #1 from the Department of Administration.
CS FOR SENATE BILL NO. 276(L&C)
"An Act relating to the Alaska Insurance Guaranty Association;
relating to the powers of the Alaska Industrial Development
and Export Authority concerning the association; and providing
for an effective date."
This was the second hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken stated that this legislation would increase the
Alaska Insurance Guaranty Association's ability to pay Workman's
Compensation claims. He noted that the legislation had been held in
Committee to address funding issues, and he reminded that CS SB
276(L&C) version of the bill specifies that earnings from the
Alaska Permanent Fund would be a funding source.
Co-Chair Green moved to adopt committee substitute, Version 23-
GS2105\Q as the working document.
Co-Chair Wilken objected for further clarification. He stated that
the spreadsheet titled "Alaska Insurance Guaranty Association
Worker's Compensation Account, Cash Flow Projection as of
12/31/2003," provided by the Department of Community and Economic
Development, further explains the bill's funding mechanism. In
addition, he noted that the Version "Q" committee substitute
eliminates language specifying that the Earnings Reserve Account
would be the funding source for the program.
LINDA HALL, Director, Division of Insurance, Department of
Community and Economic Development, noted that the Version "Q"
committee substitute "is identical" to the L&C version of the bill
"with the exception that it does removes self-insurers from the
assessment process." This change, she continued, would result in an
assessment process that would increase the assessments in those
accounts that have "an insolvency" such as the Workers'
Compensation (WC) account. She noted that the aforementioned chart
reflects cash flow projections based on the current two percent
assessment and the projections were the assessment levy increased
to four percent. She specified that the WA account assessments as
well as the other accounts within the Guaranty Fund are depicted on
the spreadsheet.
Ms. Hall pointed out that the Auto Fund Assessment would increase
.19 percent in calendar year 2004. She exampled that on a $600
automobile premium, this would translate to a $1.24 increase, which
she declared, "is not a huge amount of money." She stated that this
low percentage increase was possible because there the Fund had a
positive cash balance at the beginning of calendar year 2004.
Ms. Hall commented that for the full calendar year 2005, the four
percent assessment rate on the WC account would equate to a .47
percent increase. She also noted that for the full calendar year
2005, a $600 automobile premium with the .19 percent increase would
equate to an additional $3.06. She voiced that these minimum
increases would assist the Association in getting out of its
deficit situation.
Ms. Hall noted that the WC rate would reduce to 3.37 percent in
calendar year 2006, and to 2.48 percent in calendar year 2007, and
the Other Funds assessments would be eliminated beginning in 2006.
Senator Bunde asked whether the assessment rate increase would
apply to other insurance premiums such as homeowners insurance.
Ms. Hall affirmed that it would.
Senator Bunde asked whether the Division of Insurance has
calculated the cost to each Alaskan were the excess earnings from
the Permanent Fund reserve account used to fund the program as
specified in the L&C version of the bill.
Co-Chair Wilken noted that the cost might be approximately two
dollars.
Co-Chair Green asked for clarification that while the four percent
assessment would apply to the WC fund, the .19 percent assessment
would be applicable to all other funds.
Ms. Hall concurred.
Co-Chair Green asked whether the funding mechanism being proposed
would have minimal impact on the public and other entities.
Ms. Hall responded that this legislation would affect "the broadest
base" of the insured marketplace and would, she continued, have
"minimal impact on the paying public while raising a substantial
amount of money," even with the elimination of the assessment on
the self-insured entities. She noted that the .19 percent
assessment on such things as automobile, homeowner, and commercial
property is small because they present a much larger premium base
that the WC base. This larger base, she noted, generates more
money, "by far," than the four percent assessment increase on WC
premiums.
Senator Bunde surmised, therefore, that the people who would
directly benefit from this legislation would be in the minority and
the people who would have no direct benefit from it would pay the
majority of the assessments.
Ms. Hall stated that the people who would benefit from this
legislation are those "who pay the smaller amounts of premium." She
noted that currently, the amount assessed from the WC base, which
is less than half the size of the other premium bases, is $4.3
million.
Co-Chair Green asked whether this legislation would enable the
Division to be better situated "to respond, react, and predict"
future claims in order to prevent a reoccurrence of this sort of
financial situation.
Ms. Hall voiced optimism that this legislation would address the
situation. She also noted that separate legislation is being
brought forward that proposes to require deposits from insurance
companies "to provide an additional pocket of money" with which to
address insolvency issues. She noted that the magnitude of this
insolvency "has depleted the resources of the Guaranty
Association."
Co-Chair Wilken removed his objection.
There being no further objection, Version "Q" was ADOPTED as the
working document.
Co-Chair Wilken referenced an Associated Builders and Contractors,
Inc. letter, dated March 1, 2004 and addressed to Senator Bunde
[copy on file] that spoke to their concern regarding a previous
change in the WC rate that had occurred midyear, in July, to the
dismay of those in the construction industry. This timing, he
continued had negatively impacted the industry because previously
bid projects had not factored in the new rate. Therefore, he
requested confirmation that the rate increases proposed in this
legislation would not occur midyear.
Ms. Hall clarified that the increases in question pertained "to
increases in benefits which had an immediate affect on rates." She
agreed that, "it was very unfortunate that that occurred midterm."
Continuing, she clarified that Guaranty Fund assessments are
annually assessed at the renewal of a policy and therefore, she
stressed, would not be done midterm. She qualified that while the
Department historically implements rate increases on January first,
they would not apply to an individual policy until that policy
renews. She stressed that this would be the procedure with these
assessments.
Co-Chair Wilken surmised therefore, that there would be no midyear
surprises.
Co-Chair Green moved to report the bill from Committee with
individual recommendations and accompanying fiscal notes.
Senator Bunde objected. He expressed that to assess businesses
further at this time would be unfortunate, and he specifically
stated that it would be unfortunate to assess people who buy other
types of insurance policies. He preferred that this legislation be
financed via other avenues such as by the excess earnings of the
Permanent Fund, as that would not, he opined, negatively impact
Alaskans.
Senator Olson echoed Senator Bunde's concern. He stated that
numerous businesses have contacted him to voice opposition to
increases in their WC assessment "due to the downturn in their
funding sources ranging from the State to the business climate in
rural Alaska now." He shared the desire that other funding sources
be identified.
Co-Chair Green voiced concern about the fact that other premiums,
such as automobile and homeowner premiums would be increased.
Therefore, she asked Ms. Hall to explain how the Guaranty Fund
functions overall, and how this legislation, as a solution to the
situation, "is not off the mark in solving this temporary problem."
Ms. Hall stated that "the concept of the Guaranty Fund in Alaska",
as in every other state, "is to provide a safety net to protect
policy holders and claimants in the case of a solvent insurer." She
stressed therefore, that the theory is to institute a series of
assessments, which would provide funds in case of an insolvency.
She noted that similar to Alaska's current two percent assessment,
the majority of states have limitations on their assessment, She
shared that, whereas Alaska's Fund is comprised of three accounts
with varying rates of assessment percentages, 18 other states have
a single account within their guaranty association. She noted that
Alaska, being a small State with a small premium base, is
challenged in its endeavor to develop a Guaranty Association to
address emergencies "with the small amount of premiums that it has
to deal with."
Ms. Hall specified that the WC account, the Auto Account and the
Other Account comprise the three accounts of the Guaranty
Association. She stated that the Other Account encompasses such
things as homeowners, commercial property, and commercial
liability. She stated that currently, there is a one half of a one
percent assessment on such things as homeowners and boat owners,
due, "primarily" to the insolvency of a medical malpractice
insurer. She declared that assessing entities to provide sufficient
funds for the situation relating to this legislation is basically
the same as assessing a homeowner for a medical malpractice
insurer.
Ms. Hall, in addressing Senator Olson's comments, also voiced
concern regarding the increases in business WC premiums. However,
she noted that the proposed increase is small in comparison to
previous adjustments. In addition, she stated that the
aforementioned companion bill would propose measures to reduce the
WC premiums as she agreed that small businesses are being over-
burdened with an average assessment of 22 percent.
Co-Chair Wilken voiced agreement.
Senator Olson questioned whether the State is addressing measures
to get self-insured employers to contribute to the Guaranty
Association as, he declared, currently the WC "burden" is placed on
small businesses.
Ms. Hall clarified that the Guaranty Fund does not protect self-
insured employers, and, therefore, she continued, were they to
become insolvent, their employees would receive no benefits from
the Fund. She noted that the 24 self- insurers in the State must
provide financial guarantees and meet other eligibility criteria
established by the Division of Workers' Compensation in order to be
self-insured. She noted that the original proposal did include them
in the assessment base; however, she continued, "there was a
substantial amount of sentiment that because they were not
protected by that that they should not be forced to contribute."
Senator Olson understood that the Guaranty Fund does not protect
the self-insured employers. However, he asked whether inclusion of
them in an assessment might still be a consideration.
Ms. Hall responded no.
Co-Chair Green interjected that the Division of Insurance is not
responsible for nor does not oversee joint insurance arrangements
or self-insurers.
Ms. Hall communicated that while the Division of Insurance could
conduct financial examinations and suspend an "admitted insurance
company's" certificate to operate, it has no oversight ability in
regards to joint insurance arrangements or self-insurers even were
the Division to receive financial information that they were "in
distress."
A roll call was taken on the motion to report the bill from
Committee.
IN FAVOR: Senator Dyson, Senator Hoffman, Senator B. Stevens, Co-
Chair Green, and Co-Chair Wilken
OPPOSED: Senator Bunde and Senator Olson
The motion PASSED (5-2)
The motion to report the bill from Committee PASSED.
CS SB 276 (FIN) was REPORTED from Committee with a zero fiscal
note, dated March 23, 2004 from the Department of Administration,
and two zero fiscal notes, dated March 24, 2004 from the Department
of Community and Economic Development.
CS FOR SENATE BILL NO. 279(STA)
"An Act authorizing and relating to the issuance of bonds by
the Alaska Housing Finance Corporation for safe and clean
water and hygienic sewage disposal facility capital projects
and other capital projects; providing for the repayment of the
bonds and bond costs; relating to the dividend paid to the
state by the Alaska Housing Finance Corporation; and providing
for an effective date."
This was the second hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken explained that this legislation would authorize the
Alaska Housing Finance Corporation to issue bonds in the amount of
$25 million to fund capital projects; primarily village safe water
projects. He noted that an amendment to increase the bond
authorization by $20 million was adopted during the first hearing
of the bill. He stated that the bill is accompanied by Department
of Revenue fiscal note dated March 9, 2004.
Co-Chair Wilken asked for a further explanation of the new March 9,
2004 Department of Revenue fiscal note as it is double the original
fiscal note, rather than being increased "pro rata" with the
adoption of the amendment that increased the bond authority from
$25 million to $45 million.
JOE DUBLER, Director of Finance, Alaska Housing Finance
Corporation, Department of Revenue, testified via teleconference
from Anchorage to explain that the fiscal note, dated February 9,
2004 was based on interest rates that were in effect when the
program was being developed. Continuing he expressed that while the
current interest rate is approximately 3.34 percent, this new
fiscal note is "conservatively" calculated using an approximate
five percent interest rate in order to more accurately reflect the
ceiling level of anticipated debt service.
Senator Bunde asked whether this legislation addresses concerns
that were raised in a Legislative Budget and Audit report [copy not
provided] regarding the proper use of funds for village safe water
and wastewater programs.
Senator Dyson responded that these [unspecified] issues have been
addressed. He continued that assurance has been provided that the
issue in question was "an anomaly and proper steps are being taken
that it would never happen again."
Co-Chair Wilken noted that, "this is more than a one year process."
Continuing, he asked for further information as to how AHFC would
monitor issues raised in the audit.
BRIAN BUTCHER, Legislative Liaison, Alaska Housing Finance
Corporation, Department of Revenue, testified via teleconference
from Anchorage and explained that the decision as to where the bond
proceeds as well as decisions regarding the AHFC dividend would be
addressed by the Office of Management and Budget as they are
responsible for the oversight of the projects in that "they make
the decision as to where our money is spent."
Co-Chair Green moved to report SB 279, Version "D" from Committee
with individual recommendations and accompanying fiscal note.
There being no objection, the bill was REPORTED from Committee.
[NOTE: The action of reporting this bill from Committee was
readdressed following the action on SB 274.]
SENATE BILL NO. 274
"An Act relating to the housing assistance loan fund in the
Alaska Housing Finance Corporation; creating the housing
assistance loan program; repealing loans for teacher housing
and providing for loans for multi-family housing; making
conforming amendments; and providing for an effective date."
This was the second hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken stated that this bill would replace the AHFC
Housing Assistance Loan Fund with the Housing Assistance Loan
Program and would repeal the Rural Teacher Housing Loan Program and
replace it with the Rural Multi-Family Loan Program.
Co-Chair Green moved to report SB 274 from Committee with
individual recommendations and accompanying zero fiscal note.
Co-Chair Wilken objected.
AT EASE 9:44 AM / 9:45 AM
Co-Chair Wilken removed his objection.
There being no further objection, SB 274 was REPORTED from
Committee with zero fiscal note #1 from the Department of Revenue.
AT EASE 9:46 AM / 9:46 AM
CS FOR SENATE BILL NO. 279(STA)
"An Act authorizing and relating to the issuance of bonds by
the Alaska Housing Finance Corporation for safe and clean
water and hygienic sewage disposal facility capital projects
and other capital projects; providing for the repayment of the
bonds and bond costs; relating to the dividend paid to the
state by the Alaska Housing Finance Corporation; and providing
for an effective date."
[NOTE: In order to correct this meeting's earlier Committee action
on this bill, it was again brought before the Committee.]
Co-Chair Wilken asked that the motion to report the bill from
Committee be rescinded, as an amendment that had been adopted
should have been reflected in the motion.
Co-Chair Green offered a motion to RECIND her motion to REPORT the
bill from Committee.
There being no objection, the motion to report the bill from
Committee was RESCINDED.
Co-Chair Green moved to report the Version "D" committee substitute
for SB 279, as amended, from Committee with individual
recommendations and accompanying fiscal notes.
There being no objection, CS SB 279 (FIN) was REPORTED from
Committee with a new zero fiscal note, dated March 9, 2004, from
the Department of Revenue.
ADJOURNMENT
Co-Chair Gary Wilken adjourned the meeting at 09:48 AM.
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