Legislature(2003 - 2004)

04/01/2004 09:07 AM Senate FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                              MINUTES                                                                                         
                     SENATE FINANCE COMMITTEE                                                                                 
                          April 01, 2004                                                                                      
                              9:07 AM                                                                                         
                                                                                                                                
                                                                                                                                
TAPES                                                                                                                       
                                                                                                                                
SFC-04 # 65,  Side A                                                                                                            
SFC 04 # 65,  Side B                                                                                                            
SFC 04 # 66,  Side A                                                                                                            
                                                                                                                              
CALL TO ORDER                                                                                                               
                                                                                                                                
Co-Chair Gary Wilken convened  the meeting at approximately 9:07 AM.                                                            
                                                                                                                                
PRESENT                                                                                                                     
                                                                                                                                
Senator Lyda Green, Co-chair                                                                                                    
Senator Gary Wilken, Co-chair                                                                                                   
Senator Con Bunde, Vice Chair                                                                                                   
Senator Ben Stevens                                                                                                             
Senator Fred Dyson                                                                                                              
Senator Donny Olson                                                                                                             
Senator Lyman Hoffman                                                                                                           
                                                                                                                                
Also  Attending:  SENATOR GARY  STEVENS;  KEVIN  JARDELL,  Assistant                                                          
Commissioner,  Department of Administration;  ART CHANCE,  Director,                                                            
Labor Relations,  Department  of Administration;  JOAN BROWN,  Chief                                                            
Budget  Analyst, Office  of  Management and  Budget,  Office of  the                                                            
Governor; LINDA  HALL, Director, Division  of Insurance,  Department                                                            
of  Community and  Economic  Development;  DENNIS MICHEL,  Staff  to                                                            
Senator Gene  Therriault; TOM LOVIS,  Chief Executive Officer,  Four                                                            
Dam Pool Power Agency                                                                                                           
                                                                                                                                
Attending  via  Teleconference:   From  Offnet  Sites:   AL  STOREY,                                                          
Lieutenant, Alaska State  Troopers, Department of Public Safety; BOB                                                            
LERESCHE,  Financial  Adviser,  Four  Dam Pool  Power  Agency,  From                                                            
Kenai:  MIKE  TILLY,  Assistant  Fire  Chief,  City  of  Kenai  Fire                                                            
Department                                                                                                                      
                                                                                                                                
SUMMARY INFORMATION                                                                                                         
                                                                                                                                
Monetary Terms of Collective Bargaining Units                                                                                   
                                                                                                                                
The  Committee   heard  a  presentation   from  the  Department   of                                                            
Administration regarding three bargaining units.                                                                                
                                                                                                                                
SB 357-INSURANCE                                                                                                                
                                                                                                                                
The Committee  heard from the Division  of Insurance. One  amendment                                                            
was offered but  withdrawn from consideration. The  bill was held in                                                            
Committee.                                                                                                                      
                                                                                                                                
SB 255-ILLEGAL USE TRAFFIC PREEMPTION DEVICE                                                                                    
                                                                                                                                
The  Committee heard  from  the sponsor,  the Department  of  Public                                                            
Safety,  and  fire  department  personnel.  The  bill  was  held  in                                                            
Committee.                                                                                                                      
                                                                                                                                
SB 350-4 DAM POOL JOINT ACTION AGENCY                                                                                           
                                                                                                                                
The Committee  heard from the sponsor  and representatives  from the                                                            
Four Dam Pool Power Agency. The bill was held in Committee.                                                                     
                                                                                                                                
SB 366-STATE SALES TAX                                                                                                          
                                                                                                                                
The Committee  heard from  the sponsor, reviewed  a draft  committee                                                            
substitute, and held the bill in Committee.                                                                                     
                                                                                                                                
                                                                                                                                
     Monetary Terms of Collective Bargaining Units                                                                              
                     Presentation                                                                                               
                                                                                                                                
                                                                                                                                
Co-Chair  Wilken announced  that  the Department  of Administration                                                             
would  be  presenting   information  regarding  the   monetary  work                                                            
rule/workplace operational  terms of the three collective bargaining                                                            
unit contracts that have been tentatively agreed upon.                                                                          
                                                                                                                                
KEVIN    JARDELL,    Assistant    Commissioner,     Department    of                                                            
Administration,  explained that the tentative contract  terms of the                                                            
Labor, Trades,  & Crafts (LTC) bargaining  unit include a  zero wage                                                            
increase in the  first year and a two-percent wage  increase in both                                                            
the  second  and  third   year.  The  tentative  two-year   contract                                                            
pertaining  to the  Alaska  State Troopers/Airport,   Fire &  Police                                                            
Officers (AST  & ASO) and the Correctional Officers,  which are both                                                            
represented  by  the Public  Safety  Employees  Association  (PSEA),                                                            
would provide  a two-percent  wage  increase in  both the first  and                                                            
second year.                                                                                                                    
                                                                                                                                
Mr.  Jardell  shared that  in  each  of the  three  agreements,  the                                                            
employer  contribution   rates  have  been  tied  "to   the  State's                                                            
experience with selective  benefits" in that employees would be held                                                            
harmless for increased  costs. Therefore, the State  is projected to                                                            
incur  a  Select  Benefits  health  insurance  premium  increase  of                                                            
approximately $40 per employee.                                                                                                 
                                                                                                                                
Senator Dyson  asked whether  the $40 increase  would be a  monthly,                                                            
quarterly, or annual increase.                                                                                                  
                                                                                                                                
Mr. Jardell  clarified  that it  would be  on a  monthly basis.  The                                                            
State's current  health insurance contribution of  $705 per employee                                                            
per month would be increased to approximately $745 per month.                                                                   
                                                                                                                                
Senator   Dyson   asked   regarding   an  employee's   contribution                                                             
obligation.                                                                                                                     
                                                                                                                                
Mr.  Jardell explained  that,  as  currently is  the  case, were  an                                                            
employee to  select the health insurance  Economy Plan, no  employee                                                            
contribution  would be required  as the  State's contribution  would                                                            
cover  that  plan's cost  in  its  entirety.  Were the  Standard  or                                                            
Premium  Plan elected,  the employee's  current  contribution  level                                                            
would continue, and the  proposed State contribution would cover the                                                            
premium increase.                                                                                                               
                                                                                                                                
Senator Olson asked regarding the amount of each plan's premium.                                                                
                                                                                                                                
Mr. Jardell stated that this information would be forthcoming.                                                                  
                                                                                                                                
In response to a question  from Senator Olson, Mr. Jardell clarified                                                            
that the proposed State  health insurance premium contribution would                                                            
be $745 per  employee, per month.  Were an employee to continue  the                                                            
coverage  they  have  today,  their  contribution  level  would  not                                                            
increase,  as  the  State's  increased  contribution   amount  would                                                            
provide for the premium increase.                                                                                               
                                                                                                                                
Co-Chair Wilken voiced  disappointment that more updated information                                                            
had not been provided  in this presentation as the  majority of what                                                            
is being  discussed is  included in  a letter  [copy on file]  dated                                                            
March  4,  2004  from   Commissioner  Mike  Miller,  Department   of                                                            
Administration,  and addressed to Senate President  Gene Therriault.                                                            
In addition,  he asked that the letter's  accompanying LTC  contract                                                            
outline [copy  on file} be revised  to reflect detailed information                                                             
regarding FY 05, FY 06, FY 07 expenses.                                                                                         
                                                                                                                                
Mr. Jardell replied that  that information is available and would be                                                            
distributed.                                                                                                                    
                                                                                                                                
ART   CHANCE,    Director,    Labor   Relations,    Department    of                                                            
Administration,  characterized  the  three  bargaining  units  being                                                            
discussed   as  "the  most  mature   and  in  many  ways   the  most                                                            
sophisticated"  contracts. He reviewed the history  of the units and                                                            
noted  that the Correctional  Officers  bargaining  unit was,  until                                                            
1997, included in the General  Government Unit (GGU). He shared that                                                            
while  there are relatively  no  changes in  the AST/ASO  contracts,                                                            
there are changes  in the Correctional  Officers (CO) contract  with                                                            
the intent  of  making "it  more like  a law  enforcement  contract"                                                            
rather than a  GGU contract; specifically changes  in the management                                                            
rights clause and the union securities clause.                                                                                  
                                                                                                                                
Senator  Dyson  understood  that  there  is  "a  perceived  problem"                                                            
resulting  from the  CO job  bid process;  specifically  that  urban                                                            
officers with  seniority are bidding  on higher paid Rural  jobs and                                                            
thereby precluding  the opportunity  for Rural resident employment.                                                             
In addition  to these jobs being at  a higher pay scale and  thereby                                                            
enhancing retirement  benefits, the  week-on/week-off work  schedule                                                            
allows the  urban COs to  work and then go  home. Thus, they  do not                                                            
have a vested  commitment or involvement  in the community  in which                                                            
they work.                                                                                                                      
                                                                                                                                
Mr. Jardell  responded that  this is an operational  issue  that "is                                                            
resolving  itself" as Tier  One employees retire.  In order  for the                                                            
Rural  higher  wage  years  to  count  toward  Tier  Two  employees'                                                            
retirement benefits,  50-percent of their work history  time must be                                                            
attributed to  Rural area employment. The 50-percent  requirement is                                                            
recognized as  "a good tool" through which to get  employees to live                                                            
in Rural areas for longer periods of time.                                                                                      
                                                                                                                                
Senator Dyson  inquired to  the history of  the week-on/week-off  CO                                                            
work schedule.                                                                                                                  
                                                                                                                                
Mr. Chance communicated  that this work schedule began  in the 1980s                                                            
when, as  a result of many  things including  the relaxation  of the                                                            
federal  Fair  Labor   Standards  Act  (LSA)  and   changes  in  how                                                            
correctional  facilities were  staffed and  compensated, it  evolved                                                            
away  from  the  typical  37.5  hour  per  week  GGU  employee  work                                                            
schedule.  During  1989  and  1990  labor  negotiations,   "sweeping                                                            
changes" were enacted that  included the implementation of a LSA law                                                            
enforcement  exemption allowing  for a seven-day/twelve  hour  shift                                                            
schedule. This  work schedule is less  expensive than a traditional                                                             
three-shift  operation.   The  reason  for  this  work  schedule  is                                                            
"purely" financial,  as the State  is not required to pay  graveyard                                                            
shift  differentials.  Other shift  pay differentials  are  minimal.                                                            
Were  personal leave  approvals  "properly administered,"  the  week                                                            
on/week off work environment should save the State money.                                                                       
                                                                                                                                
Senator Dyson understood  therefore that this schedule provides more                                                            
management flexibility than other options and saves money.                                                                      
                                                                                                                                
Senator Dyson  asked the status of  elective health care  procedures                                                            
in  these contracts  as  he reminded  that,  in the  previous  year,                                                            
certain  members  of  the Legislature   had submitted  a  letter  to                                                            
Governor  Frank  Murkowski  professing  that  elective  procedures,                                                             
specifically  elective  abortions,  should not  be paid  for by  the                                                            
State.  "Public  money should  not  be used  in support  of  medical                                                            
procedures that were not medically necessary."                                                                                  
                                                                                                                                
Mr. Jardell responded  that while this issue has been  discussed and                                                            
attempts have been made  to further it by the Department, it has not                                                            
been negotiated  out of  union contracts  as the Administration  has                                                            
decided that,  in terms of reaching  contract agreements,  the issue                                                            
should not be one "to fight over."                                                                                              
                                                                                                                                
Senator Dyson acknowledged  that accomplishing the request "would be                                                            
difficult."  He asked whether a labor  law issue might be  involved,                                                            
as to  take away  something  that has  been provided  might  require                                                            
something else being sacrificed.                                                                                                
                                                                                                                                
Mr. Jardell  responded that it would  be more of an issue  involving                                                            
the   Unions'   various   member   Health  Trust   plans,   as   the                                                            
Administration determined  that attempting to influence how Trustees                                                            
manage  the plans  was  not  something that  could  be successfully                                                             
accomplished  at a bargaining session.  It would be a detriment  "to                                                            
achieving  a contract  that would  be in  the best  interest of  the                                                            
State."                                                                                                                         
                                                                                                                                
Senator  Olson commented  that, while  the CO bid  process in  which                                                            
out-of-town employees preempt  local hire has not been a significant                                                            
issue  in his Rural  district,  further observation  in this  regard                                                            
would be administered.                                                                                                          
                                                                                                                                
Senator  Dyson  asked  whether  any  bargaining  unit's  work  rules                                                            
agreements might be negatively affecting employee production.                                                                   
                                                                                                                                
Mr.  Jardell  believed  that  these  contracts   "would  produce  an                                                            
environment  that  would  allow  the  State  to move  forward  in  a                                                            
productive  manner." While there might  be some contract  components                                                            
the  State might  consider  to interfere  with its  goals,  likewise                                                            
there  might  be  some  components   that  the  Union  considers  to                                                            
interfere with its endeavors.  However, the result of the bargaining                                                            
efforts is a compromise of terms approved by both entities.                                                                     
                                                                                                                                
Co-Chair  Wilken thanked  the Department for  providing the  updated                                                            
spreadsheet titled  "Bargaining Unit Summary", dated  April 1, 2004,                                                            
[copy on  file], that  reflects the  total associated  costs  of the                                                            
three contracts for the next three years.                                                                                       
                                                                                                                                
Mr. Jardell  explained  that  as reflected  in the  chart under  the                                                            
heading of  "Fiscal Year Cost Increases  by Fiscal Year as  Compared                                                            
to FY 05  Gov Amd," lines  three, four, and  five reflect the  total                                                            
General, Federal,  and Other Funds monetary requirements  that would                                                            
be necessary  to support the LTC,  AST/ASO, and CO contracts  for FY                                                            
05.  Line  six  under  that  heading  specifies  the  total  funding                                                            
requirements for FY 05.                                                                                                         
                                                                                                                                
Co-Chair Wilken  observed that of the total three  million dollar FY                                                            
05  contract  expense  relating  to  these  three  contracts,  $2.37                                                            
million would be a General Fund obligation.                                                                                     
                                                                                                                                
Mr. Jardell concurred.                                                                                                          
                                                                                                                                
Mr. Jardell  expressed that the total  FY 06 expense, as  identified                                                            
on  line ten  of  that heading,  would  be  $6.7 million  with  $4.8                                                            
million being General Funds.                                                                                                    
                                                                                                                                
Co-Chair Wilken  asked for confirmation  that the $3,691,900  amount                                                            
denoted under  the heading "Funding Increase Needed  by Fiscal Year"                                                            
on line ten reflects the  amount that would be required in the FY 06                                                            
budget  to support  the contracts,  and that  the $6,718,900  amount                                                            
denoted  under the "Fiscal  Year Cost  Increases  by Fiscal Year  as                                                            
Compared  to FY 05 Gov Amd"  reflects the  two-year FY 05 and  FY 06                                                            
cumulative total.                                                                                                               
                                                                                                                                
Mr. Jardell affirmed.                                                                                                           
                                                                                                                                
Mr. Jardell noted that  while page two of the spreadsheet projects a                                                            
total year  cost for the  LTC FY 07 contract,  the LTC contract,  in                                                            
reality,  is a two  and a half year  contract as  the result  of the                                                            
Administration's  efforts to  better allocate  its resources  by not                                                            
having all  employee contracts terminate  at the same time.  The LTC                                                            
contract  would,  therefore, terminate  halfway  through  the FY  07                                                            
fiscal year.                                                                                                                    
                                                                                                                                
Senator Hoffman asked regarding  the projected inflation factors for                                                            
FY 05, FY 06, and FY 07.                                                                                                        
                                                                                                                                
Mr. Jardell responded that  he could not provide an answer "in terms                                                            
of general economics;"  however, "both sides of these  negotiations"                                                            
agreed that the agreements would be "fair for all."                                                                             
                                                                                                                                
Co-Chair Wilken  asked how the LTC  contract Step A and Step  B two-                                                            
percent wage schedule  increases that would be in  affect as of July                                                            
1, 2005, as  specified on the aforementioned  March 4, 2004  outline                                                            
provided  by  Commissioner   Mike  Miller,  are  reflected   on  the                                                            
spreadsheet.                                                                                                                    
                                                                                                                                
Mr. Jardell responded that  these two pay schedules are reflected on                                                            
page one line seven, in the second year of the LTC contract.                                                                    
                                                                                                                                
Co-Chair  Wilken  understood  therefore  that,  as depicted  on  the                                                            
spreadsheet,  the  acronym  "COLA", would  be  defined  as being  an                                                            
automatic wage  increase rather than  being the more commonly  known                                                            
acronym for a cost-of-living-allowance.                                                                                         
                                                                                                                                
Mr. Chance  explained that the LTC  Local 71 contract wage  scale is                                                            
different than  the traditional "white collar" Step  increase scale.                                                            
An LTC  employee  would be hired  at the  entry level,  Step A,  and                                                            
after a defined  probation period  would be classified as  a Step B,                                                            
or journeyman  level. There is no annual Step progression  after the                                                            
Step B wage scale in the LTC contract.                                                                                          
                                                                                                                                
Co-Chair  Wilken understood  therefore that  as reflected in  Column                                                            
"K" on  line seven  under  the "funding  Increase  Needed by  Fiscal                                                            
Year" heading,  the total funding  requirement for LTC would  amount                                                            
to $1,917,400  as  a result  of the  two-percent  wage increase.  He                                                            
asked whether  the State's  insurance increase  is included  in this                                                            
amount.                                                                                                                         
                                                                                                                                
JOAN BROWN, Chief  Budget Analyst, Office of Management  and Budget,                                                            
Office  of  the  Governor,  explained  that  the  $1,917,400  amount                                                            
includes both  health insurance and the two-percent  wage increases.                                                            
                                                                                                                                
Co-Chair  Wilken  asked  whether  the  State's  $40  health  benefit                                                            
increase would continue in the second year of the contracts.                                                                    
                                                                                                                                
Ms. Brown responded  that since the  actual health care premium  for                                                            
Year Two  is an unknown,  the $40 employer  insurance increase  that                                                            
was implemented  in the first  year would  be continued through  the                                                            
second year of the contract.                                                                                                    
                                                                                                                                
Co-Chair Wilken  asked for further  clarification regarding  the LTC                                                            
contract  language, as denoted  on line seven,  that specifies  that                                                            
the health insurance increase is "unknown."                                                                                     
                                                                                                                                
Ms. Brown clarified  that due to the fact that the  health insurance                                                            
premium increase  for the  second year of  the contract is  unknown,                                                            
the  $745  per person  per  month  obligation  of  the  State  would                                                            
continue into Year Two.                                                                                                         
                                                                                                                                
Co-Chair Wilken  understood therefore that the spreadsheet  reflects                                                            
a flat $40 increase  per month for the entire term  of the contract.                                                            
With that understanding,  he determined  that the cumulative  three-                                                            
year total  of $14,346,800, as reflected  on line 13, column  "G" of                                                            
the spreadsheet,  would not accurately  depict the true cost  of the                                                            
contracts.                                                                                                                      
                                                                                                                                
Mr. Jardell  agreed  that any "potential  increases"  in the  health                                                            
care premiums  are not depicted  for the  second year. He  explained                                                            
that  the proposed  contracts  include a  provision  to "tie  future                                                            
increases to the Select Benefits rate."                                                                                         
                                                                                                                                
Co-Chair Wilken asked for further clarification.                                                                                
                                                                                                                                
Mr. Jardell  stated,  "that many of  these [unions]  have their  own                                                            
health trusts,"  which might  be managed in  a different manner  and                                                            
their costs "could be significantly  higher" than the State's Select                                                            
Benefit plans. In order  to reach a compromise on the contracts, the                                                            
State's  commitment to  an exact dollar  amount  in this regard  was                                                            
imperative.  An   analyses  of  the  State's  Select   Benefit  plan                                                            
indicates  that it is  operated "in  a very  efficient manner"  and,                                                            
based  upon analyses  and  experience, it  was determined  that  the                                                            
State Select Benefit plan  rate of increase "would be at the low end                                                            
of  the spectrum."  Since  it  is  unknown what  the  Health  Trusts                                                            
experiences would  be in this regard, the State negotiated  that any                                                            
health insurance  increase obligation of the State  would be tied to                                                            
"the rate  of increase"  for the  State's Select  Benefits plan.  To                                                            
summarize, he stated that  after Year One, the State would "agree to                                                            
increase  the employer  obligation  the  same as  we  do for  Select                                                            
Benefits."                                                                                                                      
                                                                                                                                
Co-Chair Wilken understood,  therefore, that the costs reflected for                                                            
FY 06 are  based on the  State continuing  to pay $745 per  employee                                                            
per  month toward  health  insurance  premiums.  He asked  what  the                                                            
anticipated additional amount would be.                                                                                         
                                                                                                                                
Mr.  Jardell expected  that  the FY  06  premium increase  would  be                                                            
approximately $40.                                                                                                              
                                                                                                                                
Co-Chair Wilken  declared, therefore,  that while the employer's  FY                                                            
06 monthly premium contribution  might be $785 per employee, $745 is                                                            
reflected in the spreadsheet.  He asked whether a $40 increase could                                                            
also be expected for FY 07.                                                                                                     
                                                                                                                                
Mr. Jardell affirmed.                                                                                                           
                                                                                                                                
Co-Chair Wilken  asked how much the  expenses would amount  to, were                                                            
these increases factored in.                                                                                                    
                                                                                                                                
Ms. Brown replied  that, based on the $40 health insurance  increase                                                            
as reflected  in the chart on line  three, column ""D", the  general                                                            
funds requirement  would amount to  an additional $325,700  per year                                                            
with  a total  increase  of  all  funds  of $727,700  per  year,  as                                                            
reflected in column "G".                                                                                                        
                                                                                                                                
Co-Chair  Wilken understood  that  a little  less than  half of  the                                                            
$727,700 would  be funded by general  funds and that, over  the term                                                            
of contracts, this amount would be tripled.                                                                                     
                                                                                                                                
Senator  Hoffman   pointed  out  that  both  the  health   insurance                                                            
increases and  COLA are reflected in the total amount  of $1,210,000                                                            
as reflected on page one, line seven, column "D."                                                                               
                                                                                                                                
Ms. Brown affirmed.                                                                                                             
                                                                                                                                
Mr. Jardell  clarified that no health  care premium increase  beyond                                                            
the $40.00 amount is reflected in that amount.                                                                                  
                                                                                                                                
Co-Chair  Wilken understood  that,  in its entirety,  "this  package                                                            
could cost an additional  million or less" dollars were two years of                                                            
$40 per month,  per employee health  premium increases factored  in.                                                            
                                                                                                                                
Mr. Jardell  clarified that "it would  be greater than that"  as the                                                            
numbers being  utilized are  specific to the  LTC contract  only. He                                                            
apologized for not providing  a spreadsheet detailing these expenses                                                            
and stated that a revised spreadsheet would be developed.                                                                       
                                                                                                                                
Co-Chair Wilken  requested that this spreadsheet format  be utilized                                                            
when  other   bargaining  unit  contracts   are  presented   to  the                                                            
Committee.                                                                                                                      
                                                                                                                                
Mr. Jardell agreed.                                                                                                             
                                                                                                                                
Senator  Dyson, referring  to  the CO  seniority  work bid  process,                                                            
asked  how much  expense is  incurred  by high  seniority  employees                                                            
working   in  places   where  there   is  a   large  regional   wage                                                            
differential.   He  also  asked  that  any  resulting   increase  in                                                            
retirement benefits be calculated.                                                                                              
                                                                                                                                
Mr. Jardell responded that this information would be provided.                                                                  
                                                                                                                                
Senator Dyson  ventured that this might be a cumbersome  process due                                                            
to the  fact that  this practice  has  been permissible  for a  long                                                            
time.  He  asked  whether  the  cost  differential  is  based  on  a                                                            
percentage or fixed amount calculation.                                                                                         
                                                                                                                                
Mr. Chance explained that  the methodology used varies from contract                                                            
to contract. Some  are determined by increasing a  wage for a region                                                            
by "X number of Steps."  Others such as Nome or Bethel are increased                                                            
by  approximately  38-percent.  He clarified  "that  only the  State                                                            
Trooper  contract  is  driven  by seniority  bidding."  CO  and  LTC                                                            
contracts   do  not  contain  seniority   bidding  provisions,   and                                                            
therefore,   whether  an  employee   works  in  another   locale  is                                                            
determined  by the  applicants applying  for the  position and  whom                                                            
management hires as opposed to being a seniority issue.                                                                         
                                                                                                                                
Senator Dyson  understood therefore  that were the pay differential                                                             
calculated  as a percent  of an individual's  salary, it would  cost                                                            
more to assign  a person with high seniority to one  of these areas.                                                            
                                                                                                                                
Mr. Chance affirmed  that the pay would be determined  by tacking on                                                            
a specified percentage to someone's existing salary.                                                                            
                                                                                                                                
Senator Dyson  expressed that it would be more expensive  to pay the                                                            
extra percentage to a person  who has high seniority than to someone                                                            
who might live in the area and be at a lower pay scale.                                                                         
                                                                                                                                
Mr. Chance clarified  that the pay differential would  apply whether                                                            
a person lived in the area  or not. Therefore, the only savings that                                                            
might be experienced  would result  from hiring a person  with lower                                                            
seniority.                                                                                                                      
                                                                                                                                
Senator Dyson acknowledged.                                                                                                     
                                                                                                                                
Senator  Dyson,  referencing  his  earlier  remarks  about  elective                                                            
medical  procedures,  asked  whether   the  State  receives  reports                                                            
regarding how funds are spent by the Union Health Trusts.                                                                       
                                                                                                                                
Mr. Jardell responded that  currently no reports are provided to the                                                            
State from  the Medical Trusts; however,  action in this  regard has                                                            
occurred due  to the question of whether  the Division of  Insurance                                                            
should regulate  Trusts that operate as health insurance  providers.                                                            
One  outcome  of this  determination  could  be  that some  type  of                                                            
reporting might be required in the future.                                                                                      
                                                                                                                                
Co-Chair  Green asked why  "Day 60" of each  Legislative Session  is                                                            
considered to be an important milestone.                                                                                        
                                                                                                                                
Mr.  Jardell   explained  that  according   to  AS  23.40.215,   the                                                            
Legislature  is obligated to consider  tentative contracts  that are                                                            
submitted by the  sixtieth day of a Legislative Session.  Since only                                                            
the three  contracts  being discussed  today were  received by  that                                                            
date, they are  the only ones on which action must  occur. While any                                                            
tentative  agreement  that  is negotiated  after  that  day must  be                                                            
submitted to the Legislature,  the Legislature would not be required                                                            
to address them during that Session.                                                                                            
                                                                                                                                
Co-Chair  Green  understood  therefore  that  action in  regards  to                                                            
contracts  received  after  "Day  60" could  be  delayed  until  the                                                            
following Session.                                                                                                              
                                                                                                                                
Mr. Jardell  affirmed. The  contract would  be neither "enforceable                                                             
nor invalid  "until it were considered  by the Legislature.  Only at                                                            
that time, were the Legislature  to agree to, and fund, the contract                                                            
during the next Session, would the terms be validated.                                                                          
                                                                                                                                
Co-Chair Green  inquired to the status of the Alaska  Marine Highway                                                            
System's International  Organization of Masters, Mates,  and Pilots,                                                            
PMR contract.                                                                                                                   
                                                                                                                                
Mr. Jardell stated  that negotiations are continuing.  "We are still                                                            
a  long  ways  apart."  He  exampled  that   one  component  of  the                                                            
discussion  is  the  terms  regarding  a  ship's  Master.  A  Master                                                            
currently  earns an  annual salary  of  $95,000 for  a 182-day  work                                                            
year. The union  has proposed that  the wage for a Master  should be                                                            
approximately $500,000.                                                                                                         
                                                                                                                                
Mr.   Chance   interjected   that  during   the   previous   night's                                                            
negotiations, the union  decreased this salary request to $255,000 a                                                            
year.                                                                                                                           
                                                                                                                                
Co-Chair Green  declared therefore  that the Master's annual  salary                                                            
would therefore range between $95,000 and $255,000.                                                                             
                                                                                                                                
Mr. Jardell  affirmed, and  reiterated that,  while it is  "hopeful"                                                            
that  an  agreement   would  be  reached,   a  lengthy  process   is                                                            
anticipated.                                                                                                                    
                                                                                                                                
Senator B.  Stevens asked whether  the Master's salary is  an annual                                                            
salary or pro-rated for the time at sea.                                                                                        
                                                                                                                                
Mr. Chance  clarified that  this is an annual  wage-only salary  and                                                            
does not include  paid time off which would amount  to an additional                                                            
$20,000 to $30,000. In  this regard, the Union has proposed that the                                                            
Master's $255,000  annual salary consist of a 182  workday agreement                                                            
minus 53 days  of leave.  The State's counter offer  consisted of an                                                            
annual salary  of $95,000 with an anticipated 182-day  work year and                                                            
an additional two seven-day  workweeks of paid vacation. The State's                                                            
offer was unacceptable.                                                                                                         
                                                                                                                                
Co-Chair Wilken observed that this contract "has a ways to go."                                                                 
                                                                                                                                
Senator  Bunde,   referencing  the  level  of  Skippers'   salaries,                                                            
observed that  teachers' salaries  that might range between  $40,000                                                            
and $50,000 for a 180-day  work year are often subject to criticism.                                                            
                                                                                                                                
Co-Chair  Wilken pointed  out that, while  Members' packets  contain                                                            
the University  of Alaska proposed  contract, either a summary  or a                                                            
subcommittee report would be forthcoming in its regard.                                                                         
                                                                                                                                
Co-Chair Wilken announced that the Presentation is concluded.                                                                   
                                                                                                                                
                                                                                                                                
     CS FOR SENATE BILL NO. 357(L&C)                                                                                            
     "An  Act relating  to the  regulation of  insurance,  insurance                                                            
     licenses,   qualifications  of  insurance  producers,   surplus                                                            
     lines,  fraud  investigations,  electronic   transactions,  and                                                            
     compliance  with  federal   law  and national   standards;  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 which is referred  to                                                            
as "the  insurance  omnibus bill,"  would make  numerous changes  to                                                            
current language  in order to ensure  that State statutes  remain in                                                            
compliance with federal  law and Model Act standards and guidelines.                                                            
                                                                                                                                
Amendment #2:  This amendment inserts  the word "genetic"  after the                                                            
word "Medical" in Section 2 subsection (a) on page two, line 13.                                                                
                                                                                                                                
In addition, on  line 16 of that same section, the  word "public" is                                                            
deleted  and, following the  word "disclosure",  the words  "without                                                            
the expressed  consent of the enrollee  or applicant" are  inserted.                                                            
                                                                                                                                
Senator Olson moved for the adoption of Amendment #2.                                                                           
                                                                                                                                
Co-Chair Green objected.                                                                                                        
                                                                                                                                
Senator  Olson voiced  that this  amendment would  address  concerns                                                            
relating  to medical  confidentiality  as identified  in Section  2,                                                            
subsection (a) beginning on page two, line 13.                                                                                  
                                                                                                                                
                                                                                                                                
SFC 04 # 65, Side B 09:54 AM                                                                                                    
                                                                                                                                
                                                                                                                                
Senator Olson  stated that, in addition, there is  concern regarding                                                            
the bill's repealing of  AS 21.34.280 as specified in Section 52, on                                                            
page 29, beginning  on line 13. [NOTE:  Senator Olson inadvertently                                                             
referenced  line nine  in  his testimony.]  He noted  that  Members'                                                            
packets  contain   a  copy  of  the  language  pertaining   to  Sec.                                                            
21.86.280.  Confidentiality of medical  information. [copy  on file]                                                            
as currently  mandated in State statute.  He noted that as  a result                                                            
of technological  advances,  the confidentiality  of such things  as                                                            
genetic information  should be addressed.  Therefore, inserting  the                                                            
word "genetic"  into Section  2, subsection  (a) would address  this                                                            
concern. Inserting  the language "without  the expressed  consent of                                                            
the enrollee or  applicant" would further address  public disclosure                                                            
concerns in the absence of AS 21.86.280.                                                                                        
                                                                                                                                
LINDA  HALL,   Director,  Division   of  Insurance,  Department   of                                                            
Community and Economic  Development, stated that the Division is not                                                            
opposed  to the  amendment. The  intent  of the  bill's language  in                                                            
Section  2  and  the  repealing  of  AS  21.86.280  were  "to  bring                                                            
consistency to  privacy regulations" pertaining to  medical records.                                                            
The repealing of AS 21.86.280  is included because other sections in                                                            
the  bill provide  the  same coverage,  specifically  in  addressing                                                            
regulation pertaining to  Health Management Organizations [HMOs]. In                                                            
addition, the Division  recently underwent "a regulatory project and                                                            
adopted  regulations  dealing  with  privacy  with  input  from  all                                                            
consumers."  These regulations  are  currently under  review by  the                                                            
Department of  Law. She stressed that the State has  adopted privacy                                                            
regulations  that  would  require  that  the consumer  "opt  in"  to                                                            
approve the sharing of  their medical information. She stressed that                                                            
while  the Division  supports  the ability  of  insurance  companies                                                            
being  able to  collect medical  information,  it  also upholds  the                                                            
position that insurance  companies should be prohibited from sharing                                                            
the information, "generally."  The understanding is that this is the                                                            
concern being addressed by Amendment #2.                                                                                        
                                                                                                                                
Co-Chair  Green  asked  whether  the  definition   of  "genetic"  is                                                            
included  in  State Statute.  Furthermore,  she  asked  whether  the                                                            
confidentially   of  medical  genetic   information  and   financial                                                            
information  is recognized  "at the same  level of seriousness."  In                                                            
addition, she  asked whether there  is "a technical method"  whereby                                                            
information  would  be  considered  "routine"  as opposed  to  being                                                            
considered "invasive or intrusive" personal information.                                                                        
                                                                                                                                
Ms. Hall  responded that  the definition of  the term "genetic"  has                                                            
not been addressed  in the Insurance  chapter of State regulations.                                                             
It is  unknown  as to whether  the term  might  already be  included                                                            
under medical information.                                                                                                      
                                                                                                                                
Ms.  Hall informed  that the  privacy  of financial  information  is                                                            
treated  differently than  medical information  in that individuals                                                             
are provided "an opt-out  standard" for financial information rather                                                            
than  "an opt-in  standard"  for  medical  information.  The  Opt-In                                                            
Standard would  prohibit the sharing  of medical information  unless                                                            
an individual  actively agreed. The  Opt-Out standard would  allow a                                                            
person's financial  information to be shared with  affiliates rather                                                            
than the public, unless  the person actively elected to prohibit it.                                                            
                                                                                                                                
Co-Chair  Green voiced  concern regarding  the lack  of a  "genetic"                                                            
definition in State Statute,  as the words "medical", "genetic," and                                                            
"financial" have  very different levels of meanings,  "intensity and                                                            
seriousness."  She voiced being unsure that addressing  these issues                                                            
in  this manner  is  appropriate.  She also  acknowledged  that  the                                                            
procedures required to  distribute and acquire consent forms in this                                                            
regard is  "cumbersome" for  both the provider  and the individual.                                                             
She voiced concern  that action relating to this bill  might further                                                            
create inefficiencies in this regard.                                                                                           
                                                                                                                                
Ms. Hall  agreed  that the  requirement  of any  consent form  would                                                            
create an  additional step  on the part of  providers and  insurers,                                                            
both  of   whom  have   requested  that   the  State  refrain   from                                                            
implementing any steps  that would make the consent form process for                                                            
Alaska different  from the national standard, as this  would require                                                            
an  additional  expense  and  burden  and  would  prevent   business                                                            
efficiency.                                                                                                                     
                                                                                                                                
Co-Chair Green declared,  "that this is a bigger issue than it might                                                            
appear at first glance."  Therefore, she would oppose the amendment.                                                            
                                                                                                                                
Senator Olson moved to withdraw Amendment #2.                                                                                   
                                                                                                                                
There  being   no  objection,  Amendment   #2  was  WITHDRAWN   from                                                            
consideration.                                                                                                                  
                                                                                                                                
Co-Chair Wilken noted that  Amendment #2 is being withdrawn with the                                                            
understanding  that Senator Olson, Co-Chair Green,  and the Division                                                            
of Insurance  would work together  to address Committee concerns  in                                                            
its regard.                                                                                                                     
                                                                                                                                
Co-Chair Wilken ordered the bill HELD in Committee.                                                                             
                                                                                                                                
                                                                                                                                
     CS FOR SENATE BILL NO. 255(STA)                                                                                            
     "An Act relating to traffic preemption devices."                                                                           
                                                                                                                                
                                                                                                                                
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
Co-Chair Wilken  explained that this legislation "would  reserve the                                                            
use of traffic preemption  devices for legitimate, authorized users"                                                            
including emergency  response providers, road maintenance  vehicles,                                                            
and public transit vehicles.                                                                                                    
                                                                                                                                
DENNIS  MICHEL,  Staff  to  Senator  Gene  Therriault,   the  bill's                                                            
sponsor,  stated that  there  is concern  that continuing  to  allow                                                            
widespread  possession of  traffic preemptive  devices might  pose a                                                            
problem in that  people could use these devices to  "disrupt traffic                                                            
flow  and create  dangerous situations"  at  traffic intersections.                                                             
Currently possession  of these devices,  which can be purchased  via                                                            
the  Internet,  is  legal.  At the  request  of  the  Department  of                                                            
Transportation  and Public  Facilities, the  original bill  language                                                            
that  limited  the authorized  use  of these  devices  to  emergency                                                            
vehicles, was  expanded to include municipal transit  buses and road                                                            
maintenance  vehicles   such  as  snowplows.  These   vehicles  were                                                            
requested for  inclusion as repetitive stop and start  actions has a                                                            
negative  affect on them.  In addition, inclusion  of this  language                                                            
would assist the Department  of Transportation and Public Facilities                                                            
in the  requirement that  Anchorage roads must  be cleared  within a                                                            
24-hour period after a snowstorm.                                                                                               
                                                                                                                                
Co-Chair Wilken clarified  that CS SB 255(STA), Version 23-LS1397\Q,                                                            
is before the Committee.                                                                                                        
                                                                                                                                
Senator Dyson  communicated that the  community of Eagle  River must                                                            
also have  it roads cleared  within 24 hours.  Continuing,  he asked                                                            
for confirmation that when  the device is activated, traffic signals                                                            
must cycle  through the yellow  phase before  the signal changes  to                                                            
red.                                                                                                                            
                                                                                                                                
Mr. Michel affirmed that  opposing traffic would experience the full                                                            
green to yellow to red signal cycle.                                                                                            
                                                                                                                                
Senator  Dyson  surmised   that  due  to  the  fact  that  snowplows                                                            
typically  clear roads at  night when there  is low volume  traffic,                                                            
utilization of the device  would enhance operations by allowing them                                                            
to avoid waiting for lights.                                                                                                    
                                                                                                                                
Mr.  Michel affirmed,  but  pointed  out  that transit  buses  might                                                            
utilize the  device during  high traffic times  in order to  stay on                                                            
schedule.                                                                                                                       
                                                                                                                                
Senator  Dyson  voiced  being  unconvinced  that  the  inclusion  of                                                            
transit buses in this legislation is necessary.                                                                                 
                                                                                                                                
Senator  Bunde  noted that  in  his  community,  snowplow  employees                                                            
retain their  jobs based on their  ability to perform their  jobs in                                                            
an allotted time.                                                                                                               
                                                                                                                                
Senator Olson  expressed that one positive element  about synergized                                                            
road signals,  is that they often  allow for a traffic pattern  at a                                                            
certain  speed  to be  maintained.  Therefore,  he asked  how  these                                                            
devices would affect that synchronicity.                                                                                        
                                                                                                                                
Mr. Michel  responded that  the use of these  devices in regards  to                                                            
transit  buses would  be  a coordinated  effort  in  that a  central                                                            
monitoring station  (CMS), as opposed to the individual  bus driver,                                                            
would  control  the  utilization  of  the  devices.  The  CMS  would                                                            
determine whether  utilization of  the device would be necessary  to                                                            
keep buses on schedule.  In addition, the intent of the Municipality                                                            
of  Anchorage  transit authority  is  to  implement a  bus  corridor                                                            
system in which  "the lights would  preempt a series of lights  down                                                            
the road" in order to continue a traffic flow.                                                                                  
                                                                                                                                
Senator Olson  asked for confirmation that emergency  vehicles would                                                            
be able to individually manage their traffic preemptive devices.                                                                
                                                                                                                                
Mr. Michel affirmed that that would be the case.                                                                                
                                                                                                                                
In response to  a question from Senator Olson, Mr.  Michel clarified                                                            
that while  each bus would  be equipped with  an individual  device,                                                            
they could  not be activated  on an individual  basis in the  manner                                                            
that the fire department or other emergency vehicles could.                                                                     
                                                                                                                                
Co-Chair Wilken  reiterated that the inclusion of  transit buses was                                                            
incorporated  into Senate  State Affairs  Committee  version of  the                                                            
bill.                                                                                                                           
                                                                                                                                
Senator Hoffman inquired to the cost of the device.                                                                             
                                                                                                                                
Mr.  Michel  responded   that  the  cost  of  an  official   traffic                                                            
preemptive device  is approximately $1,000; however,  no fiscal note                                                            
accompanies  the bill  in this regard  as the  devices have  already                                                            
been purchased.  However, the personal  use devices being  addressed                                                            
by this  legislation are  available  on the Internet  for as  low as                                                            
$400.                                                                                                                           
                                                                                                                                
Senator  Hoffman  asked  regarding  the  penalties  and enforcement                                                             
efforts that would be enacted by this legislation.                                                                              
                                                                                                                                
Mr. Michel  responded that enforcement  of the possession  or use of                                                            
this device in  a vehicle would be fairly easy as  the device, which                                                            
is contained  in a seven  by five inch box,  must be located  on the                                                            
dashboard  or  other visible  location  in  a  vehicle in  order  to                                                            
properly work.                                                                                                                  
                                                                                                                                
Co-Chair Wilken noted that  the penalty for unlawfully possessing or                                                            
owning  one of  these devices  would  be a  Class  A misdemeanor  as                                                            
specified  in Section 1,  subsection (d) on  page two, lines  11 and                                                            
12.                                                                                                                             
                                                                                                                                
Co-Chair  Green  inquired  as to  whether  the word  "possesses"  is                                                            
necessary to this legislation,  as it would be "troublesome" were it                                                            
to apply to someone who might possess the device in their home.                                                                 
                                                                                                                                
Co-Chair Wilken asked therefore  whether further clarification as to                                                            
"where the possession occurs" should be considered.                                                                             
                                                                                                                                
Co-Chair  Green  opined  that "simple  possession"  of  this  device                                                            
should  not make a  person eligible  for a Class  A misdemeanor,  as                                                            
there  is  a  difference  in  the fact  that  someone  might  be  in                                                            
possession of  such as device as opposed to utilizing  the device to                                                            
affect traffic.                                                                                                                 
                                                                                                                                
Co-Chair Wilken understood  therefore that possessing this device in                                                            
the  trunk  of a  car,  for  instance,  should be  exempt  from  the                                                            
penalty.                                                                                                                        
                                                                                                                                
Co-Chair Green  affirmed. Possession of it in a home  should also be                                                            
exempt.                                                                                                                         
                                                                                                                                
Senator Dyson agreed. He  suggested that the word "or" in Section 1,                                                            
subsection (a)  on page one, lines five, six, and  seven be replaced                                                            
with the word  "and" in order to clarify  that "possession  and use"                                                            
of  the device  would  be considered  a  crime,  as opposed  to  the                                                            
current language  that would  make it illegal  to either possess  or                                                            
use the device.                                                                                                                 
                                                                                                                                
Co-Chair Green  stated that the language  in question is  located in                                                            
numerous  areas of  the bill  and therefore  further  review of  the                                                            
language should be conducted before further action ensues.                                                                      
                                                                                                                                
Co-Chair  Wilken  agreed   and  stated  that  this  issue  would  be                                                            
addressed via a forthcoming committee substitute.                                                                               
                                                                                                                                
Senator  Dyson reiterated  his  concern regarding  allowing  transit                                                            
buses to utilize the device.                                                                                                    
                                                                                                                                
Senator  Dyson voiced,  for the  record,  that the  definition  of a                                                            
"traffic  exemption device"  as explained  in Section 1,  subsection                                                            
(c)(2) page  two, beginning  on line seven  "is tight enough"  as to                                                            
not defeat the ability  of law enforcement officers to utilize photo                                                            
radar  nor  preclude  someone  from utilizing  a  device  to  defeat                                                            
traffic or photo radar.                                                                                                         
                                                                                                                                
Mr. Michel stated that is correct.                                                                                              
                                                                                                                                
Senator Bunde  suggested that an amendment be considered  that would                                                            
delete the words "or public  transit that has been authorized by the                                                            
Department   of   Transportation   and   Public  Facilities   or   a                                                            
municipality"  in the bill as denoted  in Section 1, subsection  (a)                                                            
(2)  on page  one, beginning  on  line 13  that currently  reads  as                                                            
follows.                                                                                                                        
                                                                                                                                
     (2)  a person  operating a  motor vehicle  involved in  highway                                                            
     maintenance  or public transit that has been  authorized by the                                                            
     Department  of  Transportation   and  Public  Facilities  or  a                                                            
     municipality to possess or use a traffic preemptive device.                                                                
                                                                                                                                
Co-Chair Wilken  ascertained that  Senator Bunde is suggesting  that                                                            
the language included in the original bill be considered.                                                                       
                                                                                                                                
Senator  Bunde  affirmed.  There  is  particular  concern  that  the                                                            
inclusion of this  language would enhance efforts  to further expand                                                            
public  transportation  endeavors in  the Anchorage  area which,  he                                                            
declared is "a very expensive and subsidized operation."                                                                        
                                                                                                                                
Co-Chair  Wilken   asked  that  the   bill's  sponsor  contact   the                                                            
Municipality  of  Anchorage  and  ask  how  this  would  affect  the                                                            
Anchorage public transportation system.                                                                                         
                                                                                                                                
Senator  Dyson  asked that  representatives  of  Anchorage's  public                                                            
transportation  system be available during the next  hearing on this                                                            
legislation.                                                                                                                    
                                                                                                                                
Co-Chair  Wilken  agreed that  testimony  in  this regard  would  be                                                            
required   in  order  to   retain  public   transportation   in  the                                                            
legislation.                                                                                                                    
                                                                                                                                
Senator Olson  asked whether any consideration has  been provided to                                                            
including physicians in the authorized use list.                                                                                
                                                                                                                                
Co-Chair Wilken  stated that their inclusion would  be under review.                                                            
                                                                                                                                
AL STOREY, Lieutenant,  Alaska State Troopers, Department  of Public                                                            
Safety, testified via teleconference  from an offnet site and stated                                                            
that the Department  of Public Safety  considers this to  be a "good                                                            
bill"  as it  would assist  public  safety employees  and  emergency                                                            
vehicles "in getting to  where they need to be in a timely fashion."                                                            
"Widespread  chaos" would  erupt were  private  citizens allowed  to                                                            
utilize these devices.                                                                                                          
                                                                                                                                
MIKE TILLY,  Assistant Fire  Chief, City  of Kenai Fire Department,                                                             
testified  via teleconference  from  Kenai,  and spoke  in favor  of                                                            
bill. The  key to the  use of these  devices is  to have a safe  and                                                            
efficient response  of emergency vehicles to their  destination. The                                                            
availability  of  these  devices  to  private  citizens  "is  rather                                                            
frightening"  in that  a competition  between  private citizens  and                                                            
emergency responders  to control intersections could  result. Proper                                                            
use of these devices would  allow authorized responders safe passage                                                            
through intersections.                                                                                                          
                                                                                                                                
Mr.  Michel,  responding  to  Co-Chair  Green's  concerns  regarding                                                            
"possession and use" of  the device, informed that the Department of                                                            
Law has reviewed  the bill's language  and determined that  in order                                                            
to prosecute someone,  "use alone would be very hard  to prove" as a                                                            
police officer  would, in that case,  be required to actually  watch                                                            
someone activate  the device  and change a  light. He stressed  that                                                            
there  is no  other use  for the  device than  to  change lights.  A                                                            
person could  stand beside an intersection  and control the  signal.                                                            
                                                                                                                                
Co-Chair  Wilken  asked  that  a Department  of  Law  memorandum  be                                                            
provided in this regard.                                                                                                        
                                                                                                                                
Co-Chair  Wilken ordered  the  bill HELD  in Committee  to order  to                                                            
address concerns and develop a committee substitute.                                                                            
                                                                                                                                
                                                                                                                                
     CS FOR SENATE BILL NO. 350(L&C)                                                                                            
     "An  Act allowing a  joint action agency  to encumber  property                                                            
     interests  for  security  purposes;   declaring  certain  joint                                                            
     action  agencies  to  be  political  subdivisions  for  certain                                                            
     purposes; restricting  the sale of property of the joint action                                                            
     agency; allowing  the joint action agency to  transfer property                                                            
     to security  interest holders  under a security interest  or to                                                            
     other parties  without legislative approval;  and providing for                                                            
     an effective date."                                                                                                        
                                                                                                                                
                                                                                                                                
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
Co-Chair Wilken  stated that this legislation would  enable the Four                                                            
Dam  Pool  Power  Agency  (FDPPA)  to refinance   approximately  $73                                                            
million  in a  loan  owed to  the Alaska  Industrial  Development  &                                                            
Export Authority (AIDEA).                                                                                                       
                                                                                                                                
SENATOR  GARY  STEVENS,   the  bill's  sponsor,  characterized   the                                                            
legislation  as "a highly  technical bill"  in that, in addition  to                                                            
providing FDPPA  the ability to refinance  a $73 million  AIDEA loan                                                            
and thereby  to return that money  to AIDEA for use in other  areas,                                                            
the refinancing  would assist  FDPPA in providing  consumers  in the                                                            
communities of  Ketchikan, Petersburg, Wrangell, and  the Kodiak and                                                            
Valdez-Glennallen   areas  by  lowering  interest,  arbitrage,   and                                                            
administration  costs associated  with  that loan.  In addition,  it                                                            
would "enhance the options  that are available to the FDPPA" and the                                                            
aforementioned   communities   "regarding   inter-ties   and   other                                                            
activities."                                                                                                                    
                                                                                                                                
TOM LOVIS,  Chief  Executive Officer,  Four Dam  Pool Power  Agency,                                                            
stated  that  the  Agency represents   five communities   throughout                                                            
Alaska  and consequently,  a  large  number of  electric  consumers.                                                            
These  members   were  "the  fortunate   participants"  in   FDPPA's                                                            
acquisition  of  four  hydroelectric  projects  from  the  State  in                                                            
January 2002 that was funded  by a $77 million loan from AIDEA via a                                                            
Memorandum  of Understanding  (MOU)  with AIDEA at  a specified  6.5                                                            
percent  interest  rate. Now  that  FDPPA  is a  "fully operational                                                             
organization"  it  is  now  able to  secure  funding  that  was  not                                                            
previously  available to it. This  alternative would allow  FDPPA to                                                            
refinance its  AIDEA debt by means  "of the bond market,  using tax-                                                            
exempt debt." Lowering  the interest rate would result in savings of                                                            
between  $600,000 and  $1.5 million  a year on  what is currently  a                                                            
$6.3  million  debt  service.  FDPPA  members   would  benefit  from                                                            
experiencing this ten to  twenty percent debt savings on the current                                                            
debt  service.  He  noted  that  FDPPA  members   and  its  electric                                                            
consumers support this proposal.                                                                                                
                                                                                                                                
Mr. Lovis  reiterated  that AIDEA  would receive  approximately  $73                                                            
million  that  it could  utilize  to support  other  endeavors.  The                                                            
technical corrections included  in the bill might appear complicated                                                            
but "are relatively  straightforward"  as they would allow  FDPPA to                                                            
mortgage the  properties, use the  properties as security  in a note                                                            
with  the private  market,  clarify  FDPPA's  ability  to issue  tax                                                            
exempt debt for  the acquisition of projects, retain  the ability of                                                            
the projects  to continue to service  member communities,  and would                                                            
allow FDPPA  to lower costs  to its consumers  due to the  resulting                                                            
savings incurred by the refinancing.                                                                                            
                                                                                                                                
Co-Chair Wilken  asked how much consumer rates might  lower, in, for                                                            
instance, the  City of Petersburg,  were this legislation  approved.                                                            
                                                                                                                                
Mr. Lovis responded that  wholesale power expenses might decrease by                                                            
four  or five  percent.  This  might translate  to  a three-percent                                                             
reduction for the consumer.                                                                                                     
                                                                                                                                
Senator  Dyson   understood  that,   as  reflected  in  Section   2,                                                            
subsection  (h) on page  two, line  23, in order  to accomplish  the                                                            
goal  of  the  legislation,  the  FDPPA  must  be  recognized  as  a                                                            
political subdivision, similar to that of being a city.                                                                         
                                                                                                                                
Mr. Lovis  responded  that in  order to  further  the original  loan                                                            
between AIDEA  and FDPPA, it was required  that FDPPA be  identified                                                            
as a political  subdivision in order  to transfer State property  to                                                            
it. The intent of the definition  language is to continue the use of                                                            
that definition in order  to provide security for the project and to                                                            
allow for the issuance  of the tax-exempt debt. The definition would                                                            
be limited to the terms  of the original Memorandum of Understanding                                                            
(MOU) regarding  those specific projects.  Furthermore, continuance                                                             
of the language  would be a vehicle through which  FDPPA could avoid                                                            
registration and other  expenses that might otherwise be required by                                                            
the Securities and Exchange Commission.                                                                                         
                                                                                                                                
Senator Dyson  understood therefore that this is a  continuance of a                                                            
definition  that  has  been  in  practice   rather  than  being  new                                                            
language.                                                                                                                       
                                                                                                                                
Mr.  Lovis   affirmed.   For  further  clarification,   Section   2,                                                            
subsection  (h) includes  language that  limits how  FDPPA would  be                                                            
recognized   as  a  political  subdivision   by  incorporating   the                                                            
language, "Except as provided  in this subsection, the agency is not                                                            
a political subdivision of the state."                                                                                          
                                                                                                                                
Senator Dyson  asked how  this legislation  might benefit the  power                                                            
intertie project.                                                                                                               
                                                                                                                                
Mr.  Lovis responded  that  the  intertie  project and  other  FDPPA                                                            
projects  would benefit  from being provided  alternative  financing                                                            
options.                                                                                                                        
                                                                                                                                
Co-Chair  Wilken  asked  regarding  FDPPA'a ability  to  use  leased                                                            
assets as security for  such things as bonds as specified in Section                                                            
1, subsection  (c) (6) on page two, line 17, as this  is contrary to                                                            
the ability of other authorities.                                                                                               
                                                                                                                                
     (6)  to use  facilities, projects,  and  related assets  owned,                                                            
     leased,  operated by  the joint action  agency as security  for                                                            
     bonds,   notes,  mortgages,   enhancement  devices,   or  other                                                            
     obligations.                                                                                                               
                                                                                                                                
Mr. Lovis  responded  that, "there  are such  things as capitalized                                                             
leases  and other  such arrangements  … that  can be  used as  fixed                                                            
assets in the course of  an operation." Long-term leases for certain                                                            
maintenance  equipment and  other equipment  would be recognized  as                                                            
collateral.                                                                                                                     
                                                                                                                                
Co-Chair  Green   countered  that  "a  long-term  lease   should  be                                                            
recognized as a debt."                                                                                                          
                                                                                                                                
Mr. Lovis  expressed  that while there  would be  a debt  obligation                                                            
attached to  it; a piece of leased  equipment on the premises  would                                                            
be recognized as security.                                                                                                      
                                                                                                                                
Co-Chair Green  asked for further  clarification as to how  the term                                                            
"or operated"  as specified  in subsection  (c)(6) would qualify  as                                                            
security.                                                                                                                       
                                                                                                                                
Mr. Lovis exampled  that facilities  utilized by the agency  "in the                                                            
course  of an operation  that might  be provided  by members  of the                                                            
agency or participants  in the power sales agreement"  would qualify                                                            
as security.                                                                                                                    
                                                                                                                                
Co-Chair Green asked that an example be provided.                                                                               
                                                                                                                                
BOB  LERESCHE,  Financial  Adviser,  Four  Dam  Pool  Power  Agency,                                                            
testified via  teleconference from  an offnet site, and stated  that                                                            
this is standard  language written  by underwriters that  appears in                                                            
most mortgages.  An example would be a dispatch center  that belongs                                                            
to a  local utility  but which  is operated  by the  FDPPA. Were  an                                                            
entity to replace  the FDPPA, they  would have the right  to operate                                                            
that center in order to operate the dam.                                                                                        
                                                                                                                                
Co-Chair Green  asked for verification that operated  property could                                                            
act as security.                                                                                                                
                                                                                                                                
Mr.  LeResche  confirmed  that  the right  to  operate  that  leased                                                            
facility  would be recognized  as an  asset as it  has value  to the                                                            
operation.                                                                                                                      
                                                                                                                                
Senator B. Stevens posed  a hypothetical situation in regards to the                                                            
leased  asset question  as  follows: a  power grid  transmission  is                                                            
owned by an association,  but leases capacity on that  power grid to                                                            
an energy  trading company.  The energy  trading company  recognizes                                                            
that leased power capacity  as an asset and uses it as security with                                                            
which to borrow money.  He asked how that leased capacity on a power                                                            
line could be considered an asset.                                                                                              
                                                                                                                                
                                                                                                                                
SFC 04 # 66, Side A 10:42 AM                                                                                                    
                                                                                                                                
                                                                                                                                
Mr.LeResche  responded that  the rights that  accompany that  lease,                                                            
whether it  is a capitalized lease  or an operating lease,  would be                                                            
recognized  as an asset  and could  be used a  collateral as  "it is                                                            
something of value that the organization is paying for."                                                                        
                                                                                                                                
Senator  B. Stevens  understood  therefore  that in  a situation  in                                                            
which  a Joint  Action  Agency, such  as  the FDPPA,  leased  twenty                                                            
percent  of a  power  transmission  grid that  had a  line  capacity                                                            
valued at  $100 million  dollars, the joint  action committee  could                                                            
acquire a $20 million line of credit.                                                                                           
                                                                                                                                
Mr. LeResche  responded that were  he a banker he would not  issue a                                                            
$20 million line of credit in that situation.                                                                                   
                                                                                                                                
Senator B.  Stevens argued  that that is how  the language  could be                                                            
interpreted.                                                                                                                    
                                                                                                                                
Mr. LeResche countered  that the right to transmit twenty percent of                                                            
the power available on  that line for a certain amount of time would                                                            
be recognized as an asset as it is worth something.                                                                             
                                                                                                                                
Mr. Lovis  interjected that  in this instance,  "the ability  of the                                                            
asset  to  continue  to provide  the  services  expected  under  the                                                            
operation of the agency"  does have value. "The use of the line, the                                                            
ability to  secure for the purposes  of a mortgage, and the  ability                                                            
to continue  to provide  the services associated  with the  projects                                                            
through equipment  that may be leased" in order "to  continue to use                                                            
the  power   productive  capabilities   of  the  agency"   could  be                                                            
recognized  as  security  for a  note. This  is  the intent  of  the                                                            
language.                                                                                                                       
                                                                                                                                
Senator B. Stevens voiced  being uncomfortable in recognizing leased                                                            
assets as security as "the  assumption is being made that the rights                                                            
of the lease could be transferable."                                                                                            
                                                                                                                                
Mr. LeResche  responded that "the  lease hold interest" rather  than                                                            
the leased asset, is what  would be identified as the collateral. He                                                            
stressed that  "this legislation does not provide  any new rights to                                                            
the  lessee"  and  that  this  kind  of collateralization   must  be                                                            
specified in the lease.  Many leases include language that specifies                                                            
that the lease  could be reassigned  upon permission of the  leaser.                                                            
                                                                                                                                
Senator Bunde  accepted that  there would be  value in a lease  that                                                            
involved  transmission. Furthermore,  he noted  that stranded  power                                                            
and stranded gas  are undervalued because no transportation  of that                                                            
energy is currently available.  Therefore, were a lease written with                                                            
agreement that  the lessee's rights could be transferred  would have                                                            
financial value.                                                                                                                
                                                                                                                                
Co-Chair Wilken  furthered that a  lease "would provide the  ability                                                            
to realize a revenue stream that supports the bond."                                                                            
                                                                                                                                
Mr. Lovis concurred  that it is "a  vehicle to ensure the  continued                                                            
capability and  operability of the other assets associated  with the                                                            
hydroelectric project."                                                                                                         
                                                                                                                                
Co-Chair Wilken stated that "therein is the value."                                                                             
                                                                                                                                
Senator B. Stevens  continued to voice concern that  an entity could                                                            
specify that a  leased asset could provide collateral  for borrowing                                                            
more money. He  suggested that the word "leased" be  eliminated from                                                            
the legislation.                                                                                                                
                                                                                                                                
Co-Chair Wilken stated  that further discussion in this regard would                                                            
transpire before Committee action on the bill occurs.                                                                           
                                                                                                                                
Co-Chair Green  requested that further clarification  be provided in                                                            
regard to new language in Section 3, subsections (J) and (K).                                                                   
                                                                                                                                
Co-Chair Wilken  stated that the bill would be HELD  in Committee in                                                            
order to address these concerns.                                                                                                
                                                                                                                                
                                                                                                                                
     SENATE BILL NO. 366                                                                                                        
     "An Act  relating to the levy  and collection of sales  and use                                                            
     taxes,  to the levy and collection  of municipal sales  and use                                                            
     taxes,  and  to municipal  sales  and  use taxes  on  alcoholic                                                            
     beverages; and providing for an effective date."                                                                           
                                                                                                                                
                                                                                                                                
This  was the third  hearing  for this  bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
Senator B. Stevens  informed the Committee that new  language in the                                                            
Version 23-LS1051\W working  draft includes the addition of coal and                                                            
district  heat  in  the  exemption  language  in  Section  17,  Sec.                                                            
43.44.020.  Exemptions. subsection  (5) on page six, lines  five and                                                            
six. In addition, the exemption  pertaining to wages as specified in                                                            
Section 17, Sec. 43.44.020.  Exemptions. subsection (8) on page six,                                                            
lines  19 through  21  was  required in  order  to comply  with  the                                                            
federal Internal Revenue System code system.                                                                                    
                                                                                                                                
Senator B. Stevens stated  that other changes in Version "W" pertain                                                            
to clarification language  regarding the collection of sales and use                                                            
tax as it applies to "sales  from certain coin-operated or currency-                                                            
operated  machines, sales  of drinks  in a bar,  sales on the  dock,                                                            
sales from street vending  carts, admission fees, and other sales as                                                            
determined  by  regulation  by  the  department."  as  specified  in                                                            
Section 17,  Sec. 43.11.030.  on page seven,  lines 10-13.  Language                                                            
regarding  deductions and  procedures  pertaining to  bad debts  has                                                            
been  added as  specified in  Section 17,  Sec.  43.44.035. on  page                                                            
eight, lines seven through  23. Further clarifying language has been                                                            
added  in Section  17, Sec.  43.44.199.  subsection (2)  on page  13                                                            
regarding a manufacturing  definition clarification  as specified on                                                            
line four as follows.                                                                                                           
                                                                                                                                
     (2) "manufacturing"  means combining  or processing  components                                                            
     or  materials,  including the  processing  of ores  in a  mill,                                                            
     smelter,  refinery,  or  reduction  facility, to  increase  the                                                            
     value of  the components or materials for sale  in the ordinary                                                            
     course   of  business;   "manufacturing"   does   not   include                                                            
     construction;                                                                                                              
                                                                                                                                
Senator B.  Stevens stated that the  Department of Law fiscal  note,                                                            
dated  March  31,  2004 in  the  amount  of  $323,900  portrays  the                                                            
projected  cost   of  adding  two  attorneys  for  the  enforcement                                                             
division.                                                                                                                       
                                                                                                                                
Senator B.  Stevens referenced  language on  pages two and  three of                                                            
the Department  of Revenue  fiscal note, dated  March 31, 2004  that                                                            
projects that,  after exemptions, the State sales  tax base would be                                                            
approximately  $12,900,000,000  for  a total  projected  revenue  of                                                            
$516,000,000. However,  were a sales tax limitation implemented that                                                            
would apply "only to the  first $500 of each separate sale, rent, or                                                            
service transaction  with some exceptions" as currently  utilized by                                                            
the Kenai Peninsula  Borough, there  would be a projected  Statewide                                                            
sales tax base of $8.4  billion and a projected sales tax revenue of                                                            
approximately  $336,000,000.  Furthermore, were  all communities  to                                                            
adopt a three  percent or higher local sales tax,  $84 million would                                                            
be rebated to  those communities and the net sales  tax to the State                                                            
could range between $252,000,000 and $320,000,000.                                                                              
                                                                                                                                
Senator  B. Stevens,  referencing  language  on  page  three of  the                                                            
Department  of  Revenue  fiscal  note,  stated that,  "At  the  four                                                            
percent statewide  rate in HB 366,  the cap would be $1,500,  but we                                                            
believe if Juneau  kept its rate at five percent than  a single $670                                                            
sale would  exceed the cap." He explained  that currently,  the City                                                            
and Borough  of Juneau (CBJ) receives  $33.50 on a $670 sale  at the                                                            
five-percent local tax  rate. Were a nine-percent tax implemented as                                                            
a result  of the State  imposing a four-percent  tax in addition  to                                                            
the CBJ  five-percent  tax, the resulting  tax paid  on a $670  sale                                                            
would be  $60.00. This is  the tax limitation  specified in  SB 366.                                                            
Under the guidelines  of the bill,  the CBJ would receive  $39.60 or                                                            
66 percent  of the revenue.  Were the CBJ  to lower its current  tax                                                            
rate to four-percent, a  combined CBJ/State sales tax rate of eight-                                                            
percent would  be charged and a $670.00  sale with an eight-percent                                                             
tax rate  would garner  the CBJ  $33.23 or 62-percent  of the  total                                                            
sales  tax revenue.  In addition,  the maximum  sale amount  through                                                            
which to obtain the $60.00 tax limitation factored by an eight-                                                                 
percent sales  tax would be $750.00.  Of that amount, the  CBJ would                                                            
receive  62-percent or  a $67.00  return. Therefore,  the CBJ  would                                                            
receive  more money, on  a maximum  purchase, were  it to lower  the                                                            
local tax rate one percent.                                                                                                     
                                                                                                                                
Co-Chair Wilken ordered the bill HELD in Committee.                                                                             
                                                                                                                                
ADJOURNMENT                                                                                                                 
                                                                                                                                
Co-Chair Gary Wilken adjourned the meeting at 10:59 AM.                                                                         

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