Legislature(1993 - 1994)
04/21/1993 09:05 AM Senate FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
MINUTES SENATE FINANCE COMMITTEE April 21, 1993 9:05 a.m. TAPES SFC-93, #67, Side 1 (454-end) SFC-93, #67, Side 2 (575-end) SFC-93, #69, Side 1 (000-end) SFC-93, #69, Side 2 (575-225) CALL TO ORDER Senator Drue Pearce, Co-chair, convened the meeting at approximately 9:05 a.m. PRESENT In addition to Co-chair Pearce, Senators Kelly, Kerttula, Rieger, and Sharp were present. Co-chair Frank arrived soon after the meeting began. Senator Jacko arrived as it was in progress. ALSO ATTENDING: Brian Andrews, Deputy Commissioner, Treasury, Dept. of Revenue; Mead Treadwell, Deputy Commissioner, Dept. of Environmental Conservation; Bruce Geraghty, Deputy Commissioner, Dept. of Community and Regional Affairs; Duane Guiley, Director, School Finance, Dept. of Education; Gary Bader, Director, Administrative Services, Dept. of Education; Ken Boyd, Deputy Director, Division of Oil and Gas, Dept. of Natural Resources; Kent Swisher, Director, Alaska Municipal League; Carl Rose, Alaska Association of School Boards; Carolyn Berg, a private citizen; Bob Poe, aide to Senator Pearce; Rick Solie, aide to Senator Frank; and aides to committee members and other members of the legislature. ALSO PARTICIPATING VIA TELECONFERENCE FROM ANCHORAGE: Judy Brady, Executive Director, Alaska Municipal Bond Bank Authority. SUMMARY INFORMATION SB 7 - DEBT REIMBURSEMENT/MAINTENANCE GRANTS Teleconference discussion was had with Judy Brady as well as with Brian Andrews and Bob Poe in Juneau. Co-chair Pearce announced that a task force on school funding would be meeting throughout the day in the Fahrenkamp Committee Room. The bill was thus held in committee for later action. SB 60 - APPROP:SCHOOL CONSTRUCTION GRANT FUND Discussion was had with Carl Rose. CSSB 60 (Fin) ($50,591,670) (new title) was reported out of committee with individual recommendations. SB 88 - CAPITAL PROJECT GRANTS Brief discussion was had. The bill was subsequently held in committee for additional review. SB 150 - OIL & GAS EXPLORATION LICENSES/LEASES Discussion was had with Ken Boyd and Mead Treadwell. CSSB 150 (Fin) version "D" and an amendment by Senator Sharp were both adopted. The bill was subsequently held in committee for additional review. HB 66 - MUNICIPAL PROPERTY TAX EXEMPTIONS Comments were offered by Rick Solie, Bruce Geraghty, Ken Swisher, and Carolyn Berg. SCS CSHB 66 (Fin) was reported out of committee with zero fiscal notes from the Dept. of Administration, and Dept. of Education; two zero notes from the Dept. of Community and Regional Affairs (homeowner prop. tax and rental rebate for senior citizens); a $1,109,520 note from the Dept. of Community and Regional affairs (homeowner prop. tax exemp. for disabled veterans); and a $162,294 fiscal note from the Dept. of Community and Regional Affairs (renters rebate for disabled veterans). SENATE BILL NO. 7 An Act relating to reimbursement of school construction debt; and providing for an effective date. Upon convening the meeting, Co-chair Pearce acknowledged that the committee had developed a work draft for the bill. She then referenced ongoing problem areas and advised that a task force consisting of committee staff and representatives of the Dept. of Education, municipalities, school districts, bond bank counsel, and the drafter from legal services would be working throughout the day, in the Fahrenkamp Room, to develop a formal committee substitute for presentation to committee later in the day. Co-chair Pearce noted a TELECONFERENCE link to Anchorage and asked that JUDY BRADY, Executive Director, Alaska Municipal Bond Bank Authority, speak to a problem that developed yesterday afternoon. As background information, Ms. Brady explained that the original proposal called for establishment of a special fund, the interest from which was to pay the 70% state contribution for school construction. It soon became evident that the constitutional amendment needed to set aside funding in a special account would not be possible for "a couple of years." Municipalities still want the state to pay the 70% while they continue to pay 30%. Problems arise because neither the bond bank nor other institutions issuing debt could issue the state's 70% via revenue bonds. Revenue bonds must be backed by collateral or some form of income, other than an annual appropriation, to pay off the bonds. BOB POE, aide to Senator Pearce, next came before committee. He directed attention to a draft CSSB 7 (Fin) (8-LS0142\J, Ford, 4/20/93) and concurred in the above problem cited by Judy Brady. The current draft allows for debt reimbursement on a 70/30 basis for the two years prior to passage of an amendment establishing the constitutional school construction fund. When that fund is in place, the municipal bond bank would have the authority to issue school debt. Under the 70/30 arrangement, the state would pay 70% of the construction cost, and the municipality would issue 30% of the debt in general obligation bonds through the municipal bond bank. If the amendment to establish the constitutional school construction fund does not pass, the whole program would end--both debt reimbursement on a 70/30 basis and municipal bond bank ability to work with municipalities on school debt. Co-chair Pearce acknowledged concerns earlier expressed by Senators Kelly, Kerttula, and Frank and advised that they would be the subject of the ongoing task force. Senator Kelly directed attention to page 3, line 12, and advised of lack of support for state funding of "esoteric alternative education programs." State funding should be committed to basic education and classroom space. He then formally MOVED for adoption of the following amendment at page 3, line 12: delete "programs" and insert "facilities." Co-chair Frank explained that the intent of existing language is not to tell experts and bill drafters exactly what to say but to provide a sense of what the committee wants to accomplish. Co-chair Frank concurred in Senator Kelly's statement regarding alternative programs. End, SFC-93, #67, Side 1 Begin, SFC-93, #67, Side 2 Directing attention to page 5, line 30, Senator Kelly voiced his belief that the maintenance threshold of $50,000 is too low. He suggested that school districts statewide could reasonably be expected to provide normal operational maintenance and should not expect the state to pay 70% of that cost. Senator Kelly recommended that $50,000 to changed to $300,000. Co-chair Frank concurred. He said it is appropriate for the state to share the cost of schools and the cost of major renovations (roof replacement, etc.) but not routine annual maintenance. He concurred that the threshold should be consistent with the cost of major renovations and/or replacement. Senator Kerttula voiced agreement with the sense of the amendment. He cautioned, however, that proposed changes not cause districts to ignore maintenance and allow small problems to become major. Co- chair Frank concurred in need to incorporate legislative intent as well as an expression of what is authorized in terms of renovation, rehabilitation, structural integrity, etc. Co-chair Pearce suggested that renovation and rehabilitation be permitted only in cases where regular maintenance had routinely been accomplished. Senator Kelly expressed need for statutory language accomplishing the foregoing rather than a letter of intent. Senator Kelly next noted that since conclusion of the former 80/20 construction program in 1990, only one school district--Anchorage--has bonded. It would be unfair for that district to pay 100% of its bonds while other districts are reimbursed 70%. He then voiced need to amend the proposed bill to include Anchorage bond issues within the 70/30 program. Senator Kerttula voiced support for the amendment but stressed need to carefully structure language to ensure that the allowance represents a one-time-only effort. He then suggested that Barrow might also have bonded for schools within the past two years. BRIAN ANDREWS, Deputy Commissioner, Treasury, Dept. of Revenue, came before committee. He voiced his understanding that Anchorage was the only district to bond since conclusion of the former program. Proposition 7 totaled approximately $20 million, and Proposition 8 totaled $4 million. Brief discussion followed between Co-chair Pearce and Senator Kelly regarding the outcome of recent ballot propositions in Anchorage. Senator Sharp redirected attention to page 3, line 13, and voiced need to ensure that language relating to "regional, community, and school facilities" does not include construction of administrative buildings. Co-chair Pearce reiterated that a task force would be working on the legislation in the Fahrenkamp room. Both the room and a teleconference line are available from 9:30 a.m. to 5:00 p.m. She then asked that committee members make concerns known to staff. The current Senate Finance Committee meeting will ultimately be recessed with the intent of reconvening later in the day for review of an updated draft CSSB 7 (Finance). Judy Brady observed that the Alaska Municipal Bond Bank Authority had been "running figures . . . for about four days" in an effort to develop the technical means of making the bill work. She suggested that the Governor's plan to use cash for two or three years would provide the catch-up moneys in the fastest manner and in the greatest amount. While bonding provides a long-term solution, it will provide "much smaller amounts" than the Governor is proposing. Ms. Brady reiterated that in terms of catch-up, cash will get the state where it wants to go the "quickest." Co-chair Pearce acknowledged the foregoing. She further noted that the committee would be discussing SB 60--a cash school construction package. The Co-chair acknowledged that it contains less than the Governor and the House proposed, and she further acknowledged catch-up needs, particularly in rural Alaska. The question is: Where does that cash come from? She then voiced committee belief that the BP settlement money "is rightfully in the constitutional budget reserve." Co-chair Pearce directed that the meeting be briefly recessed. RECESS - 9:40 A.M. RECONVENE - 9:50 A.M. SENATE BILL NO. 60 An Act making appropriations for construction and major maintenance of schools; and providing for an effective date. Upon reconvening the meeting, Co-chair Pearce directed that SB 60 be brought on for discussion and referenced a new draft CSSB 60 (Fin) to supercede the "M" version distributed for review at the previous meeting. Co-chair Frank MOVED for adoption of CSSB 60 (Fin) (8-GS1060\Q, Utermohle, 4/20/03, totaling $50,591,670). No objection having been raised, the "Q" version of CSSB 60 (Fin) was ADOPTED. Co-chair Pearce next directed attention to a proposed amendment. She explained that the Dept. of Education noted that single-site allocations set forth in Section 2 of the bill are not consistent with SCS CSHB 45 (Fin) as passed and signed by the Governor. Department numbers based on FY 93 actual student data should be inserted within Section 2. The appropriate figures are set forth on a tabulation attached to the proposed amendment. The new total would be $24.0 less than the earlier version of the bill. Co-chair Frank MOVED for adoption of the amendment designated amendment no. 1. No objection having been raised, amendment no. 1 was ADOPTED. Co-chair Pearce noted need to change the line numbers set forth on the amendment from lines 20 through 29 to lines 11 through 19. She further noted need to conform funding information on page 1 of the bill to the above-noted reduction. (Senator Jacko arrived at the meeting at this time.) Co-chair Pearce called for testimony on the bill. CARL ROSE, Executive Director, Association of Alaska School Boards, came before committee, voicing confusion over recent legislative action. He then noted that the remainder of the state has great needs, and the $50 million contained within CSSB 60 (Fin) is inadequate to meet those needs. Of the $50 million, $9.5 is assigned to Ketchikan and $1.3 to Kodiak-- communities with bonding ability. Many communities do not have that ability since they lack a tax base. The single- site addition further complicates the issue since it reflects $1 million taken from the capital budget to address operating problems. That reduces capital needs significantly. Mr. Rose questioned why the approach contained within the proposed bill was taken by committee. Senator Jacko MOVED that CSSB 60 (Fin) (An Act making appropriations for school construction projects and making an appropriation of $1,066,280 from the general fund to the Department of Education for payment as grants for additional district support for the fiscal year ending June 30, 1994; and providing for an effective date) pass from committee with individual recommendations. No objection having been raised, CSSB 60 (Fin) was REPORTED OUT of committee. Co- chairs Pearce and Frank and Senator Jacko signed the committee report with a "do pass" recommendation. Senators Rieger and Sharp signed "no recommendation." (Senators Kelly and Kerttula were absent from the meeting and did not sign.) SENATE BILL NO. 88 An Act relating to grants to municipalities, named recipients, and unincorporated communities; establishing capital project matching grant programs for municipalities and unincorporated communities; establishing a local share requirement for capital project grants to municipalities, named recipients, and unincorporated communities; and providing for an effective date. Co-chair Pearce directed that SB 88 be brought on for discussion. Co-chair Frank noted a request from Shelby Stastny of the Office of Management and Budget that he be allowed to work with the legislature on language relating to legislative approval of capital matching grant projects. Co-chair Pearce voiced her understanding that there is presently no provision for legislative approval of capital matching grant projects to be funded by moneys appropriated during the current session. Co-chair Frank concurred. He then cited the following options: 1. Operate the program in the same manner as last year. 2. Allow OMB to approve projects subject to subsequent approval by the Legislative Budget and Audit committee. 3. Allow OMB to approve projects only after legislators from the impacted district have signed off on the project. Senator Rieger suggested it would be difficult to develop a capital budget without knowing what the process will be, particularly since SB 88 is still in the first house of referral. Co-chair Frank recommended that the bill be held in committee until later in the day. Co-chair Pearce noted that the committee had prepared a $103.3 fiscal note for the Dept. of Community and Regional Affairs and a $107.8 note for the Dept. of Administration. She also referenced a new municipal fiscal note from the Dept. of Community and Regional Affairs. SENATE BILL NO. 150 An Act providing for oil and gas exploration licenses, and oil and gas leases, in certain areas of the state; and providing for an effective date. Co-chair Pearce directed that SB 150 be brought on for discussion. She referenced a draft CSSB 150 (Fin) (8- GS1012\D, Chenoweth, 4/19/93) which she explained contains amendments 1 through 5, adopted by committee at the April 18, 1993, meeting. Senator Sharp MOVED for adoption of the "D" version of CSSB 150 (Fin) as a working document. No objection having been raised, the "D" version was ADOPTED. Senator Sharp directed attention to amendment no. 6 at page 11, lines 11 through 20. He said the proposed language change would make administration easier for regulators and avoid the necessity of development of additional regulations since it defines average production on a monthly basis. Co- chair Pearce asked why proof of financial responsibility requirements were reduced to less than $20 million per incident. Senator Sharp cited need to encourage small developers and exploration companies to produce from limited capacity fields without being subject to $20 million liability on small production. He referenced a situation in Cook Inlet as an example of how the new provision would operate. Co-chair Pearce voiced concern over reducing liability for an on-shore facility to $1 million per incident. She then inquired concerning liability for off-shore exploration facilities. Senator Rieger noted that liability for off- shore facilities remains at $50 million. Brief discussion of on and off-shore facilities followed between Co-chair Pearce, Senator Rieger, and KEN BOYD, Deputy Director, Division of Oil and Gas, Dept. of Natural Resources. MEAD TREADWELL, Deputy Commissioner, Dept. of Natural Resources, came before committee in response to questions concerning proof of financial responsibility. He explained that the department accepts bonds, insurance, net assets, etc. The department seeks to ensure that an entity has the financial resources to clean up a spill and pay resource damages from the spill. Discussion followed between Co-chair Pearce and Mr. Treadwell regarding contingency plan requirements for exploration facilities. Co-chair Pearce again expressed concern regarding the lowering of liability requirements, citing costs associated with a recent cleanup by the Alaska Railroad. Mr. Treadwell pointed to broad authority by the Dept. of Natural Resources to set bonding requirements associated with surface leases. The Dept. of Environmental Conservation does not accept that bond as proof of financial responsibility. Senator Kerttula voiced need for adequate liability and proof of responsibility for operators. He expressed concern over proposed decreases. Co-chair Frank voiced his understanding that $20 million was "wildly more" than any other state for on-shore facilities. Mr. Treadwell informed members that Alaska's requirements are the highest in the country. They were developed following the EXXON VALDEZ oil spill. Further comments by Mr. Treadwell followed regarding surface and subsurface rights and respective ownership. He acknowledged a number of tank situations where long-time contamination has gone from one property to another. Co-chair Frank said that he did not disagree that potential liability may be greater than limits within the proposed amendment. He stressed need to look at risks and rewards in a broad context. The state has resources it wishes to develop. Alaska wishes to encourage oil and gas exploration and production. It thus seeks to encourage both small and multinational companies. On-shore cleanup is easier than a water spill. Proof of financial responsibility could thus be less. Co-chair Pearce reiterated her belief that $1 million is too low. On-shore facilities may be located close enough to tidal action to impact waterways. Senator Sharp recited a listing of other states and their on-shore liability requirements. Alaska also requires "plugging and abandonment bonding" amounting to $100,000 per well. The highest of any other state is $10,000. Senator Sharp further attested to oil and gas conservation commission responsibility for prescribing "absolute well- drilling procedures and safety equipment required to be used during the drilling." He then recited a listing of such equipment and other controls that must be in effect. Senator Kerttula voiced need to establish necessary minimum safety levels to guard against desecration by independent exploration. Senator Sharp advised that he would withdraw amendment no. 6. End, SFC-93, #67, Side 2 Begin, SFC-93, #69, Side 1 In response to a question from Co-chair Pearce, Senator Sharp explained that his amendment bases liability on monthly rather than daily production. Monthly production is easier to measure. Co-chair Pearce voiced her understanding that reduction of liability for on-shore exploration from $5 to $1 million was contained in the Senate Oil and Gas version of the bill. Senator Sharp concurred. Co-chair Pearce requested that Senator Sharp again offer amendment no. 6 since the area of contention that reduced liability for on-shore exploration was not part of the amendment. Senator Sharp MOVED for adoption of amendment no. 6. Senator Rieger directed attention to subsection (f) and suggested that proof of financial responsibility for an on-shore production facility be based on the higher of the average monthly production. Mead Treadwell explained that the intent of the language in subsection (f) is to set financial responsibility at either the average production of the past year for an ongoing operation or on maximum engineered design capacity for a new facility with no previous production. There may be situations where a well may have declined to ten or twenty barrels a day. If the facility was engineered for 4,000 barrels a day, addition of the words "higher of" to liability language could fix liability at original design capacity. That is not the intent of subsection (f). Co- chair Pearce suggested that subsection (f) be separated into two sections, one to apply to existing and the other to new facilities. Senator Rieger suggested that fields do not normally decline quickly. He held to need to add the new language, saying that there may be cases where production actually increases. Co-chair Frank voiced support for the language as submitted by the department. Senator Rieger formally MOVED to amend subsection (f) by adding "higher of the" before the word "average" on the second line. Senator Sharp OBJECTED, saying that actual production is a better indication of risk. Co-chair Pearce called for a show of hands on the amendment. Senator Rieger's amendment FAILED on a vote of 1 to 4. Senator Kerttula voiced need for a definition of "on shore." He voiced particular concern that facilities not impact bogs, marshes, and wetlands. Mead Treadwell said that he would phone the department and attempt to obtain a better definition. Senator Kerttula indicated need to ensure that it means dry land at some distance from contaminant potential. Co-chair Frank expressed reluctance to allow an agency to define the term. Further discussion followed between members and Mr. Boyd regarding definitions contained within Title 38. Comments followed regarding the location of the recent Alaska Railroad spill and costs associated therewith. Senator Rieger voiced discomfort with bill provisions lowering on-shore liability to $1 million. Co-chair Pearce directed that CSSB 150 (Fin) be held pending response to the above-noted concerns. CS FOR HOUSE BILL NO. 66(FIN) am An Act relating to an exemption from and deferral of municipal property taxes for certain primary residences, to property tax equivalency payments for certain residents, to the determination of full and true value of taxable property in a municipality; and providing for an effective date. Co-chair Pearce directed that CSHB 66 (Fin)am be brought on for discussion and referenced a new draft SCS CSHB 66 (Fin) (8-GH1032\M, Cook, 4/20/93), two new fiscal notes from the Dept. of Community and Regional Affairs, and an April 20, 1993, memorandum from Tam Cook regarding the optional tax exemption. RICK SOLIE, aide to Co-chair Frank, came before committee. He advised of need for a technical amendment. Co-chair Frank MOVED for adoption of the "M" version of SCS CSHB 66 (Fin). He explained that the draft contains provisions for municipalities to opt out of the senior citizens' portion of the tax exemption but not from the exemption for veterans. Senator Rieger voiced his understanding that the draft would prohibit a municipality from opting out of an exemption for disabled veterans. He then requested clarification of language at Sec. 5. Rick Solie advised that changes within Sec. 5 allow a municipality to increase the exempted amount for disabled veterans. Senator Kelly suggested that reference to the municipal option should be included within title language. He then MOVED to amend the title as follows: Page 1, line 1: Following the word "to" add: "a municipal option for" He said that the thrust of the Senate Finance version is the option, and it should be so stated in the title. No objection having been raised, the title amendment was ADOPTED. CAROLYN BERG came before committee representing "most of the pioneers in Alaska." She stressed that the state has an important and legitimate interest in preserving and protecting the health of its senior citizens. That cannot be done when the existing senior citizen property tax exemption is posed for cut off at a time when health care costs are the greatest. Senator Kelly attested to Mrs. Berg's many years of involvement in issues before the legislature. Senator Kerttula concurred in need for the state to take the leadership on behalf of senior citizens. Narrow-tax-based local communities often cannot provide much support. Much of available local resources are devoted to schools. Seniors are a contributing influence by virtue of expenditure of their income. It would be an "incorrect posture for the state not to give direction to local governments to continue a senior citizen discount program." He termed the proposed legislation "a bad bill." KEN SWISHER, Alaska Municipal League, next came before committee. He voiced a preference for the House version of the legislation over the newly adopted SCS CSHB 66(Fin). The House legislation allowed maximum flexibility to local governments to structure programs most fitting the local level. The preferred option is for full funding of the exemptions. Support for CSHB 66 (Fin)am is the second choice. The Municipal League surveyed local officials to determine what action might be taken should the legislation pass. Most agree that the matter will become an issue at the local level, and some form of action will be taken. The survey covered Anchorage, Kenai, Juneau, MatSu, Cordova, and Valdez. Referencing the disabled veterans mandate, Mr. Swisher expressed a preference for municipalities to be able to consider need. The needy should be helped rather than those who do not require assistance. Assistance to those who are not needy comes at the expense of those who do. Preserving seniors in their homes is of great value. The league supports that effort. On the other hand, a number of young families have difficulty keeping their children fed and clothed. Senator Kerttula spoke to tax payments by seniors over many years. He reiterated that most of the support at the local level goes to schools. Taxpayers continue to support schools long after their children have graduated. Mandating the continued exemption should not adversely impact boroughs. Senator Kerttula took exception to the position taken by the league, terming it "intolerable." BRUCE GERAGHTY, Deputy Commissioner, Dept. of Community and Regional Affairs, next came before committee. He initially spoke to problems surrounding lack of a disability threshold for the disabled veteran exemption and suggested that the committee include language relating to 50% disability. At the present time there are 703 disabled veterans who would qualify for the program. Of that number, 421 are in Anchorage. Mr. Geraghty expressed the department preference for an earlier work draft of the bill, distributed for review at a prior meeting. That version allows municipalities the greatest flexibility and maintains programs unless municipalities take action to alter them. Discussion followed between Mr. Geraghty and committee members regarding inclusion of the 50% disability threshold in the earlier version and lack thereof in adopted version "M." Rick Solie clarified the issue by explaining that the since the "M" version does not amend "any aspect of the disabled veterans' program" there was no need for the definition. Mr. Geraghty said the department would have no problem with the bill if the definition remains in law. Mr. Solie concurred that it remains in existing statutes. Senator Kerttula noted that a 10% disability in youth may comprise a much larger percentage as one grows older. He then asked if statutes contain a method of reevaluating injuries. Mr. Geraghty said that the department does not determine disability. It is identified at the time of discharge from the military. If an adjustment needs to be made, the issue would be dealt with by the Dept. of Military and Veterans' Affairs. Co-chair Pearce asked that Mr. Geraghty research the matter and provides members information on available avenues. Co-chair Pearce called for additional questions or comments on the bill. Senator Kerttula MOVED to TABLE the bill. Co- chair Frank OBJECTED. Co-chair Pearce called for a show of hands. The motion FAILED on a vote of 1 to 5. Co-chair Frank MOVED for passage of SCS CSHB 66 (Fin) with individual recommendations and the appropriate fiscal notes. Senator Kerttula OBJECTED. Co-chair Pearce called for a show of hands. The motion CARRIED on a vote of 5 to 1, and SCS CSHB 66 (Fin) was REPORTED OUT of committee with the following fiscal notes: DOA 0 DOE 0 DC&RA (homeowner exemption, seniors) 0 DC&RA (renter rebate, seniors) 0 DC&RA (homeowner exemption, veterans) $1,109,520 DC&RA (renter rebate, veterans) $ 162,294 Co-chairs Pearce and Frank and Senators Rieger and Sharp signed the committee report with a "do pass" recommendation. Senator Kelly signed "do pass as amended." Senator Kerttula signed "do not pass." (Senator Jacko was absent from the meeting and did not sign.) RECESS Co-chair Pearce directed that the meeting be recessed at this time, and scheduled to reconvene later in the day for continued hearing and action on SB 7, SB 88, and SB 150. The meeting was recessed at approximately 11:00 a.m.