Legislature(1993 - 1994)
03/15/1994 08:35 AM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
MINUTES SENATE FINANCE COMMITTEE March 15, 1994 8:35 a.m. TAPES SFC-94, #41, Side 1 (000-end) SFC-94, #41, Side 2 (end-000) SFC-94, #43, Side 1 (000-end) SFC-94, #43, Side 2 (end-500) CALL TO ORDER Senator Drue Pearce, Co-chair, convened the meeting at approximately 8:35 a.m. PRESENT In addition to Co-chairs Pearce and Frank, Senators Kelly, Rieger, and Sharp were present. Senators Jacko and Kerttula joined the meeting after it was in progress. ALSO ATTENDING: Mary Gay, Director, Child Support Enforcement Division, Department of Revenue; Laura Glaiser, Special Assistant, Office of the Lieutenant Governor; Mark LoPatin, LoPatin & Co., Developers; Jetta Whittaker, fiscal analyst, and Mike Greany, Director, Legislative Finance Division; aides to committee members and other members of the legislature. VIA TELECONFERENCE: Bob LeResche, LeResche & Co., Juneau, and Eric Wohlforth, Wohlforth Argetsinger Johnson & Brecht, attorneys, testified via teleconference from Anchorage regarding SB 338. SUMMARY INFORMATION CSSB 148(TRA): An Act relating to legislative approval of certain acts of the Alaska Railroad Corporation; taxation of certain property of the Alaska Railroad Corporation; members of the board and chief executive officer of the Alaska Railroad Corporation; meetings of the board of directors of the Alaska Railroad Corporation; and providing for an effective date. Scheduled but not heard. CSSB 190(JUD): An Act relating to income withholding and other methods of enforcement for orders of support; and providing for an effective date. Mary Gay, Director, Child Support Enforcement Division, Department of Revenue, spoke in support of SB 190. Discussion was held between Co-chairs Frank & Pearce, Senators Sharp, Kelly, Kerttula, and Rieger, regarding child support enforcement issues. Amendments 1 and 2 were ADOPTED. CSSB 190(FIN) was HELD over until Thursday, March 17, 1994. SB 276: An Act relating to criminal justice information; providing procedural requirements for obtaining certain criminal justice information; and providing for an effective date. CSSB 276(FIN) work draft "K" dated March 11, 1994 was before the committee. Amendments 1 and 2 had been ADOPTED in a prior meeting (March 12, 1994). Discussion was held by Co- chair Pearce, Senators Sharp and Rieger regarding fiscal notes and other concerns. Amendments 3 and 4 were ADOPTED. CSSB 276(FIN) was REPORTED OUT of committee with a "do pass," zero fiscal notes from the Department of Safety, Department of Law, and the Department of Health & Social Services, and pending a new fiscal note from the Department of Corrections (present fiscal note is in the amount of $181,874). SB 303: An Act relating to voter eligibility, voter registration, and voter registration agencies; and providing for an effective date. Laura Glaiser, Special Assistant, Office of the Lieutenant Governor, spoke in support of SB 303. Discussion was held between Senators Kelly, Sharp and Co-chair Pearce regarding federal law and other concerns. Amendment 1 FAILED to be adopted. SB 303 was REPORTED OUT of committee with individual recommendations, zero fiscal notes for the Department of Education and the Department of Revenue, and fiscal notes for the Department of Public Safety - $90.9, Lt. Gov. Elections - $23.0, Department of Health & Social Services (M.H. Admin.)-$10.7, Department of Health & Social Services (WIC)-$4.4, Department of Health & Social Services (Pub.Assist.)-$10.4, and Department of Commerce & Regional Affairs-$10.0. CSSB 316(RES): An Act relating to commercial fishing penalties. Scheduled but not heard. CSSB 321(JUD): An Act relating to the taking of a legible set of fingerprints when a person is arrested, upon initial appearance or arraignment, upon the conviction of the person, and when the person is received at a correctional facility, and providing that the set of fingerprints shall be provided to the Department of Public Safety; relating to criminal and crime records and information; requiring the reporting of information concerning homicides, suspected homicides, and violent sexual assaults to the Department of Public Safety for analysis; requiring the Department of Public Safety to participate in the Federal Bureau of Investigation, Violent Crimes Apprehension Program. Scheduled but not heard. CSSB 338(L&C): An Act relating to the issuance of revenue bonds for acquisition and construction of the Northern Crossroads Discovery Center for the Ship Creek Landings Project; relating to a study of the feasibility and financial viability of the Northern Crossroads Discovery Center; relating to construction of the Northern Crossroads Discovery Center; and providing for an effective date. Mark LoPatin, LoPatin & Co., Developers, spoke in support of SB 338. Bob LeResche, LeResche & Co., Juneau, and Eric Wohlforth, Wohlforth Argetsinger Johnson & Brecht, attorneys, testified via telecon-ference from Anchorage regarding SB 338. The bill was HELD over until March 16, 1994. SENATE BILL NO. 276: An Act relating to criminal justice information; providing procedural requirements for obtaining certain criminal justice information; and providing for an effective date. CO-CHAIR PEARCE announced that CSSB 276(FIN) work draft "K" was before the committee. In a previous Senate Finance Committee meeting amendments 1 and 2 from the Department of Law had been ADOPTED and included in work draft "K". She said that the bill had been held over and Senators Kelly, Sharp, Rieger and Dean J. Guaneli, Chief, Legal Services Section, Criminal Division, Department of Law, had been asked to draft new language on legislative access to records, now presented as amendment 4. Co-chair Pearce also announced that her amendment 3 was also before the committee. She explained that Senator Halford had requested the fingerprinting language removed from SB 276. The fingerprinting language would stand alone in SB 321. She said the Department of Law was comfortable with amendment 3 if SB 321 would pass. Co-chair Frank MOVED conceptual amendment 3. No objection being raised, amendment 3 was ADOPTED for incorporation within the Finance Committee Substitute for SB 276. Senator Sharp MOVED amendment 4 which added language so that the legislature, for official legislative business only, could upon written request, receive criminal justice information. No objection being raised, amendment 4 was ADOPTED for incorporation within the Finance Committee Substitute for SB 276. Senator Rieger asked if the fiscal note for the Department of Corrections in the amount of $181,874 would be reduced to zero because of amendment 3, removal of the fingerprinting language. Co-chair Pearce said that the Department of Corrections would provide an updated fiscal note. Senator Rieger alerted the committee that the fiscal note for the Department of Corrections should be looked at closely in conference committee. Senator Sharp also raised a question regarding travel and personal services for FY95 in that fiscal note. Co-chair Pearce said that SB 276, once reported out of committee, would be held until a new fiscal note could be received for the Department of Corrections. Senator Sharp MOVED for passage of CSSB 276(FIN) from committee with individual recommendations. No objection being raised, CSSB 276(FIN) was REPORTED OUT of committee with a "do pass," zero fiscal notes for the Department of Public Safety, Department of Law and the Department of Health & Social Services. The bill was held in Senate Finance until a new fiscal note was received for the Department of Corrections. Co-chairs Pearce, Frank, Senators Sharp, Kelly, Rieger and Kerttula signed a "do pass." CS FOR SENATE BILL NO. 190(JUD): An Act relating to income withholding and other methods of enforcement for orders of support; and providing for an effective date. Co-chair Pearce announced that CSSB 190(JUD) and CSSB 190(JUD) work draft "E" were before the committee. Also before the committee was a letter from Senator Little noting that the Judiciary Committee had pulled language from SB 190 over her objections which impacted the employer reporting project. Proposed amendment 2 would add that language back into the bill. Amendment 1 was proposed by the Department of Revenue. Senator Kelly asked the difference between version E and the original bill. Co-chair Pearce invited Mary Gay to speak to the differences. MARY GAY, Director, Child Support Enforcement Division, Department of Revenue, said the difference between the previous draft and the Judiciary Committee Substitute was the removal of the sunset provision for employer reporting. She also said that it was the Judiciary Committee's desire to have the bill include all federal requirements in regard to child support enforcement. At this point, Co-chair Pearce asked the committee to consider CSSB 190(JUD) before the committee. CSSB 190(JUD) work draft "E" would not be used. She went on to explain that the employer reporting project had been implemented by the legislature in 1991 which required employers with at least 20 employees to report new or rehired employees to the Child Support Enforcement Division on a monthly basis. This project sunsets on January 1, 1995, and had been extremely successful. Collections have increased by 12 percent in Alaska, even though many still go uncollected. The continuance of the project would be expected to be cost effective. The project would be extended by amendment 2. Ms. Gay went on to explain that amendment 1 had been requested by the Department of Revenue. The change on page 3, line 26, was a technical correction. On page 6, line 20, the words "for a formal hearing" are added. This ensures that the obligator has been through the informal process. Senator Kerttula MOVED amendment 1. No objection being raised, amendment 1 was ADOPTED for incorporation within a Finance Committee Substitute for SB 190. Senator Kerttula MOVED amendment 2. Senator Sharp OBJECTED. Discussion followed by Co-chairs Pearce, Frank, Senator Sharp, and Ms. Gay regarding the sunset of the employee reporting program. Co-chair Pearce and Ms. Gay testified to the success of the program and informed the committee that Congress was considering mandating the employee reporting program for all states. Co-chair Pearce called for a show of hands on the adoption of amendment 2, and the motion carried on a vote of 1 to 5 (Co-chairs Pearce and Frank, Senators Kerttula, Rieger, Kelly were in favor, Senator Sharp was opposed. Senator Jacko was absent from the meeting at the time the vote was taken). Amendment 2 was ADOPTED for incorporation within a Finance Committee Substitute for SB 190. Senator Kelly brought up concerns regarding the $1 fee charged the obligator and the additional paperwork required of employers because of child support withholding. Extensive discussion followed between Co-chairs Pearce, Frank, Senators Sharp and Kelly, regarding fees and who is subject to the child support withholding. Ms. Gay explained that if a parent was under a child support order before 1990, and had never missed a payment, that parent would not be required to be under wage withholding unless one of the parents requested it. If recently divorced, the non- custodial parent/ obligator would be required to have immediate wage withholding. As of January 1, 1994, the courts are to include an immediate wage withholding in the child support order, so the custodial parent could serve the order on the employer her/himself or have an attorney do so. The monies then run through the Child Support Enforcement Division, it is receipted, and mailed to the custodial parent. It would be considered an accounting function for these individuals. The federal government wants this done so there is a better accounting of child support payments in case there are difficulties in the future where amounts may be under dispute. Co-chair Frank asked, if from this time on, all child support payments would go through the Child Support Enforcement Division. Ms. Gay agreed they would, unless the parents had an alternative arrangement through the court, i.e., a trust fund or such. Co-chair Pearce informed the committee that the Alaska Court System had provided a new fiscal note and voiced their objection to not being included in SB 190. She went on to review the fiscal note for the Court and its request for a parttime employee because of unnecessary paperwork caused by requirements for employers to notify the Court of terminated employees. Co-chair Pearce asked why that requirement was included in the bill. Ms. Gay said in referring to non- child enforcement cases the wording "agency, the court, or other entity" was often repeated, and agreed that notice of termination did not need to be sent to the Court. The notice, however, did need to be sent to the obligee. Ms. Gay spoke to wording in Sections 6 and 8 that could be removed. Co-chair Pearce informed the committee that her intention was to hold SB 190 so that she and Senator Sharp could review the Court's responsibilities, and, hopefully, zero out the fiscal note for the Court System. SB 190 would then come back before committee. Co-chair Frank said he supported SB 190 in light of the poor child support payment records of most obligators, but would like to know how the system worked in regard to AFDC. Ms. Gay said that child support received by the Division for children on AFDC was kept by the Division except for $50 which was sent to the obligee or, in a rare case, if the child support was larger than the AFDC payments, any excess was sent to the custodial parent. She also agreed that when a parent was not working, child support was seldom received, but when employed and the employer withheld the child support, compliance was good. The non-traditional wage earner (self-employed or persons working for cash) was one type that was hard to reach. She reported that 25 percent of the caseload paid on a regular basis. She did not know the statistics but said the largest amount of money received by the Division was withheld from wages. Co-chair Frank asked why the Division did not provide a positive fiscal note to that effect. Ms. Gay said that the Division had been collecting child support by withholding since 1990 when the federal regulation was enacted and initiated wage withholding if a person had been delinquent more than 30 days. People that had child support orders before 1990, who were not late on their payments, might begin wage withholding in the future if they become delinquent. Child support cases that came out of the court at present included wage withholding in the child support order. The Division would handle the monies as a bookkeeping process, not enforcement. In answer to Co-chair Frank, Ms. Gay said she did not know what percent of persons not paying, or sporadic paying persons, were wage earners. Co-chair Pearce reiterated that the program had made an increase in collection of child support but still 75 percent of the obligators were not paying. Ms. Gay said that of the caseload, only half had been completed. She went on to explain, that since the federal government already required this program as of 1990, there had not been a significant change, but now the Court was effected because it was required to include wage withholding in child support orders. SB 190 updates the state's statutes in line with federal requirements so funding could be sanctioned. Senator Kerttula suggested that since this program is a administrative burden, all departments should be asked for suggestions or methods to reduce paperwork and still get the job done. He maintained that the inefficiencies that exist must be resolved in order to reduce overhead costs. Senator Rieger asked if the same language (found in page 5, Sec. 10) regarding an appeal paralleled modification of support amounts. Ms. Gay replied that in a modification of support, the person was told there was going to be a modification and was requested to provide income information. (She noted this was not usually provided willingly). If it was an administrative modification, then the person had already provided their income information, and an informal conference was held. They were sent a consent order, but if it was not signed, it would not take effect. Ms. Gay stressed that with every step within the process of child support enforcement there is the opportunity for due process. When the opportunity for due process in statute runs out, the person could always go to court and present his/her case. Senator Rieger said he received complaints from constituents that increases in child support withholding were done without their knowledge. Ms. Gay replied there might be several causes for an increase in withholding such as a cost of living that was included in their child support order, or an amount past due that could be included. She said that a yearly, or every two year cost of living was sometimes written into child support orders and the person may have forgotten about that provision. Senator Rieger asked if support orders were based on a percentage of income. Ms. Gay said a percentage was only used when an arrearage amount was being collected. She agreed that some judges used a percentage to decide on a figure for a child support order. In answer to Senator Rieger, she said that if either parent changed jobs or remarried, it would not automatically trigger a change in the amount withheld from their paycheck for child support. End SFC-94 #41, Side 1 Begin SFC-94 #41, Side 2 In response to Senator Rieger, Ms. Gay said that either parent could go to court and asked for a modification of child support. Co-chair Pearce said that judges sometimes take remarriage or change of jobs into account for modification of support. She reminded him that it was not up to the Division to set child support amounts. The Court sets the amount, the Division administers that amount, and cannot change it. Senator Rieger believed that there were court orders for child support based on percentage of income. Ms. Gay said that previous court orders may have been done on a percentage, but, at present, the court orders a set amount to be withheld for child support. In answer to Senator Kelly, Ms. Gay confirmed that the withholding amount was now determined by 27 percent for one child, and 33 percent for two of the adjusted gross income of the non-custodial parent, with a maximum of $6,000 a month. Senator Kelly said that his constituents complained that the Division was quick to raise amounts withheld but were slow in stopping withholding when appropriate. Ms. Gay said that the Division did not discriminate between cases. In answer to a constituent complaint he mentioned, she said that if a child is 18 and still a student, the child support may continue until the child graduates. In answer to Senator Kelly, Ms. Gay reiterated that all new divorced parents would be placed on the withholding system unless they have agreed on an alternative arrangement with the Court. Ms. Gay felt that Congress decided on this program because, not only was it an effective way to collect child support, it did not discriminate against any parent by saying a parent was bad for not paying. If everyone was under immediate wage withholding, it just meant that they owed child support. Senator Sharp voiced his objection to having all obligations under a mandatory withholding system. If someone was paying on time, they should not be submitted to automatic withdrawal because he feared it would have a negative effect on their credit rating. He also felt it was an unnecessary burden for the employer. Ms. Gay informed him that some obligators did not mind their child support being withheld from their paycheck. Co-chair Pearce remarked that employers deal with many different kinds of withholdings, such as savings bonds, direct deposit to bank accounts, etc., and this was considered just another withholding and would not negatively impact a credit rating unless the obligator was past due. She also reminded Senator Sharp that three out of four obligators were not paying and that was not a very good record. In answer to Senator Sharp, Ms. Gay said that all administrative orders since 1990, established by the Division, included wage withholding unless another arrangement had been made with the Court. As of January 1, 1994, all court child support orders must include wage withholding. However, there were orders previous to 1990, being enforced by the Division, that did not have wage withholding but would in the future if the obligee requested it, or if there was a modification process. In those cases, there had to be a good reason for initiating the wage withholding. Again, in answer to Senator Sharp, Ms. Gay said that if a parent went on AFDC, a case would automatically be established with the Division, and only a small percentage of these cases already had a court ordered divorce. The largest percentage were never married or, if they were married, never went through a divorce. At that point, paternity and a child support order needed to be established. The money was collected and 50 percent was retained by the state, and 50 percent was returned to the federal AFDC program. She agreed that the obligee assigns his/her right to child support over to the state so funds could be recovered. Co-chair Frank pointed out that since 75 percent of obligators were not paying child support, it seemed logical and a more efficient process to have a withholding program and thus, have the child receive the money. Unfortunately, the employers were being inconvenienced. He wished it wasn't necessary but felt it was. His next question was how the state could contact the 75 percent that did not pay. He also asked if an employer with less than 20 employees would still be subject to the withholding program. Ms. Gay said that employer reporting was required of any employer with more than 20 employees, but any employer must withhold child support if an order was received by them. She wanted the committee to remember that employers were taxpayers. Ensuring that families were provided for by child support enforcement alleviated the need for those families to go on ADFC. Employers understood that if families were kept independent and off welfare, it would help keep their taxes from increasing. Ms. Gay said as a result of the Uniform Interstate Families Support Act, there were two changes to interstate child support laws. One would be that the original order would be effective in all states rather than each state having to initiate their own order. The other outcome was that it would allow the Division to send its child support orders directly to the employers instead of through another agency. Senator Kelly reiterated his concern over credit reports when a person had child support withheld from his paycheck. Ms. Gay informed him that credit bureaus look at past due child support over $2,000 the same as any other past due account. She assured him that credit bureaus were not interested in withholdings from a person's paycheck but were concerned with the person's debts. Co-chair Pearce confirmed that if child support was withheld from a person's paycheck, it would not restrict his/her ability to buy a house or car. However, if a person was delinquent, it should show negatively on their credit rating. Senator Sharp voiced his concern regarding the word garnishment and felt it had a negative consequence. Co-chair Frank said that credit bureau's would not receive notification unless the obligator was past due. He did not see a problem with withholding by the employer. Senator Kerttula voiced his concern over individuals who married, divorced, and then remarried, creating two or more families, and chose not to support any of them. He asked if there was any national solution to this welfare abuse. Ms. Gay said there was no solution to her knowledge, and affirmed that in 25 percent of the Division's cases, the obligator had two or more families. She said often the huge amounts of back child support owed by obligators had been caused by this phenomenon. In answer to Co-chair Pearce, Ms. Gay said she did not know what percent of past due cases were multiple family cases. Co-chair Frank asked if the federal government had considered using the IRS to collect back child support. Ms. Gay said that the federal government had considered moving the collection portion to the IRS but the IRS was not that successful in collecting unpaid taxes. Senator Kelly felt there probably was a correlation between unpaid taxes and unpaid child support. Since the object was to support the child, Senator Sharp wanted to know if any collections were being made when the parents were not married. Ms. Gay affirmed that an unwed father was responsible for his child(ren), but paternity must first be proved, and then collections could be attempted to be made. Co-chair Pearce announced that CSSB 190(FIN) would be held in committee until Senator Sharp and Co-chair Pearce's staff could present a new CS that incorporated amendment 1 and 2 ADOPTED, and deleted the Court System's responsibility where possible. She hoped to reschedule it on March 17, 1994. SENATE BILL NO. 303: An Act relating to voter eligibility, voter registration, and voter registration agencies; and providing for an effective date. Co-chair Pearce announced that SB 303 was before the committee and invited Laura Glaiser, Special Assistant, Office of the Lieutenant Governor, to speak to the committee. LAURA GLAISER said that SB 303 was drafted to bring the state into compliance with the National Voter Registration Act of 1993. The main significance of the bill was the designation of the Division of Motor Vehicles as a voter registration agency. It also included those Divisions within Health & Social Services that administer WIC, ADFC, Medicaid, and Food Stamp programs as voter registration agencies. As well as those state funded agencies that primarily provide services with disabilities, all armed services recruitment offices in Alaska would also be designated as voter registration agencies. The administration also had decided to add the Division of Municipal and Regional Assistance, Department of Community & Regional Affairs, as well, because members of that Division travel to the bush areas and could provide bilingual assistance with voter registration. The Director may also designate other state and local agencies as voter registration agencies. Ms. Glaiser went on to say that being designated as a voter registration agency meant the agency would assist voter applicants in filling out voter registration forms. The form would be offered to everyone (not just when requested) and the person could choose to fill it out or not. If they decided not to fill it out, they would be required to sign a declination form so that the agency had a record of their refusal to register. Ms. Glaiser went on to say that SB 303 made technical changes to the election laws to bring the state into compliance with the Voter Registration Act. One item changed was that all witnessing requirements would be removed from voter registration forms. In answer to Senator Kelly, Ms. Glaiser said that federal law did not require witnessing or formal notarization on voter registration forms. In addition, the system by which voters were purged from the voter registration rolls had been changed. A voter remained on the master list two years longer than presently. It would not effect the precinct list. In addition, it named the Director of Elections responsible for state coordination and reporting requirements under the federal act. Currently, if a person were convicted of a felony moral turpitude under federal law, but resided in the state of Alaska, he/she could still register and vote at the last known residence on an absentee ballot. One other change to state law, in compliance with this federal act, was that federal felonies would be reported to the state Division of Elections and the felon would not be allowed to vote until that felony had been cleared. Co-chair Pearce announced that Juanita Hensley, Division of Motor Vehicles, Dept. of Public Safety, and Curtis Lomas, Program Officer, ADFC program, Dept. of Health & Social Services, were in the audience and available to answer questions in regard to SB 303. In answer to Senator Kelly, Ms. Glaiser said that a person applying for driver's license could refuse to register to vote. The forms would be printed so the applicant would simultaneously fill out similar information. If he/she chose not to sign the voter registration section, that would be considered a declination. There would be no formal declination at the Department of Motor Vehicles. Ms. Glaiser said there would be training sessions similar to registrar training on what can be said to the applicant, and how to assist the applicant. In answer to Senator Sharp, Ms. Glaiser said the state would not require witness signatures on voter registration forms but would retain the registrar program. The state would not make the registration agency employees voter registrars. In answer to Senator Sharp, Ms. Glaiser agreed that anyone could gather signatures for voter registration and the election official would not know who had filled them out. Ms. Glaiser said that amendment 1 would change the way names were placed on the ballot. She explained that the state had one of the most complex systems of ballot rotation in the country. Many states were doing away with ballot rotation as a cost saving measure because it is believed voters did not vote for candidates because of their placement on the ballot. She proposed that letters of the alphabet would be drawn by the Director of Elections, names would be placed on the ballot accordingly, and the names would not rotate. Sample ballots could be printed and then used in the voting booth as a reference since the names would stay in the same order. Senator Kerttula voiced his opposition to this amendment. In answer to Co-chair Frank, Ms. Glaiser said that the ballot rotation was not part of the National Voter Registration Act. She also informed the committee that the National Voter Registration Act was a federal mandate without federal funding. The state would have the threat of a lawsuit if it did not come in compliance and because Alaska was a Voting Rights Act state, all party rules and state election laws pass through the Department of Justice which would flag this issue. In answer to Co-chair Pearce, Ms. Glaiser said that the Division estimated a savings of approximately $189,000 with the addition of amendment 1. If the Republican rule stayed in effect, and there was a separate ballot, it would save $267,000 every election cycle. Ms. Glaiser said that Washington, Oregon and California have noticed no complaints or difference for candidates when ballot rotation was used. Co-chair Frank MOVED amendment 1. Senator Kerttula OBJECTED. Co-chair Pearce called for a show of hands on the adoption of amendment 1, and the motion FAILED on a 2 to 3 vote. (Co-chairs Pearce and Frank were in favor, Senators Sharp, Kerttula and Kelly were opposed. Senator Jacko was absent from the meeting at the time the vote was taken). Senator Kelly asked what part of SB 303 was not mandated under federal law. Ms. Glaiser said the only addition outside of federal requirements was the inclusion of the Community & Regional Affairs as a voter registration agency. She reiterated that this agency was added because it contacted the bush and could provide bilingual service for voter registration. The federal government mandated voter registration forms had to be bilingual if a large population used another language but since parts of Alaska had so many oral and dialect changes, the administration thought that the Department of Community & Regional Affairs could address that situation. Senator Sharp MOVED for passage of SB 303 from committee with individual recommendations. Senator Kerttula OBJECTED. Co-chair Pearce asked for a show of hands. SB 303 was REPORTED OUT of committee with a "no recommendation," zero fiscal notes for the Department of Education, Department of Revenue, and fiscal notes for the Department of Public Safety-$90.9, Elections-$23.0, Department of Health & Social Services-M.H. Admin. $10.7, WIC-$4.4, Pub.Assist. $10.4 and the Department of Community & Regional Affairs-$10.0. Co- chair Pearce signed a reluctant "do pass," and Co-chair Frank, Senators Sharp, Kelly, Rieger, Jacko, and Kerttula signed "no recommendation." CS FOR SENATE BILL NO. 338(L&C): An Act relating to the issuance of revenue bonds for acquisition and construction of the Northern Crossroads Discovery Center for the Ship Creek Landings Project; relating to a study of the feasibility and financial viability of the Northern Crossroads Discovery Center; relating to construction of the Northern Crossroads Discovery Center; and providing for an effective date. MARK LOPATIN, LoPatin & Co., Developers, provided the committee with a handout titled "Northern Crossroads Discovery Center" (Attachment A, copy on file) and used slides to illustrate his presentation. He said that the land considered for Ship Creek Landing was surrounded by the Comfort Inn, the new Alaska Railroad headquarters office, as well as the Alaska Railroad depot. LoPatin & Co. had been paying lease payments on this land and intended to develop it into one of the finest mixed-use developments in this part of the United States. The development would contain four major components; a hotel, an office building, an upscale residential area, and a multi-attraction, tourist- oriented entertainment center. Mr. LoPatin wanted to speak to the last component, the proposed Northern Crossroads Discovery Center. End SFC-94 #41, Side 2 Begin SFC-94 #43, Side 1 Mr. LoPatin pointed out that in today's world of financing, it was difficult to get project financing, especially for leased land. However, his company was comfortable and confident that the hotel, office building, and upscale residential units would be conventionally financed. He placed the 42-year history of his company's success as a testimony that such financing would be achieved. In regard to the Northern Crossroads Discovery Center, he believed there was a unique opportunity allowing the railroad to issue tax-exempt bonds that could be sold for the development of a private-purpose corporation. This unique opportunity was part of federal legislation that allowed the railroad to be sold from the federal government to the state of Alaska. He said that Bob LeResche, LeResche & Co., Juneau, and Eric Wohlforth, Wohlforth Argetsinger Johnson & Brecht, attorneys, Anchorage, could attest to this fact. The Alaska Railroad, as an agency of the state, was free to sell tax-exempt bonds for trains, rails, office buildings, etc. for public and railroad purpose. The provision in the federal law that allowed the development for Ship Creek Landing had nothing to do with the railroad's ability to use tax-exempt financing for trains and railroad purposes. These tax-exempt bonds were something special and unique. He wanted to clarify that this was not something that the Railroad was using for private purpose. He attested to the fact that Anchorage was the center of a European and Asian crossroads and that could provide tremendous opportunities to market both the Northern Crossroads Discovery Center and Shipcreek Landing. LoPatin & Co. expected this facility to bring more international travelers, tourists, businesses, and companies to the Anchorage and Alaska area. With a slide (third page of the handout) Mr. LoPatin illustrated the proposed development on the leased land. In answer to Senator Jacko, he said the point of land already existed and was called Shipcreek Point. It was now a boat storage with an existing municipal launch facility. The next slide and page of the handout showed a closeup of the Northern Crossroads Discovery Center and its relationship to the hotel, conference center, residential, and railroad station. He explained that HB 338 addressed only the Northern Crossroads Discovery Center and not the other portions of the development. He went on to say that the Discovery Center was a public amenity, and the construction cost was estimated to be $58 million, not including some soft costs. It would be composed of three major pavilions, the Omnimax Theatre, the Hologram Theatre, and finally the Museum of St. Petersburg. In addition, there would be crafts, demonstrations, and other inter-activities for the public. It was designed around a study done by Economic Research Associates, Beverly Hills, California, who started with Disney. They had estimated this facility would generate an additional $41.6M to the area economy in lodging facilities, food, etc., not including revenues to the facility. He said the facility complements downtown and would not compete with existing shops. The concept was that it would give tourists the opportunity to see the beauty of Alaska and use Anchorage as a gateway to enter other areas of Alaska. In addition, the facility would allow residents of Anchorage an opportunity to view an Omnimax film series during the off-season. In answer to Co-chair Frank, Mr. LoPatin said the existing Alaska Experience Theater in downtown Anchorage was a wide screen theater, a different format than the Omnimax. Co- chair Pearce made the point that these were still additional theatres and the tourist would likely visit only one. Mr. LoPatin argued that this facility would bring a better market to the community and travelers would stay longer. He reiterated that financing was difficult to obtain for leased land and his company was not competing on equal ground in regard to the ability to finance. Co-chair Frank disagreed with that statement and indicated the location could be a cause for their problems with financing. Mr. LoPatin assured him that the Discovery Center was not in a bad location, and that financing and location were two separate issues. Mr. LoPatin went on to say that an exhibit by the Smithsonian shown in Juneau called "Crossroads of the World" brought together some of the finest pieces of Alaskan artifacts. Forty percent of them came from the museum in St. Petersburg, Russia. An agreement had been reached with the museum of St. Petersburg to have a permanent annex in the Discovery Center creating the first permanent annex of a foreign museum in America. Co-chair Pearce questioned the total visitor numbers used in Mr. LoPatin's presentation. Mr. LoPatin quoted the number, 764,000 visitors to Anchorage, as confirmed by the Anchorage Economic Development Corp., the Tourist Bureau in Alaska, and McDowell & Associates of Juneau. Other calculations had been made based on that number. He also remained convinced that an additional 125,000 business related travel trips were made to Anchorage. Co-chair Pearce said those numbers did not seem to match any Division of Tourism statistics. In answer to Co-chair Frank, Mr. LoPatin said that the second largest tourist attraction was the Museum in Anchorage which boasted a high rate of 40 percent penetration. He said Denali was the highest reported with Portage Glacier also an important attraction. Co-chair Frank asked Mr. LoPatin if he was estimating 60 percent of 765,000 visitors at $30 each. Mr. LoPatin noted that the McDowell Group believed the $30 admission price could be raised. He had met with two large tour companies and interest was strong. The biggest problem in Anchorage was finding hotel rooms. He made the point that 76 percent of the 765,000 tourists arrived in a three and half month period so any facility needed to be able to handle a "bulge" of visitors over a short span of time. Co-chair Pearce asked how many of the 765,000 overnight in Anchorage. She explained that tour ships bring tourists from Seward and Whittier on buses to Anchorage giving the tourist a small amount of free time to see anything. She was afraid that the Discovery Center would just displace other Anchorage attractions that were home owned. Mr. LoPatin felt that Anchorage was a gateway (point of departure or arrival) for most cruise ships and there was the opportunity to catch tourists the day before their cruise begins or the day after their cruise ends. The cruise ships were not encouraging people to stay because rooms were not available and they cannot afford passengers staying in rooms that are reserved for in-coming cruising passengers in those hotels. The hotel in this new facility alone would have a large effect on Anchorage. It would not decrease people's activities but increase Anchorage's capacity for more overnight tourists. Co-chair Pearce asked if financing through this bond proposal would facilitate more conventional financing for the hotel, since the hotel would be needed to provide the rooms for these visitors. Mr. LoPatin felt that the room generator (the Discovery Center) needed to be created before the rooms were created. He expected other hotels to be generated in addition to the hotel in this facility because of the interest created by the Discovery Center. In answer to Co-chair Pearce, Mr. LoPatin said that the first phase of this facility would require about $125-150 million. Co-chair Pearce noted that in testimony from the railroad, and in her opinion, building a new World Trade Center was fine, but all that was being done was a displacement of people from the Tudor Road facility. Some of the departments of the state were also interested in moving to the new building and might negotiate lower rental agreements. She reiterated that new businesses were not being created to fill the new building. Mr. LoPatin said he would not deny that tenants would move from one facility to another but he maintained that if the World Trade Center could operate efficiently, it would bring new businesses to the area and help existing businesses expand. He felt the World Trade Center was a much better advocate of that. He repeated their belief that there were businesses in the international markets looking for a home that would come to Anchorage if it had a real World Trade Center. Also, businesses in Anchorage would be able to expand if they could go to a World Trade Center for one-stop shopping. He had met with the Russian ambassador in Seattle where the Russian council office operates even though over 50 percent of its business is with Alaska. He felt a much better case could be made for their relocation if Anchorage had a first class World Trade Center. At a public hearing at the Anchorage Assembly, an Alaskan company said they were being solicited by Seattle to leave Anchorage. Mr. LoPatin felt a World Trade Center in this new location would be a huge step in the right direction in helping keep local businesses in Anchorage. In answer to Co-chair Pearce, Mr. LoPatin said that the World Trade Center's inability to attract new businesses and their lack of success was due to location and an inadequate facility. He felt the World Trade Center needed to be first class with meeting and conference space at a downtown location. In answer to Co-chair Frank, Mr. LoPatin said that expenses on this kind of facility available for debt service would be about 75 percent of the revenue, and $14M would go towards operating, maintenance, and capital improvement expenses. In answer to Co-chair Frank, Mr. LoPatin agreed that $3.5M would be available to service debt. In answer to Co-chair Frank's question regarding projected debt service, Mr. LoPatin said that the project was about 300 basis points above matching treasuries, placing the project at about 8 and half to 9 percent. BOB LERESCHE, LeResche & Co., Juneau, via teleconference from Anchorage, added that it would be 3 to 4 points about treasuries, putting the project at about 9 to 10 percent and debt service would be pushing that suggested $3.5M figure. Co-chair Frank said that $55M times 10 percent would be $5.5M. Mr. LeResche said that bonds would not be sold for the entire $55M. In answer to Co-chair Frank, Mr. LoPatin agreed that his company would provide equity of roughly 40 percent or $20M cash. Mr. LoPatin said that today it was not possible to borrow $55M or any amount of money without putting in some equity. Co-chair Frank said that 40 percent equity seemed high. Mr. LoPatin argued that 25 to 33 percent was a standard cash equity requirement needed for any financing. Co-chair Frank asked Mr. LoPatin what return on their investment was expected on the $20M. Mr. LoPatin said that he could not give the committee an answer to that question but his company was as demanding as a bank on their expected return. He said they were not doing this not to make money, and five, six, seven or eight percent would not make money for them. Co-chair Frank said that the proposed $3.5M, to cover interest and a little principle, would leave no return on their investment at all. He then asked if the Discovery Center was a "lost leader" for the hotels. Mr. LoPatin said that some of that would be factored into the return but was not able to give them an answer as to the exact expected percentage of return on their investment. Mr. LoPatin maintained that the Discovery Center would have to stand on its own, and would not be treated as a throw-away, or a break-even facility. The other element that would help bring some of the numbers down was the expectation of sponsorship grants of $5M to $8M. In answer to Co-chair Frank, he said tour or communications companies might be possible sources for grants. Senator Kelly noted that many changes had been made in the Labor and Commerce substitute of SB 338 including requiring a feasibility study to be done by the railroad, paid for by the LoPatin Developers, and a full performance and completion bond by LoPatin payable to the railroad if the Center was not completed. Senator Kelly went on to speak to financing. He said the bill was structured so there would be no faith and credit or moral obligation from the state of Alaska, Alaska Railroad Corporation, or the municipality of Anchorage on this project. That exact language would be placed on the face of the tax-exempt bonds. Senator Kelly called them "junk bonds" and Mr. LoPatin used the words "high-yield." Senator Kelly admitted that there was a demand for tax-exempt bonds. He felt that the state or Anchorage would not be liable, and voiced his support of the downtown project. Co-chair Pearce asked for confirmation that the Alaska Railroad Corporation would have no equity in the project. Mr. LoPatin agreed that it would not. Mr. LoPatin asked Mr. Wohlforth to respond to the railroad or the state's obligation to pay as well as the railroad's ability to borrow additional moneys for railroad purposes. ERIC WOHLFORTH, Wohlforth Argetsinger Johnson & Brecht, attorneys, via teleconference from Anchorage, agreed that the language of SB 338 made it absolutely clear that there was no railroad liability for the Discovery Center's bonds or debt. The offering documents would contain bold-face print to that effect. He confirmed that everything had been done so far to exclude Railroad liability for the debt. As far as the basic railroad statute was drafted, the only ability of the Railroad to borrow for any purpose, recourse or non-recourse, was with legislative permission and that was what was sought with SB 338 for bonds for the Discovery Center. The legislature would have to act to permit any further borrowing for major capital purposes such as a development like this. Mr. LoPatin said that in terms of federal law, the Railroad still had the ability to borrow tax-exempt money. Mr. Wohlforth said that what inhibits the Railroad from borrowing was the lack of legislative permission to do so. Federal law had survived several major revisions of the income tax code. The railroad still continued to have this unique provision to borrow tax-exempt money for private purposes which was essentially wiped out for other borrowers in the 1986 reform bill. Senator Jacko asked how the legislature could approve a $55M authorization and still have no moral or legal obligation to the state. Mr. LoPatin reiterated that federal law gave the Railroad the unique ability to sell tax-exempt bonds for a private purpose. The Alaska legislature had restricted how the Railroad can use that distinct ability. As to this project, the bonds were not general obligation bonds. They would not in any way impinge on the Railroad's ability to act like a railroad. The bonds would only be supported by and backed by the revenues from this facility. If this facility failed, the Railroad, the state, or the Anchorage municipality, would in no way be effected. The bonds would specifically say that the bonds were high-risk, and this facility was sole collateral for repayment of those bonds. Mr. LoPatin reiterated that there was no moral or legal obligation to the Railroad, state, or municipality. Senator Jacko asked at what point the 65 percent penetration of 700,000 visitors would be achieved after the opening date. Mr. LoPatin corrected the projection to 60 percent and proposed those levels of penetration would be achieved in three to four years. In answer to Senator Jacko, Mr. LoPatin explained that the "salmon center" referred to on page 19 of the Economics Research Associates handout dated April 1992 (Attachment B, copy on file) was a Juneau hatchery and was being used as an example of visitor penetration. Mr. LoPatin said that the Discovery Center would act as a marketing tool for all of Alaska and could market salmon. Senator Jacko asked if this was the first time the legislature had authorized "junk bonds." Senator Kelly said that "junk bonds" was his term because he himself would not invest in them because of lack of collateral. He believed other people would be willing to take the chance and invest in this facility. Senator Kelly said he was not aware of the legislature ever before authorizing these kind of bonds through the railroad. End SFC-94 #43, Begin SFC-94 #43, Side 2 Mr. LeResche noted that this was unique today but prior to the 1986 Tax Reform Act, AIDEA sold billions of dollars of high-yield bonds secured only by project revenues. People around the country also sold billions of dollars worth of these kinds of bonds. There were still some in people's ownership and a demand probably existed for these high-yield municipal bonds. It was not a new concept, but this type of bond had survived the 1986 Tax Reform Act. Co-chair Frank asked if there was any dollar limit to the number of bonds that could be issued by the Alaska Railroad Corporation. Mr. Wohlforth said the only limit was legislative approval. Co-chair Frank asked what pay-back terms would be on the bonds. Mr. LeResche said that the term for the bonds would be as long as possible, perhaps 20 years. Co-chair Frank asked for other examples of projects financed prior to 1986 through stand-alone AIDEA financing where there would be no moral obligation to the state. Mr. Wohlford listed Alaska Airlines, Alaska Pipeline (M-Star), Louisiana Pacific, American President Line's dock at Unalaska, as examples of companies that had issued bonds. In answer to Co-chair Frank, Mr. Wohlford said that typically, general obligation bonds were issued by private companies. Co-chair Frank, referring to one of his examples, asked if it would have been termed "Alaska Airlines full faith and credit." Mr. Wohlford agreed. Co-chair Frank asked what was envisioned for this project. Mr. Wohlford said that he did not know what the ultimate financing would be. It would be project financing and that would be where the parties would look for ultimate repayment. Mr. LeResche said other bonds had been issued that did not remotely include anyone's full faith and credit. For example, several native corporations in southeast built a dock at Klawock with $12M-$14M worth of AIDEA project bonds. At the Energy Authority, $30-35M worth of conduit bonds were sold for the Solana Energy Project. Co-chair Frank asked if LoPatin & Co.'s full faith and credit would be put up for the bonds. Mr. Wohlford said that if the bonds were enhanced by an outside letter of credit bank, or bond insurance, those entities would tie up every full faith and credit of LoPatin & Co.'s assets that they could to provide a letter of credit. In answer to Co- chair Frank, Mr. Wohlford said it was not appropriate to discuss this with LoPatin & Co. until the feasibility study for the bond market was complete. Co-chair Frank asked Mr. Wohlford if he thought it was proper for the legislature to authorize this before the feasibility study was complete and terms and conditions were still unknown. Mr. Wohlford said that this bill included a requirement for a feasibility study, and the bond market would absolutely require it. He felt Mr. LoPatin would not want to complete a feasibility study without assurance that if the study came out positively, the Railroad would have the authority to sell the bonds. Senator Kelly noted that a feasibility study had been done but the problem was Mr. LoPatin's company contracted it making it unacceptable to the bond market (some parts of it are found in Attachment B). He pointed out that this feasibility study had said that the Discovery Center would be feasible and that was why LoPatin & Co. was in support of the Discovery Center project. The feasibility study needed for the bond market would have to be done and the cost would be paid for by LoPatin & Co. Mr. LoPatin explained the process that was to follow. Before the sale of bonds, a detailed feasibility study must be completed with performas including capital construction contracts and budgets. Once that happens, the bond market would know what the facility would cost, and its revenues, as best projected, so that an amount could be set for the sale of bonds. For all this to happen, legislative authority had to be in place first. Moving this bill would not guarantee that this facility would be built. Other steps would have to happen, but this was the first step. It could not proceed without it. Senator Kelly remarked that the Anchorage municipality's approval had been the first step and $5.5M had been put into the Ship Creek landing project a few years ago. Co-chair Pearce announced that SB 338 would be HELD until March 16, 1994, 9:00 a.m. At that time SB 316, SB 321, and SB 148 would also be heard. She hoped SB 190 would be heard March 17, 1994. SCHEDULED BUT NOT HEARD: CS FOR SENATE BILL NO. 148(TRA): An Act relating to legislative approval of certain acts of the Alaska Railroad Corporation; taxation of certain property of the Alaska Railroad Corporation; members of the board and chief executive officer of the Alaska Railroad Corporation; meetings of the board of directors of the Alaska Railroad Corporation; and providing for an effective date. CS FOR SENATE BILL NO. 316(RES): An Act relating to commercial fishing penalties. CS FOR SENATE BILL NO. 321(JUD): An Act relating to the taking of a legible set of fingerprints when a person is arrested, upon initial appearance or arraignment, upon the conviction of the person, and when the person is received at a correctional facility, and providing that the set of fingerprints shall be provided to the Department of Public Safety; relating to criminal and crime records and information; requiring the reporting of information concerning homicides, suspected homicides, and violent sexual assaults to the Department of Public Safety for analysis; requiring the Department of Public Safety to participate in the Federal Bureau of Investigation, Violent Crimes Apprehension Program. ADJOURNMENT The meeting was adjourned at approximately 11:10 a.m.