Legislature(1993 - 1994)
04/27/1994 09:25 AM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
MINUTES SENATE FINANCE COMMITTEE APRIL 27, 1995 9:25 a.m. TAPES SFC-95, #46, Side 1 (000-575) SFC-95, #46, Side 2 (575-end) SFC-95, #48, Side 1 (000-575) SFC-95, #48, Side 2 (575-291) CALL TO ORDER Senator Rick Halford, Co-chairman, convened the meeting at approximately 9:25 a.m. PRESENT In addition to Co-chairmen Halford and Frank, Senators Phillips, Sharp, and Rieger were present. Senators Donley and Zharoff arrived shortly after the meeting began. Also Attending: Senate President Drue Pearce; Joe Kyle, Alaska Steamship Association; Jeff Bush, Deputy Commissioner, Dept. of Commerce and Economic Development; Gayle Horetski Assistant Attorney General, Dept. of Law; Dan Twohig, Coordinator, Board of Marine Pilots, Dept. of Commerce and Economic Development; Dale Collins, Southeast Alaska Pilots Association; Kate Tesar, Alaska Coastwise Pilots; Paul Fuhs, Southwest Alaska Pilots Association; and Ginny Faye, Prince William Sound, RCAC. SUMMARY INFORMATION SB 148 STATE EMP DEFINED CONTRIB RETIREMENT PROG A new draft CSSB 148, version "O," dated 4/27/95, was ADOPTED as a working document. It was subsequently held in committee for 24-hour review. SB 130 MARINE PILOTS Testimony was given by Senate President Drue Pearce, Joe Kyle, Jeff Bush, Dan Twohig and Dale Collins. The bill was then held in committee for continued discussion at the afternoon meeting. SENATE BILL NO. 148 An Act relating to a defined contribution retirement plan for state employees. Senator Rieger MOVED to adopt a draft CSSB 148, "O" version, dated 4/27/95, as a working document. No objection having been raised, it was ADOPTED. The Senator explained that the original bill would establish a defined contribution plan for state workers in place of the present defined benefits plan. The primary difference between the two approaches is that a defined benefit plan is based on a guess of future costs. It involves an actuarial study which estimates how much money needs to be saved each year to fund the future guess as well as a 25-year approach for paying an obligation which is enacted immediately. The result of the state's defined benefits plan is a $240 million unfunded liability in the public employee retirement system. Senator Rieger noted that there is a similar unfunded liability in the teacher retirement system. A defined contribution plan eliminates unfunded liabilities. In a defined contribution plan, the amount of money set aside by the employer belongs to the employer. Earnings on the money accrue to the employee, and the employee has the full benefit of the money upon retirement. The new draft replaces present employer and employee contributions to a defined benefit plan with new employer and employee contributions to a defined contribution plan. The employee contribution is %5, and the employer contributes 6%, for a total of 11%. The two components are in addition to employee and employer contributions under the existing SBS system, which is not changed by the proposed bill. Those two contributions total 12.26%. There is thus a 23.26% contribution per year feeding the employee's retirement fund. The bill is designed to remain under the IRS maximum of 25%. It also provides for self-directed retirement. The new Public Employees Retirement System would allow self direction by employees with a transition provision allowing employers to select retirement investments. The Retirement Incentive Program is included in the bill as well. Senator Rieger explained that with the savings in employer contributions to the new Tier III, as opposed to contributions to the present Tier I or II, the RIP will result in cost savings. Co-chairman Halford directed that the newly adopted draft be held in committee for 24-hour review. SENATE BILL NO. 130 An Act relating to marine pilots and the Board of Marine Pilots; extending the termination date of the Board of Marine Pilots; and providing for an effective date. Senate President Drue Pearce explained that, following the Exxon Valdez oil spill, one of the recommendations of the Oil Spill Commission was that pilotage statutes and regulations be completely rewritten. In 1991, considerable energy was devoted to that effort. SB 130 extends the board of marine pilots, now in its sunset year, and makes changes that eliminate problems associated with the 1991 rewrite. Senator Pearce referenced a letter of support from the Dept of Commerce and Economic Development and advised that the fiscal note covers a self-sustaining board. Pilots presently pay a $3.0 annual license fee. A new apprenticeship program, introduced by the Knowles administration, will provide an opportunity for more Alaskans to break into piloting. It will enable individuals in Western Alaska who qualify for the program to be trained. This is particularly important for the Pribilof Islands where pilotage is compulsory. There are no resident marine pilots in the area, and a pilot must be flown to the region. Senator Rieger asked Senator Pearce to comment on an article by the Federal Trade Commission regarding monopoly in marine pilotage. Senator Pearce responded that the system in Alaska is much less a monopoly than elsewhere in the country. Mississippi pilots must be a family member to break into the industry. There are other areas of the country where pilotage is a monopoly. Alaska has competing pilots. Agreements between industry groups and piloting organizations are "free wheeling" with regard to terms and conditions. American flag carriers, such as Sealand, have their own pilotage arrangement. Alaska does not have fixed tariffs. They were eliminated in 1991. There is nothing to keep a separate association from forming in the one area that has only one association, other than the economies of scale associated with organized dispatch of existing members. Joe Kyle, Alaska Steamship Association, came before committee, representing customers of state-licensed pilots. He said that customers do not support the bill. While it is supported by pilots and the Dept of Commerce and Economic Development, the Dept of Law has the same understanding as the ASA with regard to opposition to the bill. SB 130 is not supported because it affords no tariff protection. The ASA is required to use the services of state pilots. There are few within the state, and their number is decreasing. At the same time, in certain parts of Alaska, shipping volume is increasing. Pilot organizations will not be able to meet the needs of existing contracts with the foreseeable shortage of pilots. Arguments against tariff protection advocate that there is already a competitive pilot system, and it is not necessary for the state to set rates. The ASA wants tariff protection included in the bill. Provisions for piloting mediation seem to pose the least amount of difficulty for industry and the state. If that is not attainable, Mr. Kyle expressed support for the situation prior to 1991 when a maximum tariff was in place. Failing that, Mr. Kyle voiced support for cross regionalization. Considerable discussion followed regarding limitation of Alaskan pilots to one or two regions. Mr. Kyle suggested that cross regionalization would help reduce the upcoming pilot shortage. He addressed the safety issue associated with cross regionalization by advising that during his 20 years as a Coast Guard Officer, he was heavily involved in federal pilotage. The United States Coast Guard pilots vessels from the coast of Maine to Point Barrow. The criteria is that Coast Guard regulations must be met. Today, federal pilots take ships from Ketchikan to Point Barrow without the assistance of state pilots. Mr. Kyle suggested that there is no safety issue involved in cross regionalization as long as pilots who cross regionalize are required to pass both a Coast Guard and state certification process. That resolves the safety issue. He stressed that there is no empirical data anywhere that suggests that federal piloting is less safe than state piloting. Jeff Bush, Deputy Commissioner, Dept of Commerce and Economic Development, testified that the department supports the bill as written. The department is neutral on issues presented by Mr. Kyle. Mr. Bush said the state does not wish to be the arbitrator or mediator on those issues. If the process of arbitration or mediation is kept out of the hands of the state and placed in the private sector, the department does not oppose changes that would incorporate arbitration or mediation. Speaking to cross regionalization, Mr Bush voiced department opposition, citing safety as the issue. Logic infers that it is safer for a pilot to be licensed to practice and demonstrate experience in a smaller area. He acknowledged that the issue also relates to availability of pilots. Alaska has an extensive coastline, and it is difficult to get to many areas, such as the Pribilofs, where a pilot may be required. If there is a system for cross regionalization, pilot associations may deny service to harder to reach areas due to economics. Mr. Bush noted that the bill allows the board to permit limited cross regionalization if there is a shortage of pilots in a particular region. Senator Pearce said that in 1991 cross regionalization was looked at carefully because the cruise ship industry wanted to put pilots aboard in Southeast and keep them aboard across the Gulf of Alaska and into Prince William Sound. The tanker association was against that arrangement because the cruise ship industry is seasonal. There was fear of a lack of currency on the bridge, particularly in Prince William Sound. The state gave the board the ability to cross regionalize on an individual basis. Senator Pearce concurred in comments by Mr. Bush regarding safety. Co-chair Halford asked if there was a requirement for pilots to serve hard-to-reach areas such as the Pribilofs. Senator Pearce suggested that cross regionalization would cause prices to substantially increase. Where there is low volume, there will be a higher cost. Pilotage was discussed with regard to difficulty in piloting and the remoteness of some areas. In emergency situations, where there is a pilotage shortage, the board can send pilots from one area to another. Senator Rieger asked if a tariff was imposed by the board. Mr. Bush responded that tariffs are not set by the board. The maximum tariff was repealed in the summer of 1994. This bill does not establish a maximum tariff. He explained that, under the current system, if an association in a particular region is contacted, the association must dispatch a pilot. There is nothing in the bill that sets the rate the pilot will charge. That is negotiable between the pilot and the association. Negotiations will have to take place between areas and associations in order to get the most desirable price. Cross regionalization eliminates the requirement the association demanded. There was further discussion of cross regionalization. Mr. Bush noted that apprenticeship is included in the bill. Senator Zharoff commented on the difficulty associated with becoming licensed as a marine pilot, even though an individual may know an area extremely well. Mr. Bush acknowledged that the apprenticeship program does not solve the problem, now. However, it offers a means by which Alaskans with local knowledge can, in a particular region, become licensed marine pilots without having to go through the formalities that are otherwise required. It is not something to be taken lightly. It requires a lengthy period of apprenticeship to become a pilot. Mr. Bush restated his position on cross regionalization. He noted that other areas of the country support "port- specific" pilot licensing. A pilot has a license for a particular area, and once out of that area, another pilot comes aboard. It has been determined that, from a safety perspective, it is better to have experience in as small a region as possible. That is not feasible in Alaska where there are only four pilot regions. Mr. Bush said he would support "port-specific" licensing if there were an unlimited number of pilots in Alaska. He emphasized that it is impossible for a pilot to be an expert in all areas of any one region. Expanding the area of coverage does not take safety into account. Dan Twohig, Marine Pilot Coordinator, Dept of Commerce and Economic Development, responded to Senator Zharoff's concerns regarding the apprenticeship program. He explained that in Southeast Alaska, pilot organizations argue that a minimum of three to five years is required to get through the program. In the Western region (region 3), no one has ever been licensed, so the time to qualify is unknown. In general, pilots sell two things: 1) intimate local knowledge and 2) ship handling skills. A person usually comes into the training process with one of those assets. Alaska has 47,000 miles of navigable coastline, It is inconceivable to think that a person can have intimate local knowledge of more than one region at one time. It is not unreasonable to believe that one can gain local knowledge if he or she goes to one place many times. In a situation where a pilot organization is working a particular region, it would probably not be inclined to take someone from another region and train him or her to partake in the profit of the second region as well. That would not make sense. There are currently 68 marine pilots in the state. They cover all four regions. Half the pilots are Alaskan residents. Mr. Twohig said that state compulsory pilotage law requires state-licensed pilots on foreign flag vessels as well as U.S. vessels under register--those that sail to foreign ports. Federal pilots can go anywhere on "enrolled" vessels (U.S. vessels and U.S. cruise ships). The state pilot law is designed to protect lives and property in the marine environment. A state pilot is the one person the state can count on to look out for the state's interest. If piloting involves a ship from a Far Eastern country, where nobody speaks English, there is at least one person on board with the necessary local knowledge and ship handling skills to talk to other ships, understand what the other pilots are doing, and make appropriate decisions to keep things safe. That is the basis of the program. There was considerable further discussion relating to training and the apprenticeship program. Co-chairman Halford voiced his understanding that the administration opposes cross regionalization. Yet, it also opposes single-port licensing. Mr. Bush responded that single-port licensing is impossible with a group of only 68 to 88 pilots. If single-port licensing were utilized in addition to regionalizing, and a pilot licensed in Southeast could also be permitted to go to Prince William Sound, the issue may be different. The department is opposed to single-port licensing. Mr. Twohig stressed that regionalization is necessary because the state is so large that there must be a group of people to count on to service outports. Since pilot associations do the needed training, there must be pilot organizations. It is of great benefit to take someone out of a village and train him or her to be a pilot. That training, however, is for the region, not just one small area. Pilots must be able to serve from one outport to another within the region, so that commerce can flow within one region to another. Mr. Twohig advised that the current proposal for an apprentice program is bare bones. It will take a year to implement the regulations to make it work in the state's best interest. Pilot organizations, especially in the Western region, have trouble finding people that have the sea-time experience to meet entry level requirements presently in law. This apprenticeship program will allow a local person to get into the program although he or she may not have the needed time as a master on a vessel over 1600 gross tons because that shipping is not available to him or her since it involves foreign flag shipping. Entry into the program is there for people who have not had the required employment opportunities to enter the program under existing law. When the regulations are completed, pilot organizations will utilize an application process to select trainees. Mr. Bush interjected that there is a five-year experience requirement in a board approved deputy marine pilot apprenticeship program. That program would have to be provided through a pilot organization. Senator Pearce reiterated that the Knowles administration proposed inclusion of an apprenticeship program in the bill. It cannot preclude entry from qualified people from other parts of the country. Under the interstate commerce act, Alaska cannot close entry to qualified people from the "Lower 48." The board will have to strive to develop an apprenticeship program that allows more Alaskans living in rural areas into training and pilot organizations instead of setting up a program whereby Alaska will be overrun by outside pilots. Mr. Bush suggested that if port-specific licensing could be created whereby every pilot had to be port specific and live 200 days a year in that particular port, the state would not oppose the effort. However, from a practical point of view, it is not possible. The impracticality of changing pilots in Southeast for every port would be incredible. Further, guaranteeing that a pilot would live in some of the small villages where pilotage services are required is not realistic. The current system is a compromise between necessary economic regulation for safety purposes and allowing a large enough region so people can make a living. Mr. Twohig explained that a tariff is a base number for a ship movement. Variables are associated with what it actually costs to move a ship. There is a tonnage multiple, travel and standby time, and travel expenses. He then explained that under the maximum tariff set by the board, the maximum for Ketchikan was $821, travel inside and outside Glacier Bay was $2345, and charges for Cook Inlet and Prince William Sound were $645 to $1500. Base maximum numbers are figured on a tonnage multiple. The highest charge was for Glacier Bay. It is an all-day trip. The most difficult is Wrangell Narrows. Rates are proportional to the time involved in the pilotage. The rates described are maximums, not the rates actually set by pilot organizations with shippers. Dale Collins, Southeast Alaska Pilots Association, testified that he sits on the Board of Marine Pilots, and is an advocate of amending the 20-year old state statute on marine pilotage. He said he was born in Kodiak, Alaska, and raised in Kodiak and Ketchikan. He has lived in Alaska his whole life. He is one of five or ten pilots that were actually raised in state. There are many reasons why the number of local pilots is so few. The federal government requires licenses that require ocean-going sea time not really available to Alaskans. State law usually parallels federal law, so that one of the requirements, both federal and state, is that a state pilot be federally licensed. State law also requires local knowledge and ship handling ability. Mr. Collins voice support for regionalization and opposition to cross regionalization and port-specific licenses. He said that were it not absolutely necessary for a pilot to belong to an organization, to fulfill state requirements, he would not belong to one. However, an individual pilot cannot be available 24 hours a day. Thus, he is part of an association that provides what the state requires of a pilot: 24-hour availability, 365 days a year. That is difficult for a small group of people to do. Organizations are thus asking legislators to buy the regional concept. He said he supports the concept because the state needs pilots who will be available 24 hours a day, 365 days a year. Mr. Collins described how piloting works and what it means to him. He advocated a fixed tariff and told members that competition is resulting in a lack of pilots. End Tape #46, Side 2 Begin Tape #48, Side 1 Senator Rieger inquired regarding maximum tariffs when they were in effect. Mr. Collins explained that they were 50% over the fixed rate. In region 1 (Southeast Alaska) the tariff for cargo ships has come up 35%. Prior to the maximum tariff, the same rate existed for 11 years. Cruise ships have gone from 8% to 20% over the last 4 years. Competition has meant higher prices, suspicion, fear, and fewer pilots being trained. He said he does not support competition in the piloting business. Senator Rieger asked if maximum tariffs reflect cross subsidization. Mr. Collins suggested that use of the word anomalies would be more accurate than subsidization. Wrangell Narrows, which Mr. Collins described as 21 miles of shear terror, is essentially a blasted out ditch with 63 aids to navigation. The risks are high and the pay is low. Glacier Bay, until the vessel gets into ice, is wide open. While piloting there takes a long time, it is a nice trip and costs $1200. There are many considerations in setting rates which have just increased 50-100%. Co-chair Halford cited existing law which allows for pilotage in more than one region, if it is found to be in the best interest of the state. Mr. Collins responded that the board found only one area for which that was true. Co- chairman Halford noted that testimony indicates no one wants cross regionalization. However, the board has authority to allow it. He then asked why the legislature should create a statute prohibiting it. Mr. Collins acknowledged there are counter statements in the law which work at cross purposes. One statute says that one could be cross regionalized. The other says, "not unless it is in the best interest of the state." The board has been unable to determine what is in the best interest of the state, without getting into the economic conditions of the times. The department and the Board of Marine Pilots want to clean up the language. A decision has thus been made. If it is in error, it is on the side of safety. Mr. Collins referenced creation of region 3 which includes transport via large box ships (Sealand). Pilots in the region are used to the fish boats and ships of less tonnage. Southwest region 2 pilots historically did this work. At the request of ship owners, region 2 pilots were left in place for almost two years to train pilots in region 3 to handle that type of ship. That arrangement worked successfully. That is the only case where cross regionalization happened. If a shortage of pilots occurred in Southeast, Mr. Collins questioned whether it would be good to bring in pilots from Western Alaska or elsewhere. Co-chairman Halford read the following language: A pilot may not be licensed in more than one piloting region at a time, unless the commissioner determines that an actual or imminent shortage of licensed pilots exists in a pilotage region. He then noted that if the commissioner makes that determination, the board may, after consultation with the pilot organizations, "do something about it." He suggested that there is a two-tier process. Even after the commissioner has made a determination, the board does not have to take action. Existing law leaves it to the board. Changes in the proposed bill appear to be one step further away from any potential for cross regionalization, even in emergency situations. Co-chairman Halford directed that SB 130 be held in committee for continued discussion at the afternoon meeting. RECESS Meeting was recessed at approximately 11:15 a.m. for attendance at the Senate Floor Session.