Legislature(1995 - 1996)
03/08/1995 09:00 AM Senate FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
MINUTES SENATE FINANCE COMMITTEE March 8, 1995 9:00 a.m. TAPES SFC-95, #10, Side 1 (000-575) SFC-95, #10, Side 2 (575-800) CALL TO ORDER Senator Rick Halford, Co-chair, convened the meeting at approximately 9:00 a.m. PRESENT In addition to Co-chair Halford, Senators Donley, Phillips, Rieger, Sharp, and Zharoff were in attendance. Senator Frank joined the committee at approximately 9:45 a.m. Also Attending: Senator Taylor, Joe McCormick, Executive Director, Postsecondary Education Committee, Jim Baldwin, Assistant Attorney General, Department of Law, and Mike Greany, Director, Legislative Finance Division. SUMMARY INFORMATION SB 59 REGULATIONS FOR STUDENT LOANS HB 135 STUDENT LOANS Discussion was had with Joe McCormick, Executive Director, Alaska Committee on Postsecondary Education Committee. HB 135 was REPORTED OUT of committee with a "do pass" recommendation and zero fiscal note from the Department of Education. SB 21 FINES FOR COMMERCIAL FISHING VIOLATIONS SB 21 REPORTED OUT of committee with a "do pass" recommendation and zero fiscal note from the Dept. of Law, Alaska Court System, and Dept. of Public Safety. SB 39 MEMORIAL SCHOLARSHIP LOANS Discussion was had with Senator Taylor. Amendment ADOPTED to CS 39. SB 36 to roll into SB 39. Working Draft was requested, to be taken up at the next meeting. SJR 14 CONFIRMATION OF MEMBERS OF PUBLIC CORP Discussion was had with Jim Baldwin, Assistant Attorney General, Department of Law. The Bill was referred to the Judiciary Committee. SENATE BILL NO. 59 "An Act authorizing the Alaska Commission on Postsecondary Education to adopt regulations necessary to determine and set an interest rate applicable to a student loan for which money is disbursed on or after July 1, 1995, and regulations necessary to implement certain loan default sanctions and consolidation of loan provisions beginning July 1, 1995; and providing for an effective date." HOUSE BILL NO. 135 "An Act relating to student loans; and providing for an effective date." Co-chair Halford announced that SB 59 is the companion bill to HB 135 which passed out of the House. Joe McCormick was invited to speak to the committee. Mr. McCormick spoke to HB 135. He stated it is a technical bill that requires transition language be enacted by the legislature before the commission can pass regulations regarding legislation that passed this legislative body last year in HB 506. Most specifically, he said, the transition language would allow the commission to pass regulation setting the interest rate on student loans beginning July 1, 1995. If the regulations are not in place legally, funds cannot be disbursed after July 1. Senator Rieger stated he has a reservation on the servicing of the student loans. He said that this bill would make it more possible to set an interest rate which covers not only the interest cost of the borrowed funds, but also the servicing costs. His concern comes from a Pete Marwick Study that the commission on postsecondary education commissioned. Discussion followed regarding out-sourcing. Mr. McCormick responded that the adoption of this legislation has nothing to do with that recommendation. This legislation, if adopted, would allow the commission to set the interest rate on the loans that will be disbursed on July 1 and thereafter. Neglecting to pass HB 135 would impact 13,000 Alaskan students for an approximate sum of disbursement of $50 million. The issue of the recommendation to the Pete Marwick Study says that while it is the most attractive offer from a cost benefit analysis standpoint, it is probably not a practical offer. With a very small loan program located in a remote part of the United States, and the likelihood of obtaining good out- sourcing service at a reasonable cost is unlikely. The recommendation is to fix the problem in-house. Mr. McCormick reiterated that this is another issue, but that he would be happy to discuss it further. Senator Rieger testified that the bill enables adoption of regulations to implement 1443120F, which includes charging a fee which is sufficient to cover the cost of servicing. Mr. McCormick responded that in his professional experience there is a loan program that has historically never been a part of, or close to, the way the general student loan programs in the lower 48 operate. In order to out-source the servicing of loans, there would have to be major modifications in order to service Alaska student loans according to Alaska law. The problem is further complicated by the fact that it is a small loan program. Servicers would be asked to serve a portfolio of approximately $500 million. Most of the out-sourcing companies, that would be considered and who are experienced in servicing student loans, serve federal student loans which have different requirements. The servicers maintain portfolios in the billions of dollars. The Pete Marwick reports that this would be a major problem to finding an out-sourcing entity that could perform the service on a cost-benefit basis. Mr. McCormick supports the opportunity to build a software system that the committee thought it was getting in 1991. He stated that it didn't happen because it was contracted with a company in Anchorage Alaska, that had no experience in the student loan industry. The company purchased software that was not related to the proper servicing of student loans. To make matters worse, six months into the development of that project, the company went broke. Mr. McCormick stated that when he started with the commission in December of 1993, there was not even one data processing employee on the staff of the commission. There are now four data processors, which he recruited from a student loan servicing operation in Denver, Colorado. The commission now has the infrastructure, experience and expertise on the payroll in-house to implement the Pete Marwick recommendation successfully. The commission projected for the LB&A committee in December that upon completion of that installation, within 5 years, the staff would be reduced by 9. Total cost would be paid for in lower cost of servicing. Senator Donley questioned if local people are being trained. Mr. McCormick stated there are no open positions at this time. There is existing staff who will receive training within the commission to support the new system. Senator Rieger asked what the interest rate on the loans will be when the regulations are adopted? Mr. McCormick responded that the interest rate based on the 1994 bond issue which was 5.83%, will be in the range of 8 to 8-1/2% interest rate. The administrative portion of that amount is 2.5%. He stated that there is legislation pending that would help defray losses to the fund, especially default costs. Senator Rieger asked when the last bond was issued? Mr. McCormick stated it was in July 1994. He said it was a $50 million bond issue fully insured, based on changes being made in servicing loans. The 1993 issue of $43 million was uninsured because of the lack of confidence that New York had in the ability of the commission to service loans. Based on the management plan which includes the upgrading of the servicing system, they issued the $50 million fully insured. If the loan defaults, it is not covered by insurance and is a loss. The State of Alaska is not responsible for any of these loans, the collateral for these bonds are the assets of the fund itself. Co-chair Halford called for additional testimony on the bill. None was forthcoming. Senator Phillips MOVED for passage of HB 135 with individual recommendations. No objection having been raised, HB 135 was REPORTED OUT of committee with a zero fiscal note from the Department of Education. Co-chairs Halford and Frank along with Senators Phillips and Sharp signed the committee report with a "do pass" recommendation. Senators Rieger, Donley and Zharoff signed "no recommendation." SENATE BILL NO. 21 "An Act relating to penalties for violations of commercial fishing laws." Co-chair Halford remarked that SB 21 is a lesser version of a bill that passed both houses in the last legislature and was not transmitted back from the house. It increases the penalty for commercial fishing violations after the second violation. The bill that passed last year was more stringent than this. It has a zero fiscal note. Senator Zharoff stated the Finance Committee Report is better than the original bill, but he still had some concerns. Co-chair Halford assured him that this bill addresses the maximum kind of violation. When the maximum kind of violation can gain $20-$30,000, a maximum fine of $6,000 is not a very significant deterrent. This bill is aimed for closed period, closed waters violations. Senator Donley reiterated how difficult it is to get close to the maximum in the fine situations because of the standard set by the court, so it almost never happens. Co- chair Halford responded by saying that this bill is an improvement over existing law. At some point there is a problem because these are violations not misdemeanors. He pointed out there is a standard at which intent must be proven when the penalty gets beyond a certain level. Co-chair Halford called for additional testimony on the bill. None was forthcoming. Senator Sharp MOVED for passage of SB 21 (RES) with individual recommendations and three zero fiscal notes. No objection having been raised, SB 21 (RES) was REPORTED OUT of committee with three zero fiscal notes from the Dept. of Law, Alaska Court System, and Public Safety. Co-chairs Halford and Frank along with Senators Rieger, Phillips, Donley, and Sharp signed the committee report with a "do pass". Senator Zharoff signed "no recommendation". SENATE BILL NO. 39 "An Act relating to memorial scholarship loans." Co-chair Halford asked Senator Taylor to join the committee. Senator Taylor expressed his appreciation in addressing this bill. He stated that the bill passed the House unanimously last year, it carries zero fiscal notes. The primary purpose of the bill is to allow a slight modification in the law which would permit the memorial scholarship, named after Trooper Michael Murphy, to be utilized in two-year certification programs instead of just four-year programs. Co-chair Halford asked Senator Zharoff for an understanding of SB 36. Senator Zharoff stated that SB 36 would allow for 50% forgiveness and cap the interest rate. Co-chair Halford asked the commission to join the table. Mr. McCormick responded that the commission recommended in SB 36 to change the law insofar as the manner in which forgiveness is calculated from 1/5th loan indebtedness and ask that it be changed to 1/5th principal on the loan. When cancelling the principal and interest, it is a more complex calculation administratively. The cancelling to the principal only makes it much easier to calculate. The conflict arises in SB 39 as there is not an amendment to change this feature. The term "total loan indebtedness" remains in SB 39. However, SB 36 contains a new statement to "principal only". He recommended it be changed to read the same in both bills. Co-chair Halford asked how many loans exist in the special scholarship programs? Mr. McCormick stated not many, the numbers are small and a half-time clerk is devoted to administering the loan programs. Co-chair Halford asked if the change of law costs the borrower more money in payback? Mr. McCormick stated it would represent a payback of more money. The result being in the hundreds of dollars not thousands. Co-chair Frank joined the committee. Co-chair Halford asked the will of the committee. Senator Phillips MOVED to amend page 2 line 13, changing the word "indebtedness" to "principal." No objection having been raised, the Amendment was ADOPTED. After some discussion regarding SB 36 and SB 39, Co-chair Halford indicated that what was needed was an amendment to roll in the provisions of SB 36 (HES) into SB 39 with three zero fiscal notes. Senator Zharoff MOVED to adopt a CS for SB 39 which includes SB 36 with three zero fiscal notes. No objection being made, the CS for SB 39 is ADOPTED and a Work Draft will before the committee tomorrow. SENATE JOINT RESOLUTION NO. 14 Proposing an amendment to the Constitution of the State of Alaska relating to certain public corporations. Co-chair Halford stated that SJR 14 did not go through Judiciary Committee. He asked Senator Taylor for information regarding SJR 14. Senator Taylor stated that the bill is straight forward and didn't feel it was necessary to go to Judiciary. Senator Phillips asked State Affairs and wanted to get it on the record that it didn't go through Judiciary. Co-chair Halford stated that it could go to Judiciary after Finance as long as the fiscal notes do not change. Co-chair Halford asked Jim Baldwin, Dept. of Law, to step forward. Jim Baldwin stated his concern. In 1955-56 the framers got together and produced a spectacular state constitution. It is considered the best in the nation if not in the world, some very fine distinctions were made. A system was set up of checks and balances, which was very finely balanced. One of the checks on the governor's power of appointment is the legislature's ability to confirm certain appointments. He contends that the framers made some very specific decisions to make it a limited check on a broad power because the governor should be responsible for the management of the executive branch of state government. Since the adoption of the constitution, there have been some very good amendments. He would ask the committee to proceed very deliberately on a further amendment of the constitution in this area because it does tip the balance in a way that was not intended by the original framers. Mr. Baldwin spoke about the ambiguities. He stated that a public corporation that manages state assets is ambiguous. He would encourage Judiciary to look at it with the thought in mind to fine tune the language. He cited as an example, he heard the amendment being described as one that would apply to all public corporations. He stated that he wasn't sure that was the case because the public corporations, as the court has observed, are of varying degrees of under state control. The enabling act of AHFC, says that it is a public corporation with a legal existence that is separate and independent from the state. If the language is applied literally, then are the assets of AHFC really state assets, or are they the assets of a political subdivision of the state? Senator Rieger asked what is the definition of a public corporation? Mr. Baldwin stated that there isn't one definitely. Basically, it is a corporate body that is chartered by the state itself. Private corporations have a code that specifies how to be chartered. The state does not have articles of incorporation other than state law that creates it. It's a corporate body established either by law, such as AHFC, or the constitution, such as the university. Co-chair Halford stated that this is exactly the definition that this bill reaches. He stated that Mr. Baldwin's definition of public corporation is just as he described it, and it manages state assets. Senator Rieger asked if a board could be set up without it being a corporation to manage a billion dollars of state assets? He stated that theoretically it would escape this constitutional provision. Mr. Baldwin stated that it could. There are two different entities that can issue bonds within the state. Public corporations issue revenue bonds. State agencies issue bonds for example, international airports. He stated that the assets that belong to AHFC for example, are not assets that the state would want to have. Mr. Baldwin stated that he recommended that SJR 14 go to Judiciary. Co-chair Halford asked that the resolution go to the Judiciary Committee. He felt it should be returned in two weeks to the committee. ADJOURNMENT The meeting was adjourned at approximately 10:25 a.m.