Legislature(1995 - 1996)
03/08/1996 09:15 AM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
MINUTES SENATE FINANCE COMMITTEE 8 March 1996 9:15 A.M. TAPES SFC-96, #35, Sides 1 & 2 SFC-96, #36, Side 1 CALL TO ORDER Senator Rick Halford, Co-chair, convened the meeting at approximately 9:15 A.M. PRESENT Co-chairman Halford along with co-chairman Frank, Senators Phillips, Sharp, Donley and Rieger were present when the meeting was convened. Also Attending: Senator Robin Taylor; Tom Williams, aide to Senator Steve Frank; Juanita Hensley, Chief of Driver Services, DMV, Department of Public Safety; Nanci A. Jones, Director, Permanent Fund Dividend Division, Department of Revenue; Roger Poppe, aide to Representative Pete Kott; Dugan Petty, Director of General Services, Department of Administration; Wendy Redmond, Vice-President for University Relations, University of Alaska; Sherman Ernouf, aide to Senator Tim Kelly; Dan R. Fauske, CEO/Executive Director of Alaska Housing Finance Corporation, Department of Revenue; Jetta Whittaker, Fiscal Analyst, Legislative Finance Division; and aides to committee members. SUMMARY INFORMATION SPONSOR SUBSTITUTE FOR SENATE JOINT RESOLUTION NO. 14 Proposing amendments to the Constitution of the State of Alaska relating to confirmation of appointments of public members who serve on a board or commission involved with managing the assets of the Alaska permanent fund. Amendment #1 was MOVED by Senator Rieger and ADOPTED. Senator Phillips MOVED CSSSSJR 14(FIN) and without objection it was REPORTED OUT with individual recommendations and $2.2 previous fiscal note from the Office of the Governor. SENATE BILL NO. 89 "An Act relating to the members of the board and staff of the Alaska Permanent Fund Corporation." Amendments #1 & 2 were MOVED by Senator Rieger and ADOPTED. Amendment #3 was MOVED by Senator Donley and ADOPTED. Senator Rieger MOVED SB 89 and without objection it was REPORTED OUT with individual recommendations and fiscal note of $31.5 thousand from the Department of Revenue. SENATE BILL NO. 226 "An Act relating to biennial registration of motor vehicles; imposing biennial registration fees on motor vehicles and authorizing a scheduled biennial municipal tax on motor vehicles; relating to fees for motor vehicle emissions control programs; and providing for an effective date." Testimony was given by Tom Williams, aide to Senator Steve Frank in support of SB 226. Juanita Hensley, Chief of Driver Services, DMV, Department of Public Safety also testified in support of the bill. Amendment #1 was MOVED by Senator Frank and ADOPTED. He later withdrew amendment #2. Senator Donley offered a conceptual amendment which was ADOPTED. Senator Frank MOVED CSSB 226(FIN) and without objection it was REPORTED OUT with individual recommendations and fiscal note from the Department of Public Safety. SENATE BILL NO. 232 "An Act relating to permanent fund dividend program notice requirements, to the ineligibility for dividends of individuals convicted of felonies or incarcerated for misdemeanors, and to the determination of the number and identity of certain ineligible individuals; and providing for an effective date." Testimony was given by Tom Williams, aide to Senator Steve Frank in support of SB 232. Nanci A. Jones, Director of the Permanent Fund Dividend Division, Department of Revenue was also called to testify. Amendment #1 was MOVED Senator Frank and ADOPTED. Senator Frank MOVED CSSB 232 (FIN) and without objection it was REPORTED OUT with individual recommendations and new fiscal notes in the amount of zero from the Department of Law; $2.4 from the Department of Revenue; $8.9 (change in revenues) from Student Loan Operations, Department of Revenue; $68.7 from the Department of Corrections; $5.0 from the Department of Public Safety; zero from the Alaska State Troopers, Department of Public Safety; and an indeterminate amount from CDVSA, Department of Public Safety. SENATE BILL NO. 37 "An Act relating to treatment of permanent fund dividends for purposes of determining eligibility for certain benefits; and providing for an effective date." Co-chairman Halford said that SB 37 would be HELD OVER until next week's calendar. SENATE JOINT RESOLUTION NO. 32 Proposing amendments to the Constitution of the State of Alaska relating to the constitutional defense council. Senator Robin Taylor testified in support of SJR 32. Senator Phillips MOVED SJR 32 and without objection it was REPORTED OUT with $2.2 fiscal note from the Office of the Governor. HOUSE BILL NO. 419 "An Act relating to the disposal of firearms and ammunition by the state or a municipality." Roger Poppe, aide to Representative Pete Kott testified in support of HB 419. Mr. Dugan Petty, Director of General Services, Department of Administration said that they felt the bill was unnecessary. Senator Phillips MOVED CSHB 419(STA) and without objection it was REPORTED OUT with previous fiscal notes of $10.4 (revenue) Department of Administration; zero from the Department of Public Safety. SENATE BILL NO. 163 "An Act approving the University of Alaska's plans to enter into long-term obligations to borrow money from the Alaska Housing Finance Corporation for the acquisition of student housing facilities; and providing for an effective date." Testimony was given by Wendy Redmond, Vice President for University Relations, University of Alaska; Sherman Ernouf, aide to Senator Tim Kelly; and Dan R. Fauske, CEO/Executive Director of Alaska Housing Finance Corporation, Department of Revenue. Co-chairman Halford HELD SB 163 for further hearing. SENATE BILL NO. 278 "An Act relating to the authority of the Department of Natural Resources to allow credits against fees at state historical parks." Co-chairman Halford HELD SB 278 for further hearing. Senator Phillips introduced Members of the Legislative Assembly, Yukon Territory. Co-chairman Halford welcomed John Devries, Speaker of the Legislative Assembly; David Millar, Deputy Speaker of the Legislative Assembly, Lois Marie Moorcroft and David Sloan, MLA, opposition; and Esau Schafer from Old Crow. SPONSOR SUBSTITUTE FOR SENATE JOINT RESOLUTION NO. 14 Proposing amendments to the Constitution of the State of Alaska relating to confirmation of appointments of public members who serve on a board or commission involved with managing the assets of the Alaska permanent fund. Co-chairman Halford said this was a constitutional amendment proposal that has gone from a generic version to a permanent fund only version. Senator Donley proposed an amendment that adds public corporations and then allows for that definition to be essentially provided by statute to be drafted as a CS. Senator Rieger objected and referred to the language on line 15 of the amendment. The way the statutory definition is drafted it could be construed to pick and choose what parts of this amendment are to be applicable to the corporation, contort the process, give power to the board to appoint an executive director that is not subject to the approval of the governor or some other combination. The intent was to decide which corporations are in and which are out and if they are in it is an all or nothing deal. It is suggested that the phrase "all or part of" be deleted so that it just reads "...the applicability of this section..." and the word "limit" be changed to "exclude" so that it reads "...the Legislature by law may exclude the applicability of this section...". The presumption is that if it is a corporation that manages assets it is in but a statutory definition may be created to carve corporations out. Senator Donley asked if the interplay between the Legislature and the executive branch regarding corporations might be modified under this rather than just a question whether to confirm or not? Senator Rieger said the way it is written it is the applicability of all or part of this section. It is not all or part of the corporation subject to this section. The section has a lot of provisions in it. It is not only the confirmation, which this is aimed at, but it talks about whether their removal is provided for by law, whether they are citizens of the United States, whether the confirmation occurs in joint session or could we have confirmation in separate sessions. The way it is drafted one could pick and choose what parts of the section could be applied, corporation by corporation. That goes beyond what the amendment was trying to do. Senator Donley explained that with regards to public corporations the Legislature has the authority to set up the parameters of them by statute because they are created by statute. All the others terms and conditions, such as should the governor be allowed to approve the executive officer be removed or do the board members serve at the will of the governor, all that can be set out in statute because they are not constitutional creatures to begin with. Senator Rieger said the actual constitutional provisions regarding confirmation by the Legislature could be modified by statute. Co-chairman Halford said he did not think that was not an intended consequence. Senator Rieger and Senator Donley agreed that it was a reasonable suggestion to deal with that particular amendment. Senator Rieger MOVED the two changes as an amendment to amendment #1 and without objection and the amendment to amendment #1 was ADOPTED. Co-chairman Halford said there being no objection to the original amendment it was therefore ADOPTED and that it would be drafted as CSSSSJR 14(FIN). As do most constitutional amendments there is a required $2.2 fiscal note to put them on the ballot and that is the only fiscal note to go with the resolution. Senator Phillips MOVED CSSSSJR 14(FIN) and without objection it was REPORTED OUT with individual recommendations and a $2.2 fiscal note from the Office of the Governor. SENATE BILL NO. 89 "An Act relating to the members of the board and staff of the Alaska Permanent Fund Corporation." Senator Rieger referred to amendments number 1 and 2 and addressed questions that came up in the last meeting. Amendment number 1 will make it clear that all employees including the executive director serves at the pleasure of the board except that there can be employment contracts entered into as long as they do not exceed two years' duration. Senator Rieger MOVED amendment number 1 and with no objections it was incorporated as CSSB 89(FIN) and ADOPTED. With reference to amendment number 2 Senator Rieger said it was the result of previous discussion on removal for cause. This amendment would make it clear that the governor shall appoint a board member solely on the financial best interest of the fund and shall remove a board member only for cause. There being no objections to amendment number 2 it was ADOPTED. Discussion proceeded between Senators Rieger and Donley with regards to amendment number 3. Senator Donley asked if there was an exception that already provided for this amendment, some sort of common law. He felt that it was exclusionary in not allowing that to be addressed unless someone on the committee knew if there was some sort of common law provision that would allow it without being in the statute. Senator Donley MOVED amendment number 2 as directed by Senator Rieger and without objection it was ADOPTED. Senator Rieger MOVED SB 89 out of committee and there being no objections it was REPORTED OUT with individual recommendations and accompanying fiscal note of $31.5 from the Department of Revenue. SENATE BILL NO. 226 "An Act relating to biennial registration of motor vehicles; imposing biennial registration fees on motor vehicles and authorizing a scheduled biennial municipal tax on motor vehicles; relating to fees for motor vehicle emissions control programs; and providing for an effective date." Tom Williams, aide to Senator Steve Frank gave testimony in support of SB 226. Senator Frank noted that amendment number 1 had the effect of bringing the IM program and the biennial program into existence at the same time by delaying the IM program by six months. It was requested by the Department but has taken extra time to implement the biennial IM from last year's SB 28. Mr. Williams said that this amendment arose out of a request from the Department of Environmental Conservation and with the agreement of the Department of Public Safety, Division of Motor Vehicles. As explained in the attached letters to the amendment they believe that public confusion will be reduced and it will be less expensive if there is a simultaneous implementation of biennial registration with the biennial emissions testing. The amendment tightens the title and delays the implementation until 1 January 1997, making them concurrent. It also amends SB 28, last year's IM testing bill, to insure that they have the authority to stagger the implementation according to the current language in SB 226 allowing the biennial registration to be staggered as far as the implementation. Co-chairman Halford asked about the effect of the delay of the fiscal note. Mr. Williams said that the Department had been requested to update their fiscal note to reflect the increase in revenues as a result of the accelerated collections. The accelerated collections will be moved up by six months. There will be roughly a $9.8 million one time windfall in present value terms to the State of Alaska. Mr. Williams said that there would be a revised fiscal note showing the time difference should the amendment be approved. Co-chairman Halford asked about the statement in the amendment packet on $150,000 for delay of SB 28. Mr. Williams said that the $150,000 dealt with the software changes that were required by the various IM stations and that was funded by DEC. There is no additional cost from DEC as a result of this amendment. Those costs are being incurred right now under SB 28 and they had indicated there would be some additional costs if it was not made consistent. However, no new fiscal note was submitted on the original bill hearing. Juanita Hensley, Chief Driver Services, Division of Motor Vehicles was invited to join the committee. She advised that the Department supported this bill along with the amendments. An updated fiscal note will be provided as soon as the committee substitute is adopted. She said a draft fiscal note was prepared and is in the packet for the original bill but when the committee adopted a CS they had no idea what the impacts would be on the Department and a new fiscal note could not be prepared. She said she would get a fiscal note to the committee as soon as possible when she knew what the final version was. Co-chairman Halford said the committee would act on the amendment first and if after they acted and she could get the fiscal note back to them they could still move the bill today. Senator Frank MOVED amendment number 1. Senator Donley objected saying that some limits should be set consistent with the philosophy of the bill on the costs that were being charged for IM. Currently the municipalities of Anchorage and Fairbanks were charging $10 for the annual certificates. They will want to go to $20 for the biennial certificates. Under this bill $2 is discounted for those who register their motor vehicles biennially. He said he would be much more inclined to support this bill if a cap of $18 could be set for the municipalities to charge so they do not double their fees. Without that it is kind of difficult to go along with delaying the IM provisions again. People were disappointed it took as long as it did. Senator Frank indicated he and Senator Donley had been discussing this matter and that he shared this concern. However, his reluctance in putting in the statute a specific amount is because these issues should be hashed out locally by the administration and assemblies who will have to administer the programs. The administration of the municipality will have to have public hearings and defend it's request to increase the fees. It will be a dynamic public process to decide how much to be spent and how much will be justified. Perhaps some legislative intent could be sent along. Co-chairman Halford asked about a general statement of the bill and that it could state that the fee could not exceed the cost of implementing the program. This is not intended to be a revenue generator. Senators Frank and Donley concurred. Senator Frank said perhaps a conceptual amendment could be prepared. Senator Rieger commented on the choice recommended by DEC to delay the old SB 28 to the time of implementation of SB 226. Is there a reason to hold this off until January 1? They should both come into being at the same time October 1 or September 1. How much time would it take for adoption and getting all this together? Juanita Hensley explained that DEC implementations will not be ready by July. The Division has already made the changes available and would have been able to do a voluntary biennial registration. Coordinating the two is very important because it will benefit the public. Registration renewal mail-outs would have to be ready to go in August to be ready for 1 October. Senator Rieger said he understood DEC would be implementing SB 28 on 1 July and now they would actually be getting an extra three months. How would it be harder for them to be getting something ready for three months later? Juanita Hensley said that she could not speak for DEC. She testified as to the fiscal note numbers that she would be submitting. The first year would, if it had an effective date of 1 January, show a revenue of approximately $2.5 million and FY 98 would be $5.85 million. FY 99 through FY 02 shows a loss of revenue of $580,000. for each year. There would be no operational costs for FY 97 because the existing funds that were appropriated in SB 28 would be used. FY 98 through the following years would show a reduction of operating costs to the Division of $64,000 and that would be in the mailing of the registrations. Co-chairman Halford said the question before the committee was the adoption of the amendment. The remaining questions are the delay of one versus acceleration of the other and Senator Donley's question on recovery of cost. Senator Frank said that it was better to take the January 1 deadline and not argue about how long implementation would take and then have the bill not get passed. Senator Halford said that without objection Senator Frank's amendment #1 would be ADOPTED. Senator Donley offered the following conceptual amendment: "That the State and local governments could not charge more for the inspection fee than the programs actually cost". Co-chairman Halford noted "...than the cost of the administration of the program". The debate would be the direct costs or the direct and indirect costs. Juanita Hensley re-iterated that this was a cost that DEC had and DMV did not get involved. Co-chairman Halford did not feel that it was unreasonable to have it be a revenue generator. Co-chairman Halford said that there being no objection to Senator Donley's conceptual amendment it would be drafted as part of the Finance CS and essentially is intended to treat municipal and State governments the same way. Senator Phillips MOVED amendment number 2. He said that a few years ago a revision to Title 28 was passed inadvertently charging individuals more money than they should have been charged and there were a lot of complaints and this should correct the matter. Co-chairman Halford said that the amendment was not changing the numbers, rather it was changing the words. Juanita Hensley said DMV was not in opposition to the amendment. She did say that there would be a portion of public complaints. Some discussion between members regarding public complaints to their respective offices but in general they agreed that complaints have died off to some extent. Senator Phillips WITHDREW amendment number 2. Senator Rieger still felt that amendment number 2 should be adopted. Co-chairman Halford said that there was no substantive effect of what was being done. Senator Frank felt that the amendment would only cause more confusion and strongly objects to amendment number 2. He said the fees were being changed from $35 for one year to $68 for two years. Co-chairman Halford asked for a vote on amendment number 2 as drawn by Senator Phillips and offered by Senator Rieger and it was voted to be WITHDRAWN. Co-chairman Halford said that a fiscal note of the bill as amended had been explained to the committee and that it would show in operating zero for 1997; $64,000 for 1998; $64,000 for 1999; $2.5 million; $5.8 million and then $580,000 going forward on the gain/loss side. As long as it is understood exactly what it was going to be it can be assumed the committee is adopting that fiscal note with the bill. Juanita Hensley advised that the information was correct and that the fiscal note would be made available today. Co-chairman Halford said it could go with the bill to be read across on the floor today. Senator Frank MOVED CSSB 226 (FIN) and without objections it was REPORTED OUT of committee with individual recommendations and the explained fiscal note. CS FOR SENATE BILL NO. 232(FIN) "An Act relating to permanent fund dividend program notice requirements, to the ineligibility for dividends of individuals convicted of felonies or incarcerated for misdemeanors, and to the determination of the number and identity of certain ineligible individuals." Tom Williams testified on behalf of CSSB 232(FIN) and said the Department of Administration initially proposed an amendment to allow monies to be directed to child support. There was a constitutional problem; an equal protection problem as opposed to a dedicated funds problem. That amendment should not be considered as agreed by Senator Frank's office and the Department. The next amendment addressed additional concerns by the Department of Law which defined when the conviction would be considered for implementation. The amendment also addressed concern as to whether multiple convictions out of a single criminal episode would count in determining ineligibility. This amendment said that each criminal episode should be treated as a single conviction, regardless of the number of convictions. Those amendments were requested by the Department of Administration. The other concern expressed by the Department of Administration had to do with whether or not by expanding the agencies funding would be provided; that the Legislature would re-direct current funding to those other agencies. The intent of this legislation is to add additional funding for other agencies. Co-chairman Halford said a blank CS had been adopted. Senator Frank MOVED amendment number 1 and without objection it was ADOPTED. Nanci A. Jones, Director, Permanent Fund Dividend Division, Department of Revenue invited to join the committee. She said the Division was satisfied with the bill in its present status along with its amendment. Senator Frank MOVED CSSB 232(FIN) and with no objections the bill was REPORTED OUT with individual recommendations and fiscal notes in the amount of zero from the Department of Law; $2.4 from the Department of Revenue; $8.9 (change in revenues) from Student Loan Operations, Department of Revenue; $68.7 from the Department of Corrections; $5.0 from the Department of Public Safety; zero from the Alaska State Troopers, Department of Public Safety; and an indeterminate amount from CDVSA, Department of Public Safety. SENATE BILL NO. 37 "An Act relating to treatment of permanent fund dividends for purposes of determining eligibility for certain benefits; and providing for an effective date." Co-chairman Halford HELD the matter in committee until next week. Senator Phillips said that there were a number of matters that needed further discussion regarding the fiscal notes. SENATE JOINT RESOLUTION NO. 32 Proposing amendments to the Constitution of the State of Alaska relating to the constitutional defense council. Senator Robin Taylor testified on behalf of SJR 32. He said that the reason the bill was before the committee was because it would require a vote of the people. The fiscal note attached is because of the extra paragraph or two that would be needed to place it on the ballot. The bill is a simple concept but a significant change in our constitutional make up. The constitutional defense council created by this legislation would have the option, should any governor in the future, fail to defend the constitution of the State of Alaska or fail to prosecute actions to defend the sovereignty and constitution of this State. The council could initiate such action and would have standing before the Courts. The committee is well aware that the Legislature has in the past attempted to both initiate action or continue with actions previously filed by the State of Alaska and upon dismissal by the Governor when we attempted to intervene we were told that we did not have standing sufficient to be before the Court and were dismissed on those grounds. One recent example is the "Babbitt" case. Because of the dismissal of that case, federal agencies, both interior and agriculture, are in the process of developing regulations under the subsistence law of Section 8 in ANILCA which law would, if those regulations are carried out and enforced, the entire fishing industry of the State of Alaska this summer will be regulated under subsistence laws. That is the direct result of the dismissal of that suit. Our forefathers never contemplated electing a Governor into office who would fail to defend the constitution of the State of Alaska, and in so doing, forfeit the rights of the people of Alaska and the rights under our constitution. By creating this council there will be an independent body made up of members appointed by the Senate President, the Speaker of the House, by the Governor and from the public at large who will make an objective determination as to whether or not litigation needs to be pursued and will have the authority and right to pursue that litigation in defense of our constitution. It should not be seen as a threat to any administration because it would be assumed that the administration, an executive branch of this State, would be carrying forward those defenses and prosecutions that were necessary to defend our constitution. It should be only seen as supplementary to, and supportive of that administration. However, should any administration in the future fail to defend the constitution they would have the right to intervene. Their funding would be through the legislative branch and that is the basis upon which they would receive their authority. Senator Rieger said the primary concern has been where only the executive branch has been able to bring actions at the federal level. What is added by adding state constitutional law? Senator Taylor said this would limit the council to bringing those actions that would affect State constitutional law as opposed to merely going off and litigating any question involving federal constitutional law that would be of interest to them. They are allowed to litigate in the State courts, the Federal courts and before administrative agencies. There was a recent dismissal of an appeal before an administrative agency that two extensive hearings were held on and we still have no idea what the future ramifications of that decision may be. Senator Rieger and Senator Taylor discussed a hypothetical settlement question and what one would be looking at if there are State or Federal constitutional issues involved that are being compromised by the settlement. Senator Taylor said a most recent and controversial example would be Governor Hickel's settlement of the Exxon Valdez situation and the manner in which the funds became appropriated without passing through the legislative process. The dollar amount would not have been subject to the review of the council. It would have been wise at the time to have a group like this available to say only the Legislature appropriates money, not the executive branch through a settlement. Senator Phillips and Senator Taylor further discussed if it was necessary to put in how many people make a quorum and what number does it take to have a vote. Senator Taylor said the drafters advised that this was covered by Robert's Rules of Order, just as all panels and groups are. Senator Phillips felt this was vague. Senator Taylor said he would provide a legal opinion incorporated in the record, on the floor, in consideration of the amendment, stating the excess verbage was not necessary. Senator Phillips MOVED SJR 32 and without objection the bill was REPORTED OUT with individual recommendations and accompanying fiscal note of $2.2 from the Office of the Governor. HOUSE BILL NO. 419 "An Act relating to the disposal of firearms and ammunition by the state or a municipality." Mr. Roger Poppe, aide to Representative Pete Kott was invited to join the committee and testified on behalf of HB 419. Up until a year ago the Governor and the administration took all guns which were surplused or obtained through criminal behaviour and sold them at public auction. Last October, due to a change in the Governor's policy, in that he felt handguns were inappropriate to be sold at public auction, destroyed some fifty of them at a cost of $12,000. Consequently, there were some lawsuits filed and then this bill along with companion bill SB 219 were filed to try and stop this practice. As a result of the bill filing it appears the Governor amended his procedures and is no longer destroying the guns and so the bill's position and the Governor's position are more similar, but there is still an important difference. The basic difference is that now under both the bill's and the Governor's policy the guns would be sold to a federally licensed firearm dealer and the only real difference remaining is that he would prefer to see those sold to law enforcement agencies and personnel, whereas this bill would have the guns sold to the public. It would go back to the auctioneer/sale procedure. The advantage of taking this approach is by going through a federally licensed dealer the public safety issue is maintained because there is a background check they would have to make on the person purchasing the weapon to make sure it was not sold to a felon and used for a possible crime. The other public safety feature is that the department maintains the right to still destroy any guns that are deemed unsafe because of mechanical problems. By passing this bill the revenue stream would be maintained for selling the guns to the public and the public would get access to them instead of just law enforcement agencies. The CS eliminated municipalities from the bill because there was some concern that it was a local issue and so municipalities remain able to dispose of all their guns at sale or auction. Co-chairman Halford said that the effect of the bill is that you can buy the exact same weapon at K-Mart, Wal-Mart or any other Fred Meyer store and the State will not be destroying them to make a political statement at the cost of the people of the State. Mr. Poppe concurred. Senator Phillips said that we have been selling the weapons since 1959 and there has not been a crime, felony or misdemeanor charged back to that weapon in the State's history. Mr. Dugan Petty, Director, General Services, Department of Administration was invited to join the committee. He said that Commissioners Boyer and Otte had set out a policy governing disposal of firearms. If the bill is passed it would present an opportunity to untangle multiple and confusing statutes regarding the disposal of seized or forfeited firearms. It is also Commissioners Boyer and Otte policy to make available to certified gun safety programs firearms for the use in gun safety training. This bill would prevent that provision as well. It is the position of the administration that the bill is unnecessary. Senator Phillips MOVED CSHB 419(STA) and without objection the bill was REPORTED OUT with individual recommendations and fiscal notes of $10.04 (revenue) Department of Administration; zero from the Department of Public Safety. SENATE BILL NO. 163 "An Act approving the University of Alaska's plans to enter into long-term obligations to borrow money from the Alaska Housing Finance Corporation for the acquisition of student housing facilities; and providing for an effective date." Wendy Redmond, Vice-President for University Relations, University of Alaska was invited to join the committee. She said the sponsor had a CS for this bill. Sherman Ernouf, aide to Senator Tim Kelly was invited to join the committee. He said that University of Alaska at Anchorage had a student population of 16,000 credit students, which represents 64% of the total University of Alaska system-wide enrollment. UAA only has 384 beds, allowing them to provide housing to 2.6% of their students. By way of contrast the Fairbanks campus provides housing for 38.9% of their students and the Juneau campus 16.6%. Every fall, hundreds of Alaskans, both urban and rural are denied campus accommodations at UAA due to insufficient space. This gap is growing every year. This bill would allow the University of Alaska to construct a new 600 bed dormitory on the campus of UAA, using a long-term loan of $33 million provided from AHFC. According to studies, resident students do better in colleges and they achieve more academically. A whole host of things develop better such as; social skills and development of leadership opportunities. In a recent survey conducted at UAA, 26% of the student body indicated their desire to live on campus. Lack of housing for single students, Alaska Natives, married students, athletes and international students is inadvertently forcing Alaskans to attend out of state institutions. This bill would provide a mechanism for UAA to get the housing they desperately need. Senator Frank referred to page 2 of the bill and noted the annual debt services $2.7 million over 25 years which the University of Alaska will pay $1.7 million and asked who picked up the balance. Wendy Redmond answered that this would be financed with subsidized loans from AHFC. They will be paying approximately $1 million per year on the interest rate subsidy for the bonds. Senator Frank asked if they would be able to use arbitrage funds or something that did not use their equity. Mr. Dan R. Fauske, CEO/Executive Director, Alaska Housing Finance Corporation, Department of Revenue was invited to join the committee. He indicated that under the current scenario it would be monies out of next year's capital budget to pay for that cash subsidy. He was waiting on a response on bond counsel and tax counsel as to some potential uses and at this time was unclear if it would qualify under the arbitrage limits of IRS. Senator Frank asked if it were legal under the IRS code would that be their preference. Mr. Fauske said that at present they did a straight bond sale calculation, factored in the subsidy that was required to make the cash flow work for the university and then utilized what was known as existing cash in the succeeding years. Co-chairman Halford said if it could go in to the arbitrage use then it probably had more potential support than if it competed with other non-arbitrage qualified capital budget items. Senator Rieger agreed. Mr. Fauske said that there is an assisted and an unassisted portion of this debt. The unassisted portion is at 3% and it is about $3.253 million they will pay full interest rate on. Senator Rieger asked if the arbitrage funds could be blended in with other totally different projects. Mr. Fauske said there were two different arbitrage funds you might need to use to get the total blended rate within the excess cap that is established by the IRS. The excess must be determined and the rate of the coupons determines what interest rates would be charged on use of arbitrage funds. Co-chairman Halford said that the arbitrage determination is based on the project and could apply to the whole project. If it is eligible for use of arbitrage earnings it may be to our advantage to take the entire income stream out of the arbitrage earnings and thereby release the other dollars within or outside of the university system for unrestricted capital use. Mr. Fauske asked if he meant to fund the entire project out of arbitrage. Co-chairman Halford said if the whole project is qualified for use of arbitrage then it is qualified as a project next is to look at the whole package of expenditure of arbitrage earnings. Senator Rieger asked how the split was arrived at, the amount that was to be arbitraged or assisted and the amount that goes to the unassisted. Mr. Fauske said that it was based on cash flow information the university supplied as to what they felt they could afford on their projected future finances. Senator Sharp said he didn't know what size capacity of dormitory this amount of money would build. At a capacity of 500 it would come out to $5,000 per year per occupant to support that building counting debt service, maintenance and operation. That would only pay for the university's portion, not the portion being paid by AHFC subsidized. Wendy Redmond indicated that this project was a 550 bed facility and included a full food service facility. Senator Sharp voiced concern of obligating AHFC for 25 years of payments on the subsidized amount and would the economics of $34 million plus furnishings and operating costs on the debt service inflate an additional operating cost to the university. The total university operating cost plus the university's debt, less the amount of anticipated revenue from student occupancy would appear to not cover the total cost of the structure. The money would have to come from someplace else. Wendy Redmond said the dorm receipts are expected to be $1.5 million per year. That will be covering the student occupancy during the year as well as use of the facility during the summer for tours and groups and projects they bring in, similar to what they do in Fairbanks. In addition the campus is committed to generating an additional $4 million of revenue. $3 million will be financed over a twenty-five year period. Hopefully that can be bought out sooner. There is also anticipation in selling a condominium facility and putting the money into the project. Mr. Fauske said that if you look at the numbers there is a gap between construction costs. There is a capitalized interest period of about three years during the construction phase. There is no revenue coming in because it is being built. The debt structure or bond sale would be designed with bonds to cover that cost. During that time interest is paid on the bonds and interest is earned on the money that was sold. Senator Sharp asked what the projected operating and maintenance cost would be on this structure. The total revenue anticipated is $1.5 million and that does not cover the cost of the debt service the university will pay at $1.751 million. Somewhere the university budget will have to go up. Senator Frank asked if he meant heat, lights, maintenance and janitorial service and Senator Sharp concurred. Wendy Redmond said those costs were covered by the rental receipts from the facility, the students and the summer usage and those would cover the university's obligation for the debt repayment under the AHFC subsidized portion plus pay the costs to maintain and operate the facility. The board of regents will no longer approve a project that does not provide all those costs up front. She said she would bring a complete break down for the committee. Senator Sharp indicated that it would cost a student in the dorm approximately $6,000 for a nine month period. This would not cover a maintenance operating cost of this building. Wendy Redmond said that the board's intention is not to create two residential campuses in the State. Fairbanks is the residential campus and we intend to maintain 35% to 50% of the full time students with housing. In Anchorage we are currently at 6%. This will bring us up to 12%-13% of the total full time students and a little less than 5% of their total student body. However, there are students coming in from all over the State because we have programs in the Health/Sciences, social work, and vocational programs that are offered only in Anchorage. It is particularly difficult for young college students to try and find housing. Co-chairman Halford HELD the bill in committee and would like an answer on the arbitrage question. Senator Frank asked that how much interest rate has to be paid, and explanation of the $1 million in cash, what about the other $3 million and why you have them separated, and level payment term all be explained at the next meeting. Wendy Redmond answered about the $3 million at this time and the reason it was separate was because the Chancellor felt he had commitments from the local communities and corporations to raise $3 million to support housing in Anchorage. Senator Frank said it appeared to be a debt service. Wendy Redmond said that they would finance the $3 million from a separate stream of cash flow. ADJOURNMENT The meeting was adjourned at approximately 10:50 A.M.