Legislature(1995 - 1996)
03/26/1996 08:10 AM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
MINUTES SENATE FINANCE COMMITTEE March 26, 1996 8:10 a.m. TAPES SFC-96, #51, Side 1 and 2 SFC-96, #52, Side 1 SFC-96, #52, Side 2 (575-207) CALL TO ORDER Senator Steve Frank, Co-chairman, convened the meeting at approximately 8:10 a.m. PRESENT In addition to Co-chairmen Frank and Halford, Senators Phillips, Rieger, Sharp, and Zharoff were present. Senator Donley arrived as the meeting was in progress. ALSO ATTENDING: Senator Green; Senator Torgerson; Barbara Ritchie, Deputy Attorney General, Civil Division, Dept. of Law; Laurie Otto, Deputy Attorney General, Criminal Division, Dept. of Law; Alison Elgee, Deputy Commissioner, Dept. of Administration; Dick Pegues, Director, Administrative Services Division, Dept. of Law; Nancy Slagle, Director, Budget Review, Office of Management and Budget; Kevin Ritchie, Executive Director, Alaska Municipal League; Bill Rolfzen, State Revenue Sharing, Division of Municipal and Regional Assistance, Dept. of Community and Regional Affairs; Vern Voss, Cash Manager, Treasury Division, Dept. of Revenue; Brett Huber, aide to Senator Green; Annette Kreitzer, aide to Senator Leman; Kathryn Daughhetee, fiscal analyst, Legislative Finance Division; and aides to committee members and other members of the legislature. ALSO PARTICIPATING VIA TELECONFERENCE: Christopher Kennedy, Assistant Attorney General, Environmental Section, Dept. of Law, Anchorage; Pat Poland, Director, Division of Municipal and Regional Assistance, Dept. of Community and Regional Affairs, Anchorage; and John Stein of Wasilla; SUMMARY INFORMATION HB 468 - APPROPRIATION: SUPPLEMENTAL & OTHERS Review of the Dept. of Law request within Sec. 9 of the bill was had with Barbara Ritchie, Laurie Otto, and Nancy Slagle. The supplemental was held in committee for continued review at 8:00 a.m., Friday, March 29, 1996. SB 20 - ALASKA MUNICIPAL BASIC SERVICES PROGRAM Discussion was had with Senator Torgerson, Kevin Ritchie, Bill Rolfzen, Vern Voss, and via teleconference with Pat Poland and John Stein. An amendment by Senator Rieger was adopted for incorporation within a finance committee substitute. CSSSSB 20 (Fin) was then REPORTED OUT of committee with a zero fiscal note from the Dept. of Community and Regional Affairs and a ($874.0) note from the Dept. of Revenue. SB 112 - DISCOVERY ROYALTY CREDIT Review and discussion of CSSB 112 (Res) was had with Annette Kreitzer. The bill was subsequently held in committee for further review and answer to the question of whether or not the state could receive a minimum of less than 5%. SB 152 - GEOGRAPHIC PAY DIFFERENTIALS Discussion was had with Alison Elgee. Due to lack of time, the bill was held in committee for further review. SB 177 - CONCEALED HANDGUN PERMIT AMENDMENTS Discussion was had with Senator Green and Brett Huber. A draft CSSB 177 (Fin) (3/25/96) and amendments by Senators Donley, Phillips, and Rieger were adopted. CSSB 177 (Fin) was then REPORTED OUT of committee with zero fiscal notes from the Dept. of Law and Dept. of Corrections and a (117.6) note from the Dept. of Public Safety. SB 181 - PROHIBITED HIGHWAY ADVERTISING Discussion was had with Senator Green. A draft CSSSSB 181 (Fin) (3/22/96) was adopted and REPORTED OUT of committee with a $40.0 fiscal note from the Dept. of Transportation and Public Facilities. CS FOR HOUSE BILL NO. 468(FIN) am An Act making supplemental appropriations for the expenses of state government and making and amending appropriations; ratifying certain state expenditures; and providing for an effective date. Co-chairman Frank directed that the FY 96 supplemental budget be brought on for discussion and asked that representatives of the administration speak to department requests. Dept. of Law BARBARA RITCHIE, Deputy Attorney General, Civil Division, Dept. of Law, came before committee. She explained that the $369.3 request under Sec. 9(a) would fund various judgments and claims against the state that accumulated over the year. NANCY SLAGLE, Director of Budget Review, Office of Management and Budget, noted that the $369.3 includes $144.0 in judgments plus $225.3 for a settlement from the international airport revenue fund, relating to safety officers at the Anchorage International Airport. Mrs. Ritchie next described the class action against the City of Kodiak and the state over conditions at the Kodiak Jail--a community jail under contract to the state. This case, which has been ongoing over five years, involves complicated questions of confinement. Additional questions related to state liability for a city-operated jail under contract to hold state prisoners. The state won a partial summary judgment clarifying that the Cleary case does not apply to community jails. In the settlement, the state paid 25 percent of awarded attorney fees of $104.0 and $2.0. The City of Kodiak paid the remaining 75 percent. Senator Sharp asked if Alaska Legal Services was funded by the state. Mrs. Ritchie explained that it is primarily funded by federal appropriations. However, it has historically received some state funding via grants through community and regional affairs. Senator Sharp suggested that the $27.0 award for attorney fees be removed from the supplemental. Mrs. Ritchie explained that the State v. Meyer case involved a sexual discrimination appeal filed against the Alaska Dept. of Fish and Game and the Alaska Human Rights Commission in March of 1987. Both the superior and supreme courts ruled in favor of Ms. Meyer and ordered that court costs and attorney fees of $1,148.25 be paid by the state. LAURIE OTTO, Deputy Attorney General, Criminal Division, Dept. of Law, explained that Durham v. Kincheloe relates to Cleary. The plaintiff sued saying it was unconstitutional under a U.S. Supreme Court case to require that the inmate take psychotropic medication. The state argued that Cleary provisions were controlling. The court disagreed and found that state procedures for administering psychotropic medicines against an inmate's will did not comply with the U.S. Supreme Court mandate. The state voluntarily rewrote its policies and procedures to comply. It was, however, required to pay the plaintiff's attorney fees for litigating the issue. Discussion followed regarding the function of the disability law center. Ms. Otto noted that in the Durham case the inmate had a severe mental illness. Senator Randy Phillips asked that the department determine whether the center receives state appropriations. Senator Rieger voiced his understanding that the Cleary settlement was in conflict with the U.S. Constitution. He then asked if the department has the ability to revise the settlement without a separate court order. Ms. Otto said the final order in Cleary spells out a procedure for administering psychotropic medicines against an inmate's will. The U.S. Supreme Court issued an opinion which conflicts with Cleary. The U.S. Constitution always controls over an order of a lower court. It is possible to litigate whether or not certain provisions of the Cleary final order are unconstitutional. It is more difficult to re-litigate other portions of it, although re-litigation is possible. The fact that a portion of the settlement is found to be deficient does not negate the remainder. In response to a question from Senator Sharp, Ms. Otto explained that an employee of the Dept. of Corrections (Kincheloe) was sued in his official capacity as the superintendent of the institution where the drugs were administered. The original request for attorney fees was $65.0. The department was able to negotiate a reduction to $45.0. The fees will accrue to the disability law center. Attorney fees in the amount of $1,219.0 in CSED v. Allsop reflect an Alaska Supreme Court award. Mrs. Ritchie explained that as a result of statutory changes, these types of cases will disappear. The instant case involved CSED's role in dis-establishment of paternity. Statutory revisions now allow the division to dis-establish paternity administratively. Discussion of particulars of the case followed. Senator Rieger noted indications that attorney fees had been reduced by 80 percent and asked who would bear that portion of the cost. Mrs. Ritchie replied that it would have to be paid by Mr. Allsop. Senator Rieger stated his concern that it appears the defendant will be made to bear the cost of setting the record straight. Mrs. Ritchie stressed that one reason the case was pursued was to clarify CSED's role in these cases and obtain a definitive ruling. The law has since been corrected. Co-chairman Halford concurred that the individual should not be made to pay the cost of "an impossible case where the state was wrong." Mrs. Ritchie explained that in the case of City of Fairbanks v. State Dept. of Labor (Workers' Compensation) the $2,838.62 in attorney fees and costs of $525.17 would be paid to the office of the city attorney in Fairbanks. The case involves the Workers' Compensation Board denial of the city's application for self-insurance. When the city appealed, the superior court reversed the board decision. The city moved for full attorney fees and was granted half by the court. The Dept. of Law has subsequently worked with the Workers' Compensation Board regarding different regulatory requirements, between public and private entities, for determining eligibility requirements for self- insurance. The $42,855.00 payable to Trustees for Alaska in the suit against the Dept. of Natural Resources involves a challenge to state best interest findings for a particular oil and gas lease sale on behalf of the trustees, the city of Kaktovik, and numerous environmental organizations. The supreme court remanded best interest findings to DNR for further findings. As the prevailing party, the trustees were granted attorney fees in both the superior court case and the supreme court appeal. Fees in the appeal have been paid. This claim is for superior court fees. The trustees charged that DNR did not give adequate consideration to the environmental risks of transporting oil from the off-shore lease area to market. Litigation has helped clarify the scope of best interest findings and the required depth of analysis to support findings in future lease sales. The state prevailed on all issues before the superior court. The trustees prevailed on two issues upon appeal. The state objected to attorney fees and costs at both court levels, arguing that fees should be reduced to reflect only work on the two issues on which the trustees ultimately prevailed. Both courts awarded the trustees substantially all of the fees they requested. Senator Sharp suggested that deductions be made in the court budget to cover the awarded fees. The $11,829.76 payable to the disability law center in Weiss v. State represents interim costs and fees following the 1985 supreme court decision in the mental health trust lands case. The court found that the state breached the trust by redesignating trust lands. On remand the court awarded these interim costs and fees to the plaintiff. Co-chairman Frank asked for a breakdown of all attorney fees paid in the case and who the payments were to. Senator Sharp asked if the state expects continuing expenses from the case. Mrs. Ritchie noted that the merits case on the mental health trust appeal is pending before the supreme court. A briefing schedule was recently issued. Briefing will occur through summer and into fall. There are 180 points on appeal. Mrs. Ritchie said she would provided a memorandum updating the status of litigation. Senator Rieger inquired concerning particulars of the $261.00 payable in CSED v. Bond. Mrs. Ritchie explained that the award of attorney fees stems from a paternity suit which questioned whether Rule 82 fees should apply to CSED paternity cases. The court ruled affirmatively and limited the fees to the Rule 82 amount. The defendant sought full fees. Senator Rieger noted that a review of judgment awards indicates that private individuals who sue the state "get pennies" compared to agencies in the business of suing the state. The pattern in award of attorney fees appears backward. Mrs. Ritchie suggested that greater fees indicate greater complexity and substantially more attorney time. CSED cases tend to be single issue. Mrs. Ritchie stressed that awards depend upon a number of factors. The department consistently attempts to reduce awards as much as possible and requires opposing parties to justify attorney fees. Senator Zharoff inquired regarding the effect of not paying judgments. Mrs. Ritchie said she was not aware of any judgments against the state that have not been paid. Referencing the judgment for Alaska Legal Services, Mrs. Ritchie explained that the agency could be awarded attorney fees just as any private lawyer or law firm. That is a separate matter from the Dept. of Community and Regional Affairs grant to the agency. Ms. Otto suggested that failure to pay court judgments would trigger more litigation, place the state in contempt, and lead to additional liability for attorney fees for litigation of non-payment of fees, plus interest. Senator Randy Phillips asked if the court has the power to force the Legislature to appropriate funding. Does the court have the power of appropriation? Ms. Otto said the issue has been researched within the context of Cleary fines. She declined to answer the question "in this setting." Co-chairman Halford remarked that the question represents a constitutional standoff. He cited incidences wherein courts have used mandamus to force appropriations. The other side of the coin is the fact that the Legislature has the court's budget. He noted that whether justified or not, judgments against the state have eventually been paid. He remarked that the one that "stands out as a little bit ridicules is the fine . . . to the general fund of the state for the Cleary case because it's an absolute circle." Senator Zharoff asked the department to provide information on original requests versus the amount of each negotiated judgment. Referencing the $1,285,000.00 for Toksook Bay v. State, Co- chairman Halford explained that the request from last year totals approximately the same as this year. However, last year, the feeling was that the state was walking into a precedent that would hold the state liable under strict liability for things it had no control over and that occurred under both federal ownership and state ownership. That was not the intent of strict liability law. The Legislature decided to deal with the issue only if there was a solution to the strict liability question. Co-chairman Halford said he would support the request if a House amendment to SB 69 becomes law, because new language would limit strict liability as it applies to the state. Co-chairman Frank next referenced the $225.0 judgment against the Dept. of Transportation and Public Facilities for wrongful termination at the Anchorage International Airport. END: SFC-96, #51, Side 1 BEGIN: SFC-96, #51, Side 2 Mrs. Ritchie explained that the Alaska Police Standards Council denied certification to two long-term airport safety officers when new legislation required that the officers have certification. The superior court found that the council abused its discretion in denying certification and directed that the officers be certified. In the interim, DOTPF terminated the employees because they lacked certification. The judgment compensates the two officers for lost pay. The case involved application of new standards to existing long-term employees. The court held it was unfair to terminate employees who had proven their ability to do the job. The case also involved a dispute between the council, which regulates and certifies certain state employees, and the department that employs them. DOTPF had no alternative but to terminate the officers when the council denied certification, even if the department disagreed with the denial. Co-chairman Frank asked why the council was not sued and the officers allowed to keep their jobs pending outcome of the case. He voiced frustration over repeated instances in which employees have been terminated and the state must provide back pay for the time cases progress through the courts. He suggested that employees be kept on the job pending a determination. Ms. Otto stressed that the statute contains "an absolute prohibition on being employed in that capacity unless you are certified by the Alaska Police Standards Council." Once certification was denied, DOTPF would have been breaking the law in continuing to employ the officers. Co-chairman Frank noted that the officers' individual rights were violated by wrongful termination. Ms. Otto noted that future problems could be avoided if legislation effecting new standards contains grandfathering provisions. That was discussed when the new standards legislation was pending, but the Legislature chose not to include the provision. Further discussion of vision requirements giving rise to denial of certification followed. The court reached the conclusion that because the officers had been employed and carried weapons for many years, the regulation, as it applied to them, was not valid. Further discussion of regulatory standards of the council followed. Co-chairman Frank asked that the Dept. of Law determine the number of employees terminated each year, how many terminations are appealed through the grievance process, and how many go to court. Mrs. Ritchie remarked that the numbers are significant, and she agreed to provide statistics. RECESS At this time, Co-chairman Frank announced that he would recess review of supplemental requests until 8:00 a.m., Friday, March 29, 1996, at which time discussion would commence with Berger v. State. The meeting was recessed at 9:05 a.m. RECONVENE Co-chairman Halford reconvened the meeting at approximately 9:13 a.m. and announced that the committee would consider legislation in the order listed on the agenda. SENATE BILL NO. 177 An Act relating to permits to carry concealed handguns. Co-chairman Halford directed that SB 177 be brought on for discussion, referenced a draft Senate Finance Committee Substitute, and noted proposed amendments. Senator Green, sponsor of the legislation, explained that work draft 9- LS1139\D, Luckhaupt, 3/25/96, incorporates amendments offered at an earlier hearing. In addition, concern raised by members regarding the drafting style used in provisions relating to state ferries was addressed by new language at page 6, line 32, and a new Sec. 14 on page 8. Senator Sharp MOVED for adoption of CSSB 177 (Fin), "D" version as the mark-up vehicle. No objection having been raised, CSSB 177 (Fin) was ADOPTED. Senator Randy Phillips MOVED for adoption of Amendment No. 3. Co-chairman Frank requested an explanation. Senator Phillips raised a question regarding whether the ability of one to carry a concealed weapon supercedes the right of a homeowner to prevent those carrying concealed weapons from coming into one's home. Under current law a homeowner must post a sign or verbally advise that he or she does not want those carrying concealed weapons on the premises. Senator Phillips voiced his belief that the right of a homeowner to prevent entry of those carrying concealed weapons supercedes the rights of those carrying weapons. The person carrying a weapon should have to seek permission to enter the property. Co-chairman Halford agreed that the rights of the homeowner should prevail, but he raise a question concerning notice requirements. Discussion followed among members regarding amendment language requiring that express permission to bring a concealed handgun into a residence be obtained from an "adult" residing in the residence. Senator Zharoff questioned whether the language might be too broad, but alternative language was not developed. Senator Green stated her opposition to the amendment. She suggested that if a homeowner desires that someone not carry a concealed handgun onto the premises, the homeowner should make his or her wishes known. A homeowner has the right to deny anyone access to the owner's home. She suggested that the amendment makes false, prejudicial assumptions about those who carry concealed weapons. Senator Rieger noted that, at times, homeowners allow individuals they do not know well to enter their homes. Alaskans are hospitable people. The point made by the amendment addresses governing priorities within the walls of an individual's residence. Co-chairman Halford called for a show of hands on adoption of the amendment. Amendment No. 3 was ADOPTED on a vote for 4 to 3. Senator Randy Phillips next referenced an amendment for the Mary Conrad Center. He voiced his understanding that the bill allows the department to implement regulations prohibiting the carrying of concealed weapons in certain places such as on the marine highway system. He then asked whether provisions should be placed in statute or dealt with via regulation. Senator Sharp noted that entities have the right to post notice "against anything coming into their building, whether it's handguns or backpacks." Senator Phillips stressed that the concern is larger than the issue of concealed weapons. Is the Legislature going to allow the bureaucracy to implement regulations based on what the law says or otherwise? Co-chairman Frank concurred that no parameters had been established. Senator Phillips voiced a preference for statutory listing of establishments within which the carrying of concealed weapons is prohibited. Senator Green directed attention to language at the bottom of page 6 and noted that it speaks to state and federal prohibitions against possession of a deadly weapon or firearm. BRENT HUBER, aide to Senator Green, briefly came before committee. He explained that language at page 6 referencing state and federal law was included to allow existing regulations for the ferry system to "take care of their concern." It was later determined that ferry system prohibitions are policy rather than regulation. The ferry system was thus specifically cited in the bill. Senator Phillips again referenced an amendment for the Mary Conrad Center and asked if the facility could prohibit possession of concealed weapons. Mr. Huber responded affirmatively, advising that the facility would merely have to post a sign advising of the prohibition. Senator Green noted that the same ability would be available to facilities providing services to victims of domestic violence and sexual assault set forth in Senator Rieger's amendment. Senator Rieger explained that his amendment responds to testimony from the director of the council on domestic violence who did not want shelters excluded from current law. Amendment language reinstates those facilities. Senator Rieger further cautioned that the criminal trespass statute referred to as a means of "keeping people out" is being removed elsewhere in the bill as one of the violations providing grounds for revoking a permit to carry a concealed weapon. Senator Sharp noted that the trespass law remains strong in terms of prohibiting entry. Removal of trespass as grounds for revoking a permit has no relation to posting of notices prohibiting concealed weapons in facilities. Further discussion focused on provisions at page 4, line 10, of the work draft. Senator Donley noted that brackets enclosing citation of AS 11.46.320 and 11.46.330 should have been removed from the bill as part of an earlier motion. Co-chairman Halford directed that the brackets be removed. Senator Rieger MOVED for adoption of the domestic violence amendment. Discussion followed regarding the process for prohibiting concealed weapons on public versus private property. Senator Donley advised that private property owners need merely post notice while prohibition on public property must be set in statutes. Additional discussion followed regarding ferry system policy regarding weapons. Referencing the proposed amendment, Senator Green noted that victims of domestic violence are sometimes permit holders. She then suggested that the amendment would prohibit them from entering shelters. She noted that, under the propose bill, shelters could formulate policy that regulates the issue and post the premises, if management chooses to do so. Senator Rieger stressed that those living at shelters are living in great fear and want nothing around them that could cause additional fear. They seek assurance that the shelter is a safe place. Senator Green reiterated that the facility has the right to post notice of prohibition. Senator Rieger suggested that the ability to post is not clear under existing language. Co-chairman Halford called for a show of hands on adoption of the amendment. The domestic violence facility amendment was ADOPTED on a vote of 4 to 3. Directing attention to page 6, Senator Zharoff again raised a question concerning areas cited in subsections (4) through (12) and posed for removal. Senator Sharp MOVED that CSSB 177 (Fin) pass from committee with individual recommendations and accompanying fiscal notes. No objection having been raised, CSSB 177 (Fin) was REPORTED OUT of committee with zero notes from the Dept. of Law and Dept. of Corrections and a note from the Dept. of Public Safety showing a revenue reduction of ($117.6). Co-chairmen Halford and Frank and Senators Donley and Sharp signed the committee report with a "do pass" recommendation. Senators Phillips, Rieger, and Zharoff signed "no recommendation." SPONSOR SUBSTITUTE FOR SENATE BILL NO. 181 An Act relating to the promotion of Alaska businesses through signs, displays, and devices within or adjacent to highway rights-of-way, to municipal regulation of directional signs, displays, and devices, and to penalties for violations related to outdoor advertising. Co-chairman Halford directed that SSSB 181 be brought on for discussion. Senator Green again came before committee. She referenced a work draft CSSSSB 181 (9-LS1164\U, Utermohole, 3/22/96) and explained that it incorporates an amendment by Senator Rieger within both title language and Sec. 4. Contact with staff from the Federal Highway Administration indicates the program will work within federal guidelines. (See March 25, 1996, correspondence from FHA on file in the original Senate Finance Committee file for SB 181.) Senator Randy Phillips MOVED for adoption of CSSSSB 181 (Fin). No objection having been raised, CSSSSB 181 (Fin) was ADOPTED. Senator Sharp MOVED that CSSSSB 181 (Fin) pass from committee with individual recommendations and accompany fiscal notes. No objection having been raised, CSSSSB 181 (Fin) was REPORTED OUT of committee with a $40.0 fiscal note from the Dept. of Transportation and Public Facilities. Co- chairmen Frank and Halford and Senators Donley and Sharp signed the committee report with a "do pass" recommendation. Senators Phillips, Rieger, and Zharoff signed "no recommendation." SPONSOR SUBSTITUTE FOR SENATE BILL NO. 20 An Act establishing the Alaska municipal basic services program, relating to certain programs of state aid to municipalities and recipients in the unorganized borough; and providing for an effective date. Co-chairman Halford directed that SSSB 20 be brought on for discussion. KEVIN RITCHIE came before committee on behalf of the Alaska Municipal League and the Alaska Conference of Mayors. He voiced support for the bill and described efforts that led to development of the legislation over the past two years. END: SFC-96, #51, Side 2 BEGIN: SFC-96, #52, Side 1 SENATOR TORGERSON, sponsor of the legislation, next came before committee. He explained that the bill renames the "municipal assistance" portion to "revenue sharing for safe communities." Provisions require moneys received from safe communities to be spent on certain public purposes, require municipalities to list notice to taxpayers of the amount of money received from safe communities, and allow the base amount to be prorated. Since establishment in 1978, the base amount was held harmless from cuts. This funding is the former business license tax. The legislation "takes money from all the communities and raises the minimum entitlement to smaller communities to $40.0." Funding required for the transition totals $238.9. That amount is prorated from each community. The bill also changes the date of the payment to coincide with the earlier payment so that both sections are paid on July 31. That results in one payment for both revenue sharing and safe communities. The remainder of the bill involves housekeeping measures. The sponsor further described past efforts to rewrite municipal assistance and revenue sharing programs. He said he had been involved in attempts to change the formula so that "We wouldn't have many winners and losers when we tweak the formula." The approach proposed within CSSSSB 20 (CRA) is overwhelmingly supported by the Conference of Mayors, the Alaska Municipal League, and communities that are not members of either of the foregoing organizations. Senator Torgerson attested to past controversy over the fiscal note. The fiscal note from the Dept. of Revenue derives from moving the $29.4 million payment from February to July 31. Senator Torgerson said he did not agree with the resulting ($874.0) fiscal note. He advised that part of the reason for advancing the payment date is the fact that July is one of the only months in which the state has a surplus. The proposed bill would entail expenditure of part of the surplus and would not involve the constitutional budget reserve. In response to a question from Co-chairman Halford, Senator Torgerson directed attention to a tabulation (copy on file) listing funding to be received under the existing municipal assistance program versus that in the proposed bill. He then spoke to impact on specific communities. Responding to a question from Co-chairman Halford, Senator Torgerson explained that the idea behind the $40.0 minimum entitlement is to transform every community below that level up to that mark. That would take care of this fiscal year. In future years, if there is a reduction in the program, each community will take the same amount of reduction. The $40.0 is not held harmless forever. Co-chairman Halford asked if the one-third, two-third split between safe communities and state revenue sharing, respectively, would remain in place. Senator Torgerson responded affirmatively. He added that state revenue sharing is distributed on a per capita basis while the one-third split is distributed "into the safe communities portion." Co-chairman Halford voiced his understanding that the appropriation goes through that separation and is prorated for each community. He then asked if separation and proration apply to both total and minimum entitlements. Senator Torgerson said that the minimum entitlement is not subject to "the safe communities portion." Minimum entitlement "comes out up front." BILL ROLFZEN, State Revenue Sharing, Division of Municipal and Regional Assistance, Dept. of Community and Regional Affairs, came before committee. Speaking to the one- third/two-third split, he explained that the intent was to allow the base amount to be subject to cuts in the future. For the FY 96 appropriation to the municipal assistance program, one-third went to the base amount and two-thirds went to the per capita account. If the overall appropriation is reduced, each account would be subject to the same amount of cuts. In response to a question from Co-chairman Halford asking how the minimum entitlement would be impacted, Mr. Rolfzen responded, Okay, we go through the revenue sharing program. We go through the municipal assistance (now called the safe communities formula). If after we go through the entire formula, there are some municipalities that don't have a total of $40.0, going to that municipality, we go to the per capita account under the safe communities fund and grab enough money to bring everybody up to $40.0. Mr. Rolfzen further added, "But, no one gets an absolute $40.0. The intent was that all municipalities share in bringing up the smaller communities to $40.0." If there is a cut, they are also to share in that cut. He then directed attention to the distributed tabulation and noted that for the first year some municipalities at the $40.0 level would actually be receiving $39.9. In response to a question from Co-chairman Halford, Mr. Rolfzen acknowledged that under existing revenue sharing the minimum is $25.0 times the cost-of-living differential. There is no minimum entitlement under municipal assistance. The proposed bill would set a minimum of $40.0 and bring approximately 41 of the "very small communities" up to $40.0. It would cost approximately $238.0 statewide. Smaller communities would also share in bringing communities to the $40.0 threshold. PAT POLAND, Director, Division of Municipal and Regional Assistance, Dept. of Community and Regional Affairs, next spoke via teleconference from Anchorage. He expressed support for the bill and advised that it contains improvements to municipal assistance and revenue sharing programs. It effects changes in a fair and "generally balanced manner." It is important that the state protect its investment in public infrastructure made through municipal governments. Establishment of a minimum funding level is an important step in that direction. Removal of the holdharmless provision will provide for better program equity. Moving the date for the safe communities payment forward will enable larger municipalities to minimize impacts from cuts. In his concluding remarks, Mr. Poland acknowledged a difference between departments over the fiscal impact of the date change. He then voiced support for a date that "basically gives us the fiscal impact at the lower end of the fiscal note submitted by the Dept. of Revenue." Senator Rieger referenced a proposed amendment and explained that when the legislature passed legislation relating to the ranking of school projects, the listing of a priority list in statutes produced an awkward result in which the first item on the list was required to be exhausted, in its entirety, before proceeding to the next item. That was not the intent. To clarify the situation, the proposed amendment contains the following language: Subsection (c) of this section may not be construed to require a municipality to fund all requests it receives for services in a category with a higher ranking of priority before funding services in a category with a lower ranking of priority. The Senator then MOVED for adoption of the amendment. Senator Torgerson acknowledged that the amendment clears up problems within the bill. No objection having been raised, Senator Rieger's amendment was ADOPTED. To an inquiry from Co-chairman Frank concerning the repeal within Sec. 13, Senator Rieger explained that the clause required a municipality to reduce taxes in response to revenue sharing and municipal assistance increases. Co-chairman Frank asked if the bill deals with both revenue sharing and municipal assistance. Senator Torgerson responded, "basically just municipal assistance." The Co- chairman then voiced his understanding that the primary thrust is to increase the minimum entitlement to $40.0. Senator Torgerson added that it also removes holdharmless provisions. Discussion followed regarding the current workings of holdharmless language. Additional discussion followed regarding minimum entitlements under the proposed bill. Co-chairman Frank asked if the legislation would cover unincorporated areas. Senator Torgerson responded negatively. In response to inquiries from Co-chairman Frank concerning municipal support, Senator Torgerson said that both the mayor of the Fairbanks Borough and the mayor of the City of Fairbanks worked with the mayor of Anchorage in putting the proposed plan together. VERN VOSS, Cash Manager, Treasury Division, Dept. of Revenue, came before committee in response to questions regarding cash flow and the department fiscal note. He explained that if funds are paid to municipalities in February versus July, the state must borrow money from the constitutional budget reserve or another source. In the alternative, if excess funds are available, early payment would effect a reduction in interest income. JOHN STEIN next testified via teleconference from Wasilla. He voiced support for the legislation, saying that the Alaska Municipal League and the legislature have developed "something that sort of makes sense out of municipal funding." He voiced further support for the public relations campaign to explain to voters that "This is really a sloughing . . . a pushing down of costs to the municipal governments." That should be understood. Mr. Stein urged support for the bill and local governments. Co-chairman Frank MOVED for passage of CSSSSB 20 (Fin) with individual recommendations and accompanying fiscal notes. CSSSSB 20 (Fin) was REPORTED OUT of committee with a zero fiscal note from the Dept. of Community and Regional Affairs and a note from the Dept. of Revenue projecting a revenue reductions of $(874.0). Co-chairmen Frank and Halford and Senators Sharp and Zharoff signed the committee report with a "do pass" recommendation. Senators Donley, Phillips, and Rieger signed "no recommendation." SENATE BILL NO. 112 An Act establishing a discovery royalty credit for the lessees of state land drilling exploratory wells and making the first discovery of oil or gas in commercial quantities. Co-chairman Halford directed that SB 112 be brought on for discussion. ANNETTE KREITZER, aide to Senator Leman, came before committee. She explained that changes within CSSB 112 (Res) address problems with terms contained within the original bill. Concern relates to: 1. What constitutes first discovery? 2. What are commercial quantities? 3. What is the geologic structure? 4. What is the discovery date? 5. Does the discovery royalty apply to all zones in a lease? As introduced, the bill would allow new discovery rules to apply to the exploration licensing program (Sec. 1). The bill is ultimately to encourage early exploration through a reduced royalty. Language within subsection (3) (page 2, lines 2 through 11) narrows the scope to the Cook Inlet sedimentary basin. Directing attention to page 4 of the bill, Ms. Kreitzer noted that the legislation includes non-unitized leases as well as non-producing leases. Language also states that leases that carry the former discovery royalty provision cannot apply under the new program. In her closing remarks, Ms. Kreitzer reiterated that the royalty program applies only to leases in the Cook Inlet sedimentary basin (effective on all non-producing, non- unitized leases) and future leases certified as first discovery by the commissioner six months after the effective date of the act. Senator Rieger asked if discovery royalty provisions were known at the time of the sale of original leases or were they enacted after the lease sale. Ms. Kreitzer said she would obtain an answer. Senator Sharp voiced his understanding that Cook Inlet leases on which there has been no discovery would be entitled to a 5 percent royalty on future discoveries for ten years. Ms. Kreitzer noted that the royalty would apply to discoveries in the Cook Inlet sedimentary basin. If a non-producing, non-unitized lease is involved, the owner could apply for first discovery (one per lease). Senator Sharp voiced his understanding that all production from the lease, regardless of the number of wells, would be subject to the 5 percent royalty. In response to a question from Senator Sharp concerning the number of leases involved, Ms. Kreitzer directed attention to backup materials (copies on file in the original Senate Finance Committee file for SB 112) and referenced a list of leases as well as a legal decision outlining problems with the previous program. Discussion followed regarding the proposed royalty program and the existing exploration incentive credit. Ms. Kreitzer noted that the exploration license is separate and unrelated to discovery royalty credits. One working under an exploration license could apply for a discovery royalty. Ms. Kreitzer next spoke to situations surrounding earlier passage of the exploration license program. She voiced her understanding that regulations for the program were only recently promulgated by the department. Senator Sharp asked if the proposed bill would allow one to pyramid discovery benefits or exploration credits to where the "state would be receiving less than a minimum of 5 percent on oil production." Ms. Kreitzer responded that while that is not the intent of the proposed legislation, she would review the situation to determine whether it is a possibility and whether there is need for limiting language. END: SFC-96, #52, Side 1 BEGIN: SFC-96, #52, Side 2 Senator Sharp directed attention to page 3, line 25, and expressed need for clarification of new language commencing there and continuing to the next page. Ms. Kreitzer asked if it was the intent of the committee that the bill not allow opportunity for one to apply under more than one program, resulting in more than a 5 percent royalty reduction. Senator Sharp again voiced concern regarding opportunity, through the proposed bill in combination with other programs, for the state to receive less than the 5 percent minimum. Ms. Kreitzer said she did not know whether bill language needed to be clarified to preclude that opportunity. Co-chairman Halford acknowledged need to answer that question and directed that the bill be held in committee pending receipt of additional information. SENATE BILL NO. 152 An Act relating to geographic differentials for the salaries of certain state employees who are not members of a collective bargaining unit; relating to periodic salary surveys and preparation of an annual pay schedule regarding certain state employees; relating to certain state aid calculations based on geographic differentials for state employee salaries; and providing for an effective date. Co-chairman Halford directed that SB 152 be brought on for discussion. ALISON ELGEE, Deputy Commissioner, Dept. of Administration, came before committee. She explained that the bill contains a lower cost of living than presently being paid state employees who are not represented by a union or covered by collective bargaining. A relatively small group would initially be impacted. However, union contracts now before the Legislature contain reopener clauses that would allow the state to negotiate a new pay differential for union members, based on passage of the proposed bill. Ms. Elgee next directed attention to a handout demonstrating differences between existing and proposed differentials. She explained that the current differential is tied to other statutes. In developing the proposed bill, the Governor attempted to impact only state employees. Sec. 1 maintains magistrates at the existing statutory level. Ms. Elgee said the court has been conducting a review of magistrate salaries "and does not believe this section is any longer necessary." Co-chairman Halford asked if the cost to the state would be raised or lowered by removal of Sec. 1. Ms. Elgee responded that costs would be lower if the new differential was applied to magistrates. However, the fiscal note does not represent "any of the court system employees." It covers only the executive branch. The Legislature would have to indicate its desire to apply the bill to court system employees as well. In response to a question from Co-chairman Frank, asking how the court system proposed to handle the differential, Ms. Elgee termed the magistrates "a real unique little bunch." The court is conducting salary review of "just the magistrates." They are the only group specifically tied by statute to the existing differential. As a practice, the court system has followed the statutory differential for non-covered employees as well. Ms. Elgee explained that Sec. 2 makes clear that the revenue sharing calculation currently tied to the existing area cost differential would continue. That would ensure that taking action on the proposed bill would produce no unintended reduction of revenue sharing to municipalities. The Governor did not want to complicate the legislation by bringing in issues such as aid to municipalities. That should be dealt with separately. Sec. 3 applies specifically to the minimum payment level in revenue sharing statutes. Sec. 4 lays out the proposed differential. It has been ten years since a complete cost-of-living differential study was conducted for Alaska. The 1985 study resulted in what is known as the "union differential." Two years ago, the courts dictated that the state abide by existing statutory language that requires an annual salary survey. Since there was no funding for the survey, the department used $20.0 to contract with the Runzheimer Group to prepare a cost-of- living differential study. Ms. Elgee noted that the study produced odd results. In preparing the proposed bill, the administration used Runzheimer's work as an indication that the cost-of-living differential across the state is coming down but did not utilize it as the basis for the administration's proposal. Ms. Elgee cited study figures for cost-of-living differentials at Nome and Ketchikan as evidence of apparent inaccuracies. In developing SB 152, the administration utilized House districts and looked for geographic similarities among the districts and common modes of transportation. Base levels (areas in which no geographic differential would apply) are Anchorage, Juneau, the Kenai Peninsula, Matanuska Valley, and the Fairbanks area. For coastal communities with ferry access but no road access, the bill proposes a 5 percent differential. For interior communities on the road system, the proposal is a 10 percent differential. The proposed differential is 20 percent for western and northwestern communities. The out-of-state differential has also been modified. In the past, the differential applied to all out-of-state workers. The bill proposes that it apply only to Washington state, and that the state adopt an approach similar to that used for foreign offices for other locations. That approach is specific to information relative to the cost of living in each location. Ms. Elgee cited need for flexibility to deal with unique circumstances such as salaries for state employees in Washington, D.C., where the cost of living is extremely high, as well as those temporarily stationed in Louisiana pending construction of the new state ferry. Co-chairman Halford asked if the proposed bill would increase pay for employees in Seattle by 20 percent. Ms. Elgee concurred that it would increase pay for non-covered employees, but it would reduce pay for union members residing in Seattle by approximately 10 percent. Co- chairman Halford voiced his understanding that the factor change increases Seattle from 79.1 percent to 100 percent for non-covered and 13 percent for union employees. Ms. Elgee clarified that the bill proposes a zero differential for Washington state. She concurred that should unions, through collective bargaining, adopt the factor, the foregoing would be the case. Co-chairman Halford questioned reduction of pay at Alaskan locations while increasing it for employees in Seattle. Ms. Elgee responded, "This is just a reflection of what we're seeing in the American Chamber of Commerce studies on cost-of-living differentials." It appears that the cost of living in the Seattle area is comparable to the cost of living in Anchorage. Senator Rieger presented a handwritten amendment to change the factor for Seattle to -10 percent. Co-chairman Frank asked that the committee be provided a copy of the Runzheimer report. Ms. Elgee agreed to do so, but stressed that it has little value since it does not accurately reflect community-by-community cost of living differentials for Alaska. She said she would also make available information developed by the American Chamber of Commerce research group, which relates to specific communities in Alaska. In response to a question from Co-chairman Frank, Ms. Elgee explained that upon passage of the proposed bill, the administration and unions would go back to the bargaining table to renegotiate the cost-of-living differential applicable to union members. Each contract currently contains its own area cost differential. With the exception of PSEA, they all reflect the differential outlined on the handout. Members questioned the administration's ability to engage unions in such negotiations without giving up something and suggested that the differential should be set in statutes and applied to all, union and non-union alike. Senator Donley directed attention to Senator Rieger's amendment and noted ASMI claims that it pays its employees in Washington state 18 percent below the rate in Alaska and continues to obtain quality workers. He then suggested that the reduction in the amendment should be -20 rather than -10 percent. Senator Donley further directed attention to page 3, line 3, and voiced need to change the salary portion ($30.0) to which the differential applies so that it applies to the whole salary range. In response to earlier comments regarding renegotiations with unions, Ms. Elgee said that the unions are "all very well aware of this legislation." The administration made clear its intent to conform area cost differentials to statutory changes. Reopeners were negotiated with that understanding. Co-chairman Frank referenced the $30.0 set forth at page 3, subsection (b) and asked if the current differential is applicable to the entire salary. Ms. Elgee responded affirmatively, advising that bill language would modify application to cover only "that portion of salary that we would deem to be for the actual basic cost of living and not the discretionary portion of any individual salary." Senator Sharp suggested that the $30.0 appears arbitrary in light of current low income and poverty numbers. Co-chairman Frank raised questions concerning lack of a differential for Fairbanks, citing the cost of heating fuel as an example of costs higher than those in Anchorage or Ketchikan. Ms. Elgee explained that differentials reflect a market basket survey. She cited offsetting factors between communities. Fairbanks is included in national chamber of commerce surveys. Information provided by that group indicates that the cost of living in Anchorage and Fairbanks is "almost identical." Senator Sharp voiced interest in reviewing the federal CPI for Seattle compared to Anchorage and Fairbanks. Senator Donley requested an assessment of Alaska pay for employees residing in Washington state versus salaries paid state workers by the state of Washington. Discussion among members followed regarding numbers cited for North Pole, Alaska. Co-chairman Frank inquired regarding the dynamics associated with achieving parity between covered and non-covered workers when reducing differentials. Ms. Elgee pointed to a one-year transition. At the time of passage of the legislation, the department would notify all impacted employees who would be frozen in current salaries for a year. Thereafter the salaries would be reduced to the new differential. The feeling was that a year's notice would give people an opportunity to readjust their financial circumstances or look for other employment. The state cannot afford a freeze, forever, given cutbacks in operating budget funding. Co-chairman Frank asked why new differentials rather than merely reopeners were not negotiated in union contracts. Ms. Elgee said that the state has no substantive information allowing for renegotiation. Passage of the proposed legislation would put the administration in a position to do so. Otherwise, absent expenditure of $300.0 to $400.0 for an area-cost-differential study, the state has no basis. In response to further comments from Co-chairman Frank, Ms. Elgee said that for ten years non-covered employees have enjoyed a differential that far exceeds that of union employees. Unions are not interested in "continuing to lead that particular action without modification of this schedule." Contracts have been ratified by employees with the reopener in place. Senator Zharoff raised a question regarding differentials for coastal communities with ferry service. He noted lack of service by the TUSTUMENA from October through April and asked that the administration review the consistency of service for individual communities. ADJOURNMENT The meeting was adjourned at approximately 11:05 a.m.