Legislature(1995 - 1996)

03/27/1996 09:15 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    SENATE FINANCE COMMITTEE                                   
                          27 March 1996                                        
                            9:15 A.M.                                          
  SFC-96, #53, Sides 1 & 2                                                     
  SFC-96, #54, Side 1                                                          
  CALL TO ORDER                                                                
  Senator Rick  Halford, Co-chairman, convened the  meeting at                 
  approximately 9:15 A.M.                                                      
  In  addition  to  Co-chairman  Halford,  co-chairman  Frank,                 
  Senators Phillips,  Sharp, Rieger and  Zharoff were  present                 
  when  the  meeting  was convened.    Senator  Donley arrived                 
  Also   Attending:   Alison   Elgee,   Deputy   Commissioner,                 
  Department of Administration; Kathleen Strasbaugh, Assistant                 
  Attorney  General,  Governmental   Affairs  Section,   Civil                 
  Division, Department  of Law; Laurie  Otto, Deputy  Attorney                 
  General,  Criminal   Division,  Department  of   Law;  Wendy                 
  Redmond, Vice-President for University Relations, University                 
  of Alaska; John Bitney, Alaska  Housing Finance Corporation,                 
  Department of Revenue; Fred Fisher, Fiscal Analyst, Division                 
  of Legislative Finance; and aides to committee members.                      
  Kenneth A. Boyd, Director, Division of Oil & Gas, Department                 
  of Natural Resources testified via teleconference.                           
  SUMMARY 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."                     
  Alison   Elgee,   Deputy    Commissioner,   Department    of                 
  Administration;  Kathleen  Strasbaugh,   Assistant  Attorney                 
  General,  Governmental  Affairs  Section,   Civil  Division,                 
  Department of Law; and Laurie Otto, Deputy Attorney General,                 
  Criminal Division, Department of  Law answered questions  by                 
  the  committee  regarding  SB  152.   Senator  Donley  moved                 
  technical change to Amendment #1 to delete "- 10" and insert                 
  "-  20" and  it  was adopted.    Amendment #1  was  moved by                 
  Senator  Rieger  and  adopted.   Co-chairman  Halford  moved                 
  technical  change  to  Amendment   #2  under  (c)(2)   after                 
  "license..."   insert  "to  practice   as  an   attorney  or                 
  physician..." and it was adopted.  Amendment #2 was moved by                 
  Senator  Sharp  and  adopted.   Technical  changes  moved by                 
  Senator  Sharp  on  pages 2  and  3  of  bill were  adopted.                 
  Senator Zharoff moved to insert districts "5, 6, 7, 8, 9" at                 
  "7%" on page 2 of bill, between lines 29 - 30 and it failed.                 
  Co-chairman Halford asked Alison Elgee  to prepare new draft                 
  CS and  fiscal note  for tomorrow.    He HELD  this bill  in                 
  CS FOR SENATE BILL NO. 163(FIN)                                              
  "An Act  approving the University of Alaska's plans to enter                 
  into long-term obligations with  the Alaska Housing  Finance                 
  Corporation to  borrow money  from the  corporation for  the                 
  construction  of   new  student   housing  facilities,   and                 
  authorizing the Alaska Housing Finance Corporation to  issue                 
  its debt obligations and to make  loans to the University of                 
  Alaska  to  finance construction  of  those student  housing                 
  facilities; and providing for an effective date."                            
  Wendy  Redmond,  Vice-President  of   University  Relations,                 
  University of Alaska and John Bitney, Alaska Housing Finance                 
  Corporation, Department of Revenue answered questions by the                 
  committee regarding SB 163.  A technical amendment was moved                 
  by Senator Rieger on page 2, line 3 of CSSB 163()  to insert                 
  "an  amount  not  to  exceed"  after "pay..."  and  adopted.                 
  Senator Rieger MOVED CSSB 163(FIN)  and WITHOUT OBJECTION it                 
  was  REPORTED OUT with  individual recommendations  and zero                 
  fiscal note from  the University of  Alaska and zero  fiscal                 
  note from Department of Revenue (AHFC).                                      
  CS FOR SENATE BILL NO. 112(RES)                                              
  "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  an oil or gas pool in                 
  the Cook Inlet sedimentary basin."                                           
  Brief testimony  was given by Mr. Kenneth A. Boyd, Director,                 
  Division of Oil  & Gas, Department of  Natural Resources via                 
  teleconference.   Senator  Sharp  MOVED  CSSB  112(RES)  and                 
  WITHOUT  OBJECTION  it  was  REPORTED  OUT  with  individual                 
  recommendations and previous  fiscal note of $91.0  from the                 
  Department of Natural Resources.                                             
       CS FOR SENATE BILL NO. 152(FIN)                                         
       "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."                                                             
  Alison  Elgee, Department of  Administration was  invited to                 
  join the committee.   She referred  to 1994 salaries  survey                 
  report and  geographical differential as  well as Washington                 
  comparable salaries.   The amendment is  in two parts.   The                 
  first part of the amendment corrects a technical error  that                 
  was made at the time  the bill was drafted.  It needs  to be                 
  amended to  reflect the word "base salary" in order to be in                 
  compliance with the Fair Labor Standards Act for calculation                 
  of overtime.  The  second part of the amendment  addresses a                 
  particular   problem   that   may   arise   in   the    very                 
  farwestern/northwestern    districts    with    professional                 
  employees where  a  professional  license  is  required  for                 
  employment.    There may  be  problems with  the non-covered                 
  employees  (Department of  Law  and  the  Public  Defender's                 
  Office), engineers and health care  professionals when it is                 
  attempted to apply this legislation  to the union contracts.                 
  Kathleen Strasbaugh, Civil  Division, Department of  Law was                 
  invited to join the committee.   The criminal division has a                 
  number of staff  who are  placed in communities.   There  is                 
  considerable  difficulty in  recruiting  people and  keeping                 
  them  in those  positions.   This is also  a problem  in the                 
  Department of Administration for public defenders who are in                 
  the  same communities.   Again,  they would  be required  to                 
  certify and demonstrate  to the  Division of Personnel  that                 
  there is a problem with recruitment before this increment is                 
  allowed.  Finally, there are maybe two collective bargaining                 
  agreements that are  tracked to  this legislation should  it                 
  pass.  That  might affect supervisors, engineers  and health                 
  care professionals where there are  recruiting problems.  It                 
  is not automatic.  Senator Sharp indicated if an  individual                 
  needs a license in election districts  37-40 one could go up                 
  to  40%  over base  pay.   She  indicated that  was correct.                 
  Senator  Rieger  referred  to section  2  which  limited the                 
  adjustment  to only  the  first $30,000.    Probably a  more                 
  equitable way  to  address the  problem  is to  adjust  that                 
  dollar  base  which  was  the  point  Senator  Sharp  raised                 
  Laurie Otto,  Department of  Law,  was invited  to join  the                 
  committee.   The Department  of Law  is  the primary  agency                 
  affected  by  this   bill  along  with  the   Department  of                 
  Administration, Office  of the Public Defender  because they                 
  have  the  most  partially  exempt  employees,   non-covered                 
  employees in the State.  The  Department of Law supports the                 
  bill  with this amendment. For  example, there is a one-step                 
  pay   differential  between  Palmer   and  Anchorage.    The                 
  department is unable  to transfer attorneys between  the two                 
  offices because  they do not want  to give up  the extra pay                 
  they get for  living in Palmer.  The problem is in the rural                 
  areas,  specifically,  Barrow,  Nome, Kotzebue,  Bethel  and                 
  Dillingham.  Historically  it is difficult   getting lawyers                 
  to  locate  to the  rural  areas of  the  State.   The  last                 
  sectionof the amendment requires there be a determination by                 
  the   Division  of   Personnel  that   there  are   specific                 
  recruitment problems.   If the amendments do  not pass there                 
  is going  to be  an extraordinarily  difficult time  filling                 
  those positions  in rural  Alaska that  are very  important.                 
  Co-chairman Halford  asked how many people are in this total                 
  category of  exemption in all  departments?  Ms.  Elgee said                 
  there is a total of 243  individuals statewide that would be                 
  impacted by this legislation.  There  are a number of people                 
  who  are  Alaska  Housing Finance  employees  that  would be                 
  impacted by this  legislation and pioneer home  directors in                 
  Fairbanks and Sitka would be  impacted as well as attorneys.                 
  Co-chairman Halford said  he was specifically talking  about                 
  the amendment for licensed professionals.   Laurie Otto said                 
  that within the Department of Law there are nine people that                 
  would be affected.  There would be a similar number affected                 
  in the public defender agency.  Co-chairman Halford asked if                 
  it was assumed  that they were all  going to get this?   Ms.                 
  Otto said  she would  ask the  director of  the Division  of                 
  Personnel  for  the authority  to  give it  to  them because                 
  because the single biggest problem  in the criminal division                 
  is keeping those rural offices staffed.  Co-chairman Halford                 
  said the same goal would be  achieved if the $30,000 ceiling                 
  were changed where the area  differential applies to $60,000                 
  or delete the  ceiling.     Ms. Otto said the  concern about                 
  doing that was  it applied  to everyone  and every  district                 
  regardless of whether  there was  a particular problem  with                 
  Senator  Sharp  asked  if  medical   people  would  also  be                 
  involved.  Ms. Elgee indicated  that they had the  re-opener                 
  clauses in the union contracts.  The others they are talking                 
  about are primarily  union people but legislation  is wanted                 
  so they can apply  to the union contracts through  those re-                 
  openers.    Problems  are  anticipated  down the  line  with                 
  licensed  health  care  professionals  and  engineers.   Co-                 
  chairman Halford asked  if State engineers were  required to                 
  have a license and it was indicated  they were.  He asked if                 
  there was  any way bounds  could be set  such so no  way the                 
  certification  or finding could  be made  for more  than 100                 
  employees total.   Senator Sharp said  it would be like  the                 
  merit increase.  Once it is  done everyone gets it.  Senator                 
  Rieger  said  this   is  an  additional  argument   for  pay                 
  differential that is  different from cost  of living but  it                 
  tends to have the same set of dynamics to it.  The effect of                 
  section (b) as it reads either with or without the amendment                 
  is  to  further compress  State  salaries which  are already                 
  overcompressed.  The  right thing to  do would be to  delete                 
  section  (b)  entirely.   Co-chairman  Halford asked  if the                 
  second part of Senator Rieger's  amendment were applied only                 
  if the roll  was open for  continuous recruitment.  That  is                 
  where there is trouble. Ms. Strasbaugh said it was a concept                 
  that does not apply  because there is not a  list maintained                 
  for  partially exempt  employees.   Ms.  Otto said  that the                 
  Department of  Law is a  small part of  this problem.   What                 
  Senator Rieger suggested  would take  care of that  problem.                 
  Attorneys must be brought in and the cost of living is high.                 
  Co-chairman Halford asked  if a limit  could be set on  this                 
  but Ms. Elgee said she would have  to check and see what the                 
  number  of   professionally  licensed  employees   in  these                 
  specific areas  was that  this would  potentially apply  to.                 
  Co-chairman Halford  said this  would advocate  professional                 
  licensing and would  all of a  sudden promote a premium  pay                 
  package item.   Ms. Elgee said  one of the requirements  was                 
  already  that  the job  would  have to  require professional                 
  licensing.  Just  holding a professional license  if the job                 
  did not  require  it would  mean  this amendment  would  not                 
  apply.   Ms. Strasbaugh indicated that it  was expected this                 
  legislation would affect bargaining but it will not, in most                 
  cases, completely  control it.   The  only automatic  effect                 
  there  is  going to  be is  for  partially exempt  or exempt                 
  positions.  This would include lawyers.  Co-chairman Halford                 
  indicated they were looking for limitations.  All that would                 
  have to be  done is to  change "professionally licensed"  to                 
  "licensed  by  the  bar".    Ms. Strausbaugh  concurred  and                 
  indicated that the record should be clear.  This would cover                 
  the two largest groups  that there is concern for.   Senator                 
  Frank  suggested  it  be  limited  to lawyers,  health  care                 
  providers  and physicians.    Co-chairman Halford  indicated                 
  "attorney or physician in the State" would be better.                        
  Senator Rieger  moved his  amendment to  page 3,  Washington                 
  State becomes -10  and a conforming amendment would be where                 
  it says "percentage  above" it would  add "or below" on  the                 
  caption, page 2, line 26.   Senator Donley moved to amend it                 
  to read -20   and felt it  would be more appropriate  in the                 
  second section "with the exception of Washington State a pay                 
  differential authorized" because if "or below" is added then                 
  the change would  only relate  to the  first $30,000  still.                 
  The applicability of section (b)  Washington state should be                 
  taken out all  together.   Co-chairman Halford said  Senator                 
  Rieger  would  change  that.     He  would  further  support                 
  significantly increasing  section  (b)'s  number.    Senator                 
  Rieger  felt Senator Donley's  suggestion was good.   But he                 
  felt the -20 was too severe and that some number between -10                 
  and -20 would be more appropriate.  He hoped that in general                 
  they would  delete section (b).   Senator Sharp  asked about                 
  the 20  highest cost urban areas.   It does not have Seattle                 
  on  it.  It has Anchorage, Fairbanks, Kodiak and Juneau.  He                 
  felt -20 was not enough.  Senator Donley moved his amendment                 
  to the amendment changing 10% to 20%  and add on line 2 page                 
  3 "with the exception  of Washington State".  He  noted that                 
  ASMI  had an 18%  differential and someone  assessed this to                 
  determine  that  it was  appropriate.   Therefore  20% seems                 
  reasonable.   Senator  Rieger objected  to the 20%  moved by                 
  Senator  Rieger.   Senator Sharp  asked who  was in  Seattle                 
  besides ASMI and it  was indicated Marine Highway.   Senator                 
  Frank said they were all covered by a  collective bargaining                 
  unit.   Ms. Strausbaugh said it was about 13% less.  Senator                 
  Frank asked  if this  were passed  would that indicate  they                 
  must negotiate to  20% less?   She said  there was  separate                 
  legislation on the cost of living which does not address the                 
  percentage but  does address the criteria.   It would affect                 
  bargaining but  not control it entirely.  Senator Frank said                 
  he thought  they had  collective bargaining agreements  that                 
  had  re-opener  clauses  that  will  be  influenced  by  the                 
  legislature. Ms. Elgee  indicated that was correct  and this                 
  legislation would greatly  influence the bargaining position                 
  as the  contracts were  reopened for  the contracts for  the                 
  cost  of living  differential.   It  would  not control  it.                 
  Senator Frank referred  to the fiscal note and said it was a                 
  savings of $1.2 million.  He wanted to know if that included                 
  expected reductions in the collective bargaining agreements.                 
  She said the  numbers only represented the  executive branch                 
  employees in the non-covered arena that would be impacted by                 
  the passage  of this  legislation.   The general  government                 
  unit   has  been  looked  at  and  the  application  of  the                 
  geographical  differential  as  drafted  could save  in  the                 
  general government unit about $4  million per year.  Senator                 
  Frank  said  that was  if it  were  agreed to  in collective                 
  bargaining or  imposed and that Commissioner  Boyer intended                 
  to impose terms  if an impasse were reached.  Ms. Elgee said                 
  that was the next action at an impasse stage.                                
  Senator  Donley's  technical  change  to  Amendment  #1  was                 
  adopted  and  Senator  Rieger's  amendment  #1  amended  was                 
  adopted.  Amendment  #2 as technically changed was  moved by                 
  Senator  Sharp  and  it was  adopted.    Co-chairman Halford                 
  indicated that  the scales  accurately reflect  the cost  of                 
  living in Fairbanks.  He suggested that page 2, lines 28 and                 
  29 which changes line 28  to delete "33" and add "28"  which                 
  means that goes  up to south  of Fairbanks and  then in  the                 
  second category,  which is  a 5%  differential insert  after                 
  "6", "29 -33".   That makes a less significant change in the                 
  Fairbanks area and more  reasonable of how it works  its way                 
  through.  That  is a slight difference  for the union and  a                 
  slight  decrease  for the  exempt  but  it helps  us  in the                 
  package.  Ms.  Elgee said that  in looking at the  Fairbanks                 
  differential the union  members have  had a 4%  differential                 
  for ten years.  This would potentially increase the cost for                 
  union members in that  region.  Due to the  configuration of                 
  the districts a  look was taken   specifically at the  North                 
  Pole area and there are no state employees duty stationed in                 
  North Pole.   Any state employees  that reside in the  North                 
  Pole and work for the state  are duty stationed in Fairbanks                 
  and the Fairbanks differential would apply to them.  Senator                 
  Sharp said it appeared Ketchikan, Sitka, Wrangell Petersburg                 
  and Juneau did not get any cost of living allowance but  now                 
  with this new legislation they will go  up to 5%.  Would not                 
  that produce some  increases and demands by  union personnel                 
  for  all those  districts?   Ms. Elgee  said that  currently                 
  Sitka,  Wrangell  and   Petersburg  under  the   non-covered                 
  schedule do get a differential.   Juneau is not proposed for                 
  a differential  in any  of these proposals.   Senator  Sharp                 
  asked about the  union differential and if it was incorrect.                 
  Ms.  Elgee said  the  union differential  representation  is                 
  correct here.  Co-chairman Halford said that Ketchikan is at                 
  5% and they would actually be going up.   Senator Sharp said                 
  that contrary  to what  Ms. Elgee said  it is  going to  put                 
  pressure on them  to negotiate upwards.   They are proposing                 
  pressure for five districts.   Co-chairman Halford indicated                 
  they were proposing pressure for Ketchikan, Sitka, Wrangell,                 
  Petersburg and Lynn Canal/Icy  Straits.  He said he  did not                 
  support a major  re-allocation to the  south when the  costs                 
  are higher to the north.   This proposed amendment was moved                 
  by Senator Sharp.  Senator  Rieger proposed an amendment  to                 
  the amendment so the percentage number  instead of "5" would                 
  be at "4"  and it would be a hold harmless for Fairbanks and                 
  would re-allocate  what happens in  "1, 2,  5 and  6".   Co-                 
  chairman Halford felt it  would be better to take  the union                 
  differentials that were all the way across that  were fought                 
  out at the bargaining  table and apply them.   Senator Frank                 
  said that Fairbanks  might have been  out-voted at the  last                 
  union negotiation and may not have  had anyone on their team                 
  from Fairbanks.  Co-chairman  Halford felt that to go  in 5%                 
  increments was best.   Senator Rieger said he would  like to                 
  know the fiscal impact of 1% across the board and asked what                 
  the total state  payroll was in  Fairbanks.  Ms. Elgee  said                 
  she would secure  that information.   In terms  of the  non-                 
  covered individuals there are 91 positions in Fairbanks that                 
  are impacted  by this  and the decrease  from 14%  to 0  was                 
  anticipated to save  $785,000 in total funds and 4528,000 in                 
  general funds.   There  would be  a savings  of 2/3 of  that                 
  amount instead of the full amount.                                           
  Senator Frank said that it was reasonable to assume it would                 
  be  less if  all  the covered  people  in Ketchikan,  Sitka,                 
  Wrangell and Petersburg  went up from  1.0 to 1.5.   Senator                 
  Donley said the  first two districts  should be in the  zero                 
  category because they are a big  increase in expense in this                 
  bill.  Senator  Frank asked where  problems would be in  the                 
  union differential.   He felt the  problems would be in  the                 
  rural  areas  in   terms  of  the  cost   savings  features.                 
  Specifically  districts  35  through  40  there is  a  union                 
  differential which  is close to  above 1.3 in  comparison to                 
  1.2  in some of  the rural districts.   Ms.  Elgee said they                 
  would be amenable to the adoption  of the union differential                 
  at this time if the legislature  was interested in funding a                 
  new  area  cost differential  study.    The  problem is  the                 
  present cost differential study is ten  years old.  The cost                 
  of living around the state has come down significantly since                 
  that time.   Co-chairman  Halford indicated  that the  union                 
  differential is not a bad way to go.  The proposed amendment                 
  by Senator Sharp failed.   On a revote the  amendment passed                 
  with one abstention.                                                         
  Senator Zharoff referred to sections 2 through 9 excluding 3                 
  and 4 and they reflect a higher cost of living than  what is                 
  here.  He voiced his concern over the use of availability of                 
  a transportation system that he does not know if it has that                 
  much of an impact on those communities and the people living                 
  in those areas because it does not appear to be reflected in                 
  the information that is provided here.  Ms. Elgee stated the                 
  information they had looked at was geographical similarities                 
  and similar  transportation modes.   Certainly  many of  the                 
  judgments made in this bill were subjective.                                 
  Senator  Sharp  proposed  an  amendment to  line  3  page  3                 
  deleting  $30,000 and moved  the adoption  of $50,000.   Co-                 
  chairman Halford said he supported the amendment.  Ms. Elgee                 
  said  she  would  have to  re-calculate  this.   Co-chairman                 
  Halford asked how much fiscal savings was reflected from the                 
  limitation to the  first $30,000 and  how much was from  the                 
  scheduled changes.   Ms.  Elgee said  she did  not have  the                 
  particular information  as the  referenced  fiscal note  was                 
  prepared  by  OMB.    Senator  Frank  asked  how  the  union                 
  contracts were handled.  She advised that the feeling of the                 
  administration was that this was to compensate  for the cost                 
  of living and did not need to apply to discretionary income.                 
  The $30,000 was  a subjective  number and they  can look  at                 
  other  numbers.    They are  interested  in  maintaining the                 
  concept.  He asked if they had  bargained that concept.  She                 
  said  they  would  when  they  reopened  the  contracts  for                 
  discussion of this  new area  of cost differential  proposal                 
  included  in  the re-opener  clause.   The  re-opener clause                 
  allows bargaining based on the legislation passed.  Whatever                 
  is included in this   legislation conceptually can be  taken                 
  back to  the  table.   It  is limited  however to  the  cost                 
  Senator Donley   said most families are  two-income families                 
  and  they would  get  an additional  benefit that  is beyond                 
  household expenses if they have this additional income.  For                 
  a one-income  family this would  make a lot  of sense.   The                 
  majority of families now have two incomes.  Both spouses are                 
  having to  work to make ends meet.   The ones who are single                 
  are going to have less of an  expense so they would not need                 
  this  as  much.    Co-chairman  Halford indicated  the  only                 
  counter-argument is that the system is established and there                 
  is  a  one  year adjustment  period  in  this  bill.   Those                 
  adjustments  may be hard if one  has house payments, vehicle                 
  payments  and other payments  all laid out.   The percentage                 
  changes  are not as big  particularly to a two-income family                 
  as applying that  percentage to $30,000 instead  of $70,000.                 
  For  that reason he  said he  would support  Senator Sharp's                 
  amendment.  Senator  Frank said he  was concerned about  the                 
  transition period.  There are constituents that would be, in                 
  one year's time,  looking at  a 10% substantial  drop.   Co-                 
  chairman Halford and Senator Frank discussed a possible loss                 
  between 10% to over  14%.  Senator Frank said  he understood                 
  the union froze  everyone and  then over time  as merit  and                 
  cost-of-living increases were approved the authorized salary                 
  caught up  to the  level of  the frozen  salary.   Ms. Elgee                 
  concurred.  She said that this legislation  was a legitimate                 
  effort  to  reduce  costs  and   with  the  cut-backs  being                 
  experienced  in  State  government if  these  costs  are not                 
  reduced along such  lines it  will be necessary  to lay  off                 
  employees.    A  transition period  of  a  year would  allow                 
  employees to  adjust to the  new circumstances  or look  for                 
  other  employment was  preferable  to a  potential  lay-off.                 
  Senator Frank felt a transitional notice should be looked at                 
  that  gives more than one  year notice that  pay is going to                 
  drop 10%.                                                                    
  Senator Donley said it  has a despaired impact upon  certain                 
  individuals but  these are  also individuals  way up  on the                 
  salary  range.   Senator  Frank  said these  are individuals                 
  filling important jobs and referenced the recruitment for an                 
  attorney for Bethel.  Without a transitional provision it is                 
  unduly hard.   A mitigating transitional feature needs to be                 
  negotiated.  Senator Donley felt  the individuals on the low                 
  end have been getting a bad break over the years with health                 
  benefits.   The  individuals  on  the  upper end  have  been                 
  protected from that  because they make such  higher salaries                 
  and there has been  a very improper despaired impact  on the                 
  people  on  the bottom  with the  reduction of  their health                 
  benefits.  This would be a fair adjustment for  some of that                 
  impact that has been very unfair to these individuals on the                 
  bottom.  Co-chairman  Halford said if contract people are at                 
  4% it  is still  a significant  change and  the change  from                 
  $30,000 to $50,000 mitigates that somewhat.  After a vote on                 
  Senator  Sharp's  proposed  amendment  changing  $30,000  to                 
  $50,000 it was adopted.                                                      
  Senator Zharoff said he was concerned about the employees in                 
  districts 5  through 9,  particularly 7  through 9,  because                 
  they  are  taking a  big hit  there.   From  the information                 
  provided here he  feels uncomfortable going ahead  with that                 
  figure.  He said the actual  cost of living in Kenai is  not                 
  what is being projected.  He  felt that election districts 5                 
  through 9 should stay  at 7% instead of  going down to  zero                 
  and then down to 5% of 5 and 6.  He moved sections 5,  6, 7,                 
  8, and 9  base salary schedule be 7%.  Ms. Elgee pointed out                 
  that  the  Kenai  Peninsula  districts  have  a  zero  union                 
  differential and it has been for  ten years.  This amendment                 
  Senator  Frank introduced transitional  language on  page 3,                 
  line 26  inserting  after "by"  "more  than 3%  annually  by                 
  provision of this act".  Senator Halford asked that all July                 
  1, 1995 dates  be conformed to read July 1, 1996 and July 1,                 
  1996 be  conformed to  read July  1, 1997.   Senator  Rieger                 
  indicated that probably  section 10  was not  needed in  the                 
  bill.   Senator  Frank  referred to  the old  union contract                 
  which  said pay  would never  be  reduced and  an individual                 
  would  have to wait for  a cost-of-living or merit increase.                 
  Co-chairman Halford said  it should hold harmless  the first                 
  year, limit in  the second  year the total  change, being  a                 
  combination of  the application  and the  percentage and  no                 
  more than  5%.  The transitional provision would be repealed                 
  in the third  year.  Ms.  Elgee indicated that the  proposal                 
  made by co-chairman Halford would be acceptable.                             
  Senator  Rieger   discussed  the  matter   with  Co-chairman                 
  Halford.    He said  he  would  leave the  decisions  on the                 
  salaries and the contracts but that  the bill would not take                 
  effect on any existing employee until July 1, 1997.  Senator                 
  Frank said  they had  the potential  of getting  a 2%  merit                 
  increase and then getting a 5% reduction  the next year.  He                 
  said the contract question could be set aside when there was                 
  still the merit  issue.  Co-chairman  Halford said the  bill                 
  could  be drafted  so that it  applied to the  total net pay                 
  package  so  that there  be a  limitation  on the  amount of                 
  decrease in the first year based  on comparison to the prior                 
  year regardless of the merit increase and regardless of what                 
  is  put  in  the  scale  to  match whatever  is  negotiated.                 
  Senator Donley agreed  with the co-chairman.   Senator Sharp                 
  would like to  see this specified in enough detail so a real                 
  fiscal  note  could be  made  available  by tomorrow.    Co-                 
  chairman Halford concurred  and said  he wanted an  up-dated                 
  fiscal note before  moving this  bill.  Ms.  Elgee said  she                 
  would  have the language drafted according to the concept he                 
  just laid out.  He  asked her specifically to work  with the                 
  Fairbanks delegation.  He held this bill in committee.                       
       CS FOR SENATE BILL NO. 163(FIN)                                         
       "An Act approving  the University of Alaska's  plans to                 
  enter     into long-term obligations with the Alaska Housing                 
  Finance   Corporation to borrow  money from the  corporation                 
  for the   construction  of  new student  housing facilities,                 
  and  authorizing the  Alaska Housing Finance  Corporation to                 
  issue     its  debt  obligations and  to  make loans  to the                 
  University of  Alaska  to  finance  construction   of  those                 
  student housing     facilities;   and   providing   for   an                 
  effective date."                                                             
  Senator Rieger introduced SB 163.  Senator Donley moved CSSB                 
  163()  work   draft  for  discussion  purposes  and  without                 
  objection it was adopted.                                                    
  Wendy  Redmond  said  that  the  bill  was  changed  at AHFC                 
  suggestion to  give them  some flexibility  to issue  bonds.                 
  The current language in the CS  would not disallow them from                 
  looking  at  other options  if  they  felt that  was  in the                 
  corporation's best interest.                                                 
  John  Bitney, AHFC testified before  the committee.  He said                 
  the way the debt schedule as set up was to look at how  much                 
  was annually  required to  pay off  the bonds  or raise  the                 
  funds to construct  the facility.  The  university's portion                 
  is  predicated on  what  they expect  to  generate from  the                 
  student fees there.   AHFC would provide the subsidy  on the                 
  remaining cost of those  funds on an annual basis.  This was                 
  more the criteria looked at than  any type of interest rate.                 
  The  way this is arranged presently no arbitrage funds would                 
  be  used  based  upon  the  advice  received  from  counsel.                 
  Senator Rieger asked if when  bonds were issued the interest                 
  rate  would  be  higher  than  3%.     Would  the  arbitrage                 
  provisions allow the  3% to  be a blended return coming back                 
  to AHFC on this  project with other higher yielding  returns                 
  on the proceeds of  a bond issue for another  investment and                 
  if the overall aggregate came out within bounds would you be                 
  fine?   Mr. Bitney said  this was not  correct.  He  noted a                 
  memorandum from  legal counsel,  Ken Vassar  to Dan  Fauske,                 
  dated 22 March 1996.  The way it is arranged now is that the                 
  IRS code does not look at a loan or grant of arbitrage funds                 
  to  the university as  an obligation.   Therefore  the funds                 
  cannot be counted in  terms of what is being  blended to try                 
  and  stay within  the  1-1/2% target  number  that is  being                 
  blended down to maintain  the tax exempt status.   Since the                 
  loan or arbitrage  funds are being  given to another  entity                 
  within the State  it does  not incur that  obligation.   The                 
  subsidy from those  funds annually used would be  applied to                 
  our net profits on  an annual basis that otherwise  are used                 
  to pay for capital projects in the state transfer plan.                      
  Senator  Sharp  referred  to  page  2,  line  2  annual debt                 
  service.   Without knowing what  the actual debt  service is                 
  going to be how  can exact figures be loaded  into the bill?                 
  Does  this  annual  debt service  include  interest?   Wendy                 
  Redmond  said that the university is  required by statute to                 
  provide to the legislature on  revenue bonded facilities the                 
  full cost of  the facility including  the debt service in  a                 
  piece of legislation  that must be passed  separately.  This                 
  meets our statutory requirement.   It is exactly known  what                 
  the amount will be that is being  bonded for with AHFC.  The                 
  rate is fixed  through a  25-year period based  on what  the                 
  rental revenues  are expected  to be  with annual  increases                 
  that will be assessed for the fees.  AHFC will subsidize the                 
  balance of that based on however the rates go up.                            
  Senator Sharp referred to lines 6 and 7  $30,000,000 will be                 
  financed   throughout   AHFC   under   a   subsidized   bond                 
  authorization and combined with lines 2 and  3 what interest                 
  rate was used to arrive at these figures of $2,767,000.  Mr.                 
  Bitney advised  it was  6%.   The  estimated annual  subsidy                 
  would be  $1 million  and that  is based  on the  difference                 
  between  what  is  generated  by  the  University  from  the                 
  facility.   Senator Sharp asked  if line  3 established  the                 
  exact  amount the  university would pay for debt  service at                 
  $1,751,515 no matter  what the  bond interest rate  is?   Is                 
  that  a guaranteed  amount to  the university?   Mr.  Bitney                 
  concurred.  Senator  Rieger referred to  line 3, page 2  and                 
  said the  phrase should read including "...an  amount not to                 
  exceed..." and  that way the issue could be explored further                 
  for  flexibility  and  not  prevent  the  bill  from  moving                 
  forward.    He  moved  this   amendment  and  Wendy  Redmond                 
  concurred.  She stated  that in addition to the  $30 million                 
  that  is  being assigned  specifically  to the  dormitory an                 
  additional $3 million  was being collected from  a community                 
  group  doing private  fund-raising for  the dorm.   If  that                 
  money  is  collected  ahead  of  time  it  will  reduce  the                 
  $1,751,515 each year.  The basic dorm rental portion of this                 
  is $1.5 which is fixed in  for 25 years.  Senator Sharp  has                 
  no  objection to  the  amendment of  Senator  Rieger but  is                 
  concerned the amount could  go to zero and that  would leave                 
  much  room for  negotiation.   Ms.  Redmond  said she  never                 
  considered that  an  option.   Mr.  Bitney said  he  assumed                 
  whatever  loan  agreement  would  be   negotiated  with  the                 
  university  would basically  follow  the  structure  of  the                 
  subsidized loan as it is laid out here.  Senator Sharp feels                 
  the exact amount should  be written in.  Wendy  Redmond said                 
  the amount was in the loan documents themselves.                             
  Senator Rieger said  they should find  a better way to  make                 
  use of  arbitrage and give  a break to the  students for the                 
  rates at  the  dorm.   This  is leaving  the  door open  for                 
  possible creative finance it  if turns out there is  any way                 
  it could be done.  Co-chairman Halford concurred.                            
  Co-chairman Halford re-iterated   Senator Rieger's amendment                 
  and with objections  being duly  noted it was  adopted by  a                 
  vote of 4 - 3.                                                               
  Senator  Zharoff commented on the debt  service.  Mr. Bitney                 
  explained the AHFC subsidy.   Wendy Redmond said it  was not                 
  being done with any other projects  around the state at this                 
  Senator Rieger moved  CSSB 163  (FIN) and without  objection                 
  the bill  was reported  out with individual  recommendations                 
  and accompanying fiscal notes zero (previous) DOR(AHFC); and                 
  University at Anchorage zero.                                                
       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                 
  Co-chairman  Halford said  there was  a  question on  SB 112                 
  regarding any  cumulative effect  and Senator  Leman's staff                 
  was present  to answer  any questions.   Also  Ken Boyd  via                 
  Annette Kreitzer, staff aide to  Senate Resources Committee,                 
  said she  was not aware of any cumulative effect in the bill                 
  that would allow  for a floor lower  than the 5% that  is in                 
  the bill.  That is what the intent was.                                      
  Ken Boyd, Director, Division  of Oil & Gas said  that within                 
  the bill itself there was no opportunity to go below 5%.  He                 
  did explain that if one were granted discovery royalties for                 
  ten years  and the bill  provides for  5%, at some  point in                 
  time of the  life of  the field,  even though  there is  the                 
  discovery royalty provision, one could apply under HB 207 to                 
  go to a  floor of 3%.   But that is as  low as it would  go.                 
  Senator  Sharp  said  that  would  have  to  be  a  separate                 
  application with separate  approval and justification.   Mr.                 
  Boyd concurred.  Senator Rieger asked about the leases under                 
  the  old  discovery royalty  credits  provisions.   Mr. Boyd                 
  advised that the  discovery royalty provision came  from the                 
  Federal law  when Alaska  became a  state and  from 1959  on                 
  lease issues  had discovery royalty provisions.  The law was                 
  repealed  in 1969  just prior  to lease  sale 23.   All  the                 
  leases that were in effect during this time have a discovery                 
  royalty provision.                                                           
  Senator Sharp moved CSSB 112(RES)  and without objection the                 
  bill was  reported out  with individual  recommendations and                 
  previous  fiscal   note  from  the   Department  of  Natural                 
  Resources $91.0.                                                             
  Co-chairman Halford recessed the meeting at 11:10 a.m. until                 
  1:30 p.m. today pending availability of a quorum.                            

Document Name Date/Time Subjects