Legislature(1995 - 1996)
03/27/1996 09:15 AM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
MINUTES SENATE FINANCE COMMITTEE 27 March 1996 9:15 A.M. TAPES 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. PRESENT 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 later. 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 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." 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 yesterday. 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 recruitment. 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 differential. 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 failed. 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 time. 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 quantities." 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 teleconference. 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. ADJOURNMENT Co-chairman Halford recessed the meeting at 11:10 a.m. until 1:30 p.m. today pending availability of a quorum.