Legislature(2001 - 2002)

03/27/2001 06:05 PM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                     SENATE FINANCE COMMITTEE                                                                                 
                          March 27, 2001                                                                                      
                              6:05 PM                                                                                         
SFC-01 # 54, Side A                                                                                                             
SFC 01 # 54, Side B                                                                                                             
CALL TO ORDER                                                                                                               
Co-Chair Pete  Kelly convened the meeting at approximately  6:05 PM.                                                            
Senator Dave Donley, Co-Chair                                                                                                   
Senator Pete Kelly, Co-Chair                                                                                                    
Senator Lyda Green                                                                                                              
Senator Gary Wilken                                                                                                             
Senator Alan Austerman                                                                                                          
Senator Lyman Hoffman                                                                                                           
Senator Donald Olson                                                                                                            
Also Attending:   SENATOR JOHN TORGERSON;  SENATOR GENE THERRIAULT;                                                           
PAT  CARTER,  Staff  to Senator  Drue  Pearce;  HUGH  BROWN,  Alaska                                                            
Conservation  Voters; SUSAN  SCHRADER, Alaska  Conservation  Voters;                                                            
CAROL CARROLL,  Director, Division  of Support Services,  Department                                                            
of Natural Resources;                                                                                                           
Attending  via  Teleconference:    From  Anchorage:   TOM  BRIGHMAN,                                                          
Director,   Division   of   Statewide   Planning,    Department   of                                                            
Transportation and Public Facilities                                                                                            
SUMMARY INFORMATION                                                                                                         
SB  59-FEDERAL FUNDS TO MUNICIPALITIES FOR ROADS                                                                                
The  Committee  heard  from  the  sponsor   and  the  Department  of                                                            
Transportation  and Public Facilities.  An amendment was  considered                                                            
but not adopted. The bill was held in Committee.                                                                                
SB   4-MUNICIPAL PROPERTY TAX EXEMPTION                                                                                         
The Committee  heard from  the sponsor. A  committee substitute  was                                                            
adopted. Three amendments  were considered and two were adopted. The                                                            
bill moved from Committee.                                                                                                      
SB 136-RESOURCE DEVELOPMENT: BD./GRANTS/FUND                                                                                    
The  Committee  heard from  the  sponsor,  the  Alaska Conservation                                                             
Voters and  the Department of Natural  Resources. The bill  was held                                                            
in Committee.                                                                                                                   
     CS FOR SENATE BILL NO. 59(CRA)                                                                                             
     "An Act relating to awards of federal funds to municipalities                                                              
     for road projects; and providing for an effective date."                                                                   
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
SENATOR JOHN  TORGERSON noted that  the subject of this legislation                                                             
has  been considered  for  several  years.  He explained  this  bill                                                            
directs the  Department of Transportation  and Public Facilities  to                                                            
make $20 million  in federal funds available to municipalities  that                                                            
have "road powers"  to address municipal road needs.  He pointed out                                                            
that the Senate Community  and Regional Affairs committee substitute                                                            
places  a $3  million limit  as  the maximum  amount  that could  be                                                            
allocated  to any single  municipality in a  fiscal year. He  stated                                                            
that this  is intended  to prevent  allocation of  all the funds  to                                                            
only one community.  He noted that the municipalities  would provide                                                            
matching  funds, thus explaining  the negative  $1.5 million  fiscal                                                            
note  reflecting  the  amount  of state  funds  required  under  the                                                            
existing procedure.  He added that this legislation  also stipulates                                                            
a  priority  for  any  state-owned  roads  being  considered  for  a                                                            
transfer to local ownership.                                                                                                    
Senator Hoffman relayed  that he was informed of the existing option                                                            
for municipalities  to receive this funding through  a Memorandum of                                                            
Agreement (MOA) through  the Department of Transportation and Public                                                            
Facilities.  He asked why this legislation  is therefore  necessary.                                                            
Senator Torgerson  replied that it  is true that some projects  were                                                            
undertaken under the MOA  program, but that they are done on a case-                                                            
by-case basis,  and not  an annual appropriation.  He stressed  that                                                            
the intent of this legislation  is to make funds available each year                                                            
to allow municipalities to plan projects.                                                                                       
Senator   Hoffman   also   understood   that   the   Department   of                                                            
Transportation and Public  Facilities presently spends approximately                                                            
$40 million on locally owned roads.                                                                                             
Senator Torgerson  responded, "I would  be real surprised  at that."                                                            
[Note: teleconference sound quality is poor.]                                                                                   
TOM BRIGHMAN,  Director, Division of Statewide Planning,  Department                                                            
of  Transportation  and Public  Facilities,  testified  off net  via                                                            
teleconference  from  Anchorage  that the  differences  between  the                                                            
department  and the  legislature are  not philosophical  but  rather                                                            
practical.   He shared that the department  funds local projects  in                                                            
two different ways. He  stated that the department has made a number                                                            
of agreements  with municipal  governments  over time, to allow  the                                                            
local governments to manage  their own projects using federal funds.                                                            
He  pointed  out that  the  department  also  manages  and  executes                                                            
federal  funded projects  that improve  local roads  in addition  to                                                            
state-owned roads. He affirmed  Senator Hoffman's statement that the                                                            
department  expends $40  million to  $50 million  annually on  these                                                            
kinds of projects.                                                                                                              
Mr.  Brigham asserted  that  the federal  funds utilized  for  these                                                            
projects are not grants.  He pointed out that although the state may                                                            
allocate  funds  to municipalities,  the  federal  government  still                                                            
holds the  department responsible  for the  project, and  therefore,                                                            
the department is still involved.                                                                                               
Mr. Brigham  next stressed that the  department does not  "get money                                                            
from the federal  government that we then put in the  bank and spend                                                            
on  other projects."  He  clarified  that the  state,  or the  local                                                            
government  must first provide the  required matching funds,  less a                                                            
machinery  reimbursement,   for  a specific   project  according  to                                                            
federal regulations.                                                                                                            
Mr. Brigham  noted there are a number  of aspects to projects,  such                                                            
as environmental and right-of-way  issues that are "fairly complex,"                                                            
which  local  governments  and many  consulting  engineers  are  not                                                            
equipped  to address.  He stated that  oversight  or errors made  in                                                            
these matters  have the effect of adding to the overhead  costs of a                                                            
Senator  Hoffman  asked  the witness  if  local  municipalities  are                                                            
required  to provide the  matching funds up  front before a  project                                                            
could begin, why the department opposes this legislation.                                                                       
Mr. Brigham  responded that if the  process worked perfectly,  there                                                            
would  be no objection.  However,  he stressed  that  there are  few                                                            
local governments  equipped to address all the federal  requirements                                                            
and  the department  is  still  forced  to be  involved  in  project                                                            
management. He reiterated the increased overhead expenses.                                                                      
Senator Leman  requested an explanation of language  on page 1, line                                                            
9 of  the committee  substitute, "The  maximum amount  awarded  to a                                                            
single  municipality  may  not exceed  $3,000,000."  and  asked  the                                                            
reason for this provision.                                                                                                      
Senator   Torgerson  relayed   that   the  concern   was  that   one                                                            
municipality  could have  a project  with a high  cost, which  could                                                            
prevent other municipalities from participation in the program.                                                                 
Senator Leman  asked why the maximum level is set  so low and wanted                                                            
to know if the amount could be higher for larger municipalities.                                                                
Senator  Torgerson answered  that the  intent is  for more than  one                                                            
municipality to  be able to partake in using the funds.  He surmised                                                            
that a larger municipality  with a larger project could phase in the                                                            
Amendment  #1:  This  conceptual  amendment  increases  the  maximum                                                            
amount  awarded to  a single  municipality  from $3  million to  $10                                                            
Co-Chair Donley  moved for adoption  and stressed that he  could not                                                            
support this legislation  with such a low cap. He remarked he wanted                                                            
the  allocations   to  reflect  per  capita  and  "volume   of  use"                                                            
considerations "more accurately."                                                                                               
Senator Torgerson countered  that one project should not receive all                                                            
the funds.  He suggested  that the large  project in question  might                                                            
not be  in Anchorage  but perhaps  the Ketchikan  bridge project  at                                                            
$120 million.  He stated  that the  intention is  to distribute  the                                                            
funds across the state.                                                                                                         
Senator Green  objected to the amendment saying she  agreed with the                                                            
sponsor. She then  asked if the legislation places  any restrictions                                                            
on the type of road projects,  such as new roads, maintenance or re-                                                            
construction on an existing road.                                                                                               
Senator Torgerson  responded that maintenance would  not qualify. He                                                            
stated that  any project that qualifies  for federal funding,  which                                                            
he described  as  projects that  increase  the life  of an  existing                                                            
road, would be allowable under this program.                                                                                    
Senator  Green pointed  out  that  some roads  are heavily  used  by                                                            
drivers  who do not  reside in the  municipality  where the  road is                                                            
located. She also spoke  to the major effort for smaller communities                                                            
to undertake some projects.                                                                                                     
A roll call was taken on the motion.                                                                                            
IN FAVOR: Senator Leman and Co-Chair Donley                                                                                     
OPPOSED: Senator  Wilken, Senator Austerman, Senator  Green, Senator                                                            
Hoffman, Senator Olson and Co-Chair Kelly                                                                                       
ABSENT: Senator Ward                                                                                                            
The motion FAILED (2-6-1)                                                                                                       
The amendment FAILED to be adopted.                                                                                             
Senator  Green offered  a motion to  move from  Committee, CS  SB 59                                                            
(CRA), with  accompanying  Department of  Transportation and  Public                                                            
Facilities zero fiscal note.                                                                                                    
Co-Chair Donley  objected stating that he wanted additional  time to                                                            
work  with  the  sponsor   on  addressing  his  concerns   with  the                                                            
Senator Green  WITHDREW her motion to move the bill  from Committee.                                                            
Co-Chair Kelly ordered the bill HELD in Committee.                                                                              
     CS FOR SENATE BILL NO. 4(CRA)                                                                                              
     "An Act relating to a mandatory exemption from municipal                                                                   
     property taxes for certain residences; and providing for an                                                                
     effective date."                                                                                                           
This  was the third  hearing  for this  bill in  the Senate  Finance                                                            
SENATOR GENE THERRIAULT,  sponsor, reminded members  of the proposed                                                            
committee substitute  that he hoped the Committee  would take action                                                            
Senator Wilken  moved to  adopt CS SB 4,  22-LS0190\P, as a  working                                                            
AT EASE 6:22 PM / 6:27 PM                                                                                                       
There was no objection and the committee substitute was ADOPTED.                                                                
Amendment #3:  This conceptual amendment reduces the  assessed value                                                            
limit  in  Section  2(a)  on  page  2,  line  18  of  the  committee                                                            
substitute as follows.                                                                                                          
          (1) exceed the assessed value of $40,000 [$10,000] for                                                            
     any one residence; or                                                                                                    
          (1) exceed the assessed value of $30,000, or 20 percent                                                           
     of the assessed value, whichever is less, [$10,000] for any                                                              
     one residence; or                                                                                                        
     New Text Underlined [DELETED TEXT BRACKETED]                                                                             
Senator Austerman moved for adoption.                                                                                           
Senator  Therriault  did not  oppose  the  amendment,  noting it  is                                                            
sensitive to the  threat to the state treasury. He  shared that this                                                            
amount would  still triple the local  government's ability  and that                                                            
the 20 percent  provision is an existing mechanism  in the Fairbanks                                                            
North Star Borough (FNSB) ordinance.                                                                                            
Without objection the amendment was ADOPTED.                                                                                    
Senator  Therriault addressed  the fiscal  note at Co-Chair  Kelly's                                                            
request. Senator  Therriault stated that the estimated  $1.6 million                                                            
potential  reduction  in  state revenues  applied  to  the  original                                                            
version  of  the   bill  and  reflected  the  scenario   that  every                                                            
municipality that  currently exercises the residential  property tax                                                            
exemption immediately increased  from the current $10,000 cap to the                                                            
proposed $50,000  cap and compensated for their lost  revenue solely                                                            
by raising  the  overall mil  rate to  the oil  and gas properties.                                                             
However,  he noted that  because the Senate  Community and  Regional                                                            
Affairs committee  substitute deleted the applicable  section of the                                                            
bill, the original fiscal note is dropped.                                                                                      
Senator Therriault  pointed out that  with the action taken  by this                                                            
Committee  in adopting  the  committee  substitute  Version "P"  the                                                            
projected  potential reduction  is cut  in half.  He added that  the                                                            
committee substitute  eliminates the  service areas' mil  rates from                                                            
the tax  exemption option.  He explained  that without this  change,                                                            
the  service areas  would  have  no option  for  increasing  revenue                                                            
except  for raising  overall  mil rates,  which would  impact  state                                                            
revenue from oil and gas properties.                                                                                            
Senator  Therriault emphasized  that the FNSB  is considering  other                                                            
revenue  sources to  fund services  rather than  increasing the  mil                                                            
Senator  Green  referred  to a  March  19, 2001  letter  to  Senator                                                            
Therriault's office from  Steve Van Sant, State Assessor, Department                                                            
of Community  and Economic  Development. [Copy  on file.] She  read,                                                            
"The only issue that might  address any funding is the fact that the                                                            
municipality will lose,  in this example, $600,000 of assessed value                                                            
upon which  a property tax can be  levied, thus requiring  either an                                                            
increase in the local mil  rate, an alternative source or revenue, a                                                            
decrease  in services  so the revenue  loss may  be made up  without                                                            
increasing  the levy or a combination  of these." She asked  how the                                                            
committee substitute impacts this situation.                                                                                    
Senator  Therriault  believed  this  statement  was in  response  to                                                            
Senator Green's  earlier question  about the possible impact  on the                                                            
education   foundation  funding  formula.   He  explained   that  it                                                            
addresses the  issue in the event  that the municipality  chooses to                                                            
exercise the  tax exemption option  and suffers a loss in  revenues.                                                            
He again stressed his doubt  that the municipalities would choose an                                                            
increase  in the mil rate  to recoup lost  revenues. He pointed  out                                                            
the  changes made  in  the committee  substitute  saying  they  have                                                            
"drastically reduced" the likelihood.                                                                                           
Senator  Green wanted  an adjustment  on the  cited $600,000  figure                                                            
given as an example in the statement.                                                                                           
Senator Therriault asserted the amount would be less.                                                                           
AT EASE 6:33 PM / 6:39 PM                                                                                                       
Amendment #4: This conceptual  amendment inserts language to Section                                                            
2 to provide,  "The increase  in Sec. 2(a)(1)  is only available  to                                                            
those  governments  with  a  debt  service  less  than  $15,000  per                                                            
Co-Chair  Donley moved  for  adoption noting  this  is the  standard                                                            
provided in existing statute.                                                                                                   
Senator Austerman objected for explanation.                                                                                     
AT EASE 6:41 PM / 6:42 PM                                                                                                       
Senator  Austerman wanted  clarification of  the amendment,  what it                                                            
accomplishes and why it is necessary.                                                                                           
Co-Chair  Donley  explained   that  in  order  to  qualify  for  the                                                            
increased cap of $30,000,  the municipality would have to have a per                                                            
capita  bonded indebtedness  of  less than  the statutory  limit  of                                                            
Co-Chair  Kelly stated that  there is a current  limitation  on bond                                                            
indebtedness  of  $15,000  and  that  this  amendment  "reinforces"                                                             
existing  statute.  He  noted  that municipalities   that  currently                                                            
comply  with  this statute  would  be  eligible  to apply  for  this                                                            
Senator Austerman asked  if the provision is in current statute, why                                                            
it is necessary in this legislation.                                                                                            
Co-Chair  Donley  responded,  "Because  not  everybody  follows  the                                                            
Co-Chair Kelly  elaborated that the bond indebtedness  limitation is                                                            
in statutes  and  that without  this  amendment,  the tax  exemption                                                            
would be available to those municipalities.                                                                                     
Senator Hoffman requested comment from the bill sponsor.                                                                        
Senator Therriault  understood Co-Chair  Donley's concern  agreeing,                                                            
"It's a  big issue". However,  he preferred  this limitation  not be                                                            
included with this legislation.                                                                                                 
Senator Austerman maintained his objection.                                                                                     
A roll call was taken on the motion.                                                                                            
IN FAVOR:  Senator Leman,  Senator Wilken,  Senator Green,  Co-Chair                                                            
Donley and Co-Chair Kelly                                                                                                       
OPPOSED: Senator Austerman, Senator Hoffman and Senator Olson                                                                   
ABSENT: Senator Ward                                                                                                            
The motion PASSED (5-3-1)                                                                                                       
The amendment was ADOPTED.                                                                                                      
Amendment #1: This amendment  makes the following changes to CS SB 4                                                            
(CRA) as follows.                                                                                                               
    Page 1, line 1, after "relating":                                                                                           
         Insert to limitations on municipal taxation of oil and gas                                                             
    production and pipeline property and"                                                                                       
    Page 2, following line 11:                                                                                                  
         Insert new bill sections to read:                                                                                      
    Sec. 2. AS 29.45.080 is amended by adding a new subsection to                                                               
              (f) Notwithstanding AS 29.45.090(a) and regardless of                                                             
          whether the municipality levies the tax under (b) or (c)                                                              
          of  this section, a municipality  may not, during  a year,                                                            
          levy  a tax  on property  taxable under  AS 43.56 for  any                                                            
          purpose  in excess of 1 8 percent of the assessed value of                                                            
          that property.                                                                                                        
    Sec. 3. AS 29.45.100 is amended to read:                                                                                    
                Sec. 29.45.100. Applicability of [NO] limitations on                                                          
          taxes  to pay bonds.  The limitations  provided for  in AS                                                            
          29.45  080 -  29.45.090 do  not apply  to taxes levied  or                                                            
          pledged  to pay or secure the payment of the principal and                                                            
          interest  on bonds issued before January 1, 2002. Taxes to                                                          
          pay  or secure the  payment of  principal and interest  on                                                            
          bonds  issued  before  January  1,  2OO2~  may  be  levied                                                          
          without  limitation  as to rate  or amount, regardless  of                                                            
          whether  the bonds are in default or in danger of default.                                                            
          The  limitations provided for in AS 29.45.080(a) - (e) and                                                          
          29.45.090  do not apply to taxes levied  or pledged to pay                                                          
          or  secure the payment  of the  principal and interest  on                                                          
          bonds  issued on or after  January 1, 2OO2, regardless  of                                                          
          whether  the bonds are in default or in danger of default.                                                          
           New Text Underlined [DELETED TEXT BRACKETED]                                                                       
Co-Chair Donley announced that he would NOT OFFER this amendment.                                                               
Amendment #2: This amendment changes the title of the committee                                                                 
substitute to read as follows.                                                                                                  
     "An  Act  relating  to a  mandatory  exemption  from  municipal                                                            
     property taxes for  certain residences; relating to an optional                                                            
     exemption  from municipal  taxes for  residential property  and                                                            
     prohibiting  a municipality from replacing tax  revenue lost as                                                            
     a result of the optional  exemption with revenue generated from                                                            
     a tax on certain oil  and gas production and pipeline property;                                                            
     and providing for an effective date."                                                                                      
The amendment also inserts language in Section 2 on page 2 of the                                                               
committee substitute making the subsection read as follows.                                                                     
          (a) A municipality may exclude or exempt or partially                                                                 
     exempt   residential  property   from  taxation  by   ordinance                                                            
     ratified   by  the   voters  at  an   election.  However,   the                                                          
     municipality  may not replace tax revenue lost  as a result the                                                          
     exclusion  or  exemption  with  revenue  generated from  a  tax                                                          
     levied under  AS 29.45.080 on property taxable  under AS 43.56.                                                          
     An  exclusion  or  exemption  authorized   by  this  subsection                                                          
     [SECTION] may not                                                                                                          
                (1) exceed the assessed value of $40,000 [$10,000]                                                          
     for any one residence; or                                                                                                
                (2) be applied with respect to taxes levied in a                                                              
     service area to fund the special services.                                                                               
     New Text Underlined [DELETED TEXT BRACKETED]                                                                             
Senator  Leman moved  for adoption  noting this  addresses  concerns                                                            
raised   at  an  earlier   hearing  regarding   reducing  taxes   on                                                            
residential  properties but  recouping subsequent  lost revenues  by                                                            
increasing the  levy on other properties. He assured  this amendment                                                            
would preclude  this and that any increase in revenue  would have to                                                            
come from  a source other  than an increase  in property tax  on oil                                                            
and  gas production  and  pipeline  properties.  He  explained  that                                                            
increasing property  taxes on these properties would  result in lost                                                            
revenue to the state.                                                                                                           
Senator Olson and Senator Hoffman objected.                                                                                     
Senator  Hoffman   requested  the   bill  sponsor  comment   on  the                                                            
Senator Therriault  relayed his consultation  with the bill  drafter                                                            
Ms. Tamara Cook, Director,  Division of Legal and Research Services,                                                            
where he was told this  language is not operable. He gave an example                                                            
whereby  if a municipality  exercised this  tax exemption  increase,                                                            
suffered a loss in revenue  and recouped that loss with a sales tax,                                                            
and  in the  future  proposed an  unrelated  mil rate  increase.  He                                                            
remarked  that  there  would   be  no way   to verify   whether  the                                                            
municipality  was attempting  to recoup  lost revenue  from the  tax                                                            
exemption  option. He warned  that adopting  this language  into law                                                            
"would  trigger  a  series of  lawsuits"  about  whether  the  local                                                            
government  has such power,  whether the  increases are funding  new                                                            
services or facilities, etc.                                                                                                    
Senator Leman  countered that in Senator Therriault's  example, this                                                            
municipality "would have  done exactly what they would need to do so                                                            
they would not violate  the intent of the amendment." He stated that                                                            
he  explained this  to  Ms. Cook  and this  amendment  contains  the                                                            
language she prepared.  He stressed his intent is the municipalities                                                            
would  replace the  lost revenue  from tax exemptions  with  another                                                            
source and so  long as that alternative is in place,  any future mil                                                            
rate increases would be eligible.                                                                                               
Senator Therriault  surmised, "it becomes somewhat  of an accounting                                                            
nightmare"  speculating on  the various scenarios  of a growing  tax                                                            
base that a new  facility may or may not create and  whether the new                                                            
revenues would  be considered as recouping the lost  revenues from a                                                            
previous tax exemption.                                                                                                         
Senator Wilken  told Senator Leman, "This whole bill  is about local                                                            
control  and  local decisions."  He  spoke  for  the FNSB  that  the                                                            
"property tax  rebellion bell has been rung and we've  heard it loud                                                            
and clear."  He stated  that the 20  mils collected  on oil  and gas                                                            
properties  could  all be  allocated  to municipalities,  "if  local                                                            
governments  have the courage to raise  property taxes, not  only on                                                            
4356  properties  but my  home and  my business  and  Fort Knox  and                                                            
everywhere  else." He suggested that  when this legislation  passes,                                                            
the burden is  then placed on local assemblies to  determine whether                                                            
to lower services,  institute alternative  revenue sources  or raise                                                            
property taxes on all property in the municipalities.                                                                           
Senator  Wilken  appreciated  the  attempt to  protect  the  state's                                                            
revenues in the general  fund. However, he stressed that this is not                                                            
the  bill  to limit  local  options  of  municipalities  facing  the                                                            
property  tax  limitation  attempts,  such as  the  proposed  ballot                                                            
measure  that  failed in  the  November 2000  general  election.  He                                                            
remarked  that  this  legislation  merely,  "allow  those  folks  to                                                            
exercise their decision capabilities and their courage."                                                                        
Senator Wilken  expressed that he would therefore  be voting against                                                            
the amendment.                                                                                                                  
Senator   Olson  asserted   that   this  amendment   restricts   the                                                            
municipalities'  options and because of this, he would  also vote no                                                            
on the adoption of the amendment.                                                                                               
Co-Chair Donley  supported the amendment  due to his concern  of the                                                            
potential  loss  to the  state treasury  if  a municipality  was  to                                                            
exercise  the tax exemption  option in a  manner not anticipated  by                                                            
the  sponsor  of  the   legislation.  He  understood   that  Senator                                                            
Therriault  did not think it would  happen, but stressed  that it is                                                            
still a possibility.  Co-Chair Donley concluded that  this amendment                                                            
would protect the state treasury from an unpredicted loss.                                                                      
Co-Chair  Kelly noted  changes  made to  the bill  in the  committee                                                            
substitute preclude any significant loss to state revenue.                                                                      
A roll call was taken on the motion.                                                                                            
IN FAVOR: Senator Green, Senator Leman and Co-Chair Donley                                                                      
OPPOSED: Senator Austerman,  Senator Hoffman, Senator Olson, Senator                                                            
Wilken and Co-Chair Kelly                                                                                                       
ABSENT: Senator Ward                                                                                                            
The motion FAILED (3-5-1)                                                                                                       
The amendment FAILED to be adopted.                                                                                             
Senator Therriault  asked if the co-chair  would request  an updated                                                            
fiscal note  from the Department of  Revenue to reflect the  changes                                                            
made in the committee substitute.                                                                                               
Co-Chair Kelly replied that he would.                                                                                           
Senator Wilken  moved to  report CS SB 4,  22-LS0190\P, as  amended,                                                            
from Committee  with a forthcoming  fiscal note from the  Department                                                            
of Revenue.                                                                                                                     
Co-Chair Donley  objected. He opined, "The bill is  much better than                                                            
the original  proposal."  However, he expressed  concerns about  the                                                            
potential threat to the state treasury.                                                                                         
AT EASE 6:54 PM / 6:55 PM                                                                                                       
Co-Chair Donley  removed his objection  after making a statement  on                                                            
the record.  "I am concerned about  the potential fiscal  impact and                                                            
that I would  be looking forward to  seeing the fiscal note  because                                                            
we'd still  know that  before we have  a final vote  on here  in the                                                            
The committee substitute was MOVED from Committee.                                                                              
     SENATE BILL NO. 136                                                                                                        
     "An Act relating to  resource development and to grants for the                                                            
     purpose of  promoting resource development from  appropriations                                                            
     of  a portion of  the revenue  derived from  the extraction  of                                                            
     certain state natural resources."                                                                                          
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
PAT  CARTER, staff  to  Senator  Drue Pearce,  testified  that  this                                                            
legislation  establishes the  Resource Development  Board, which  is                                                            
tasked primarily  with facilitating  public education and  promoting                                                            
responsible resource  development. He suggested, "If  you begin with                                                            
the premise that Alaska  is going to be largely dependent on natural                                                            
resource extraction  for the foreseeable future to  fuel our state's                                                            
economy, it would  therefore make sense to invest  in that future by                                                            
providing financial support to most of those activities."                                                                       
Mr. Carter pointed out  recent studies show that resource extraction                                                            
and the tourism  industry play a significant  role in the  workforce                                                            
and therefore  the economy. He noted  the majority of jobs  from the                                                            
tourism industry  are low paying and seasonal, and  that the studies                                                            
show diversified  jobs are necessary  to sustain a healthy  economy.                                                            
However,  he  charged  that  the  majority  of  the  "environmental                                                             
community"  does not support  this concept  since "they continue  to                                                            
oppose  nearly  all  development  of  our  natural  resources  while                                                            
offering no economical alternative plan."                                                                                       
Mr. Carter  stated the intent  of this legislation  is to "strike  a                                                            
balance" between  development and protection of the  environment and                                                            
"avoid the extreme positions."  He suggested the best way to protect                                                            
the environment is through a strong diversified economy.                                                                        
Mr. Carter asserted that  Alaska's environmental protection laws are                                                            
among  the strongest  in the  world. However,  he  stressed that  by                                                            
opposing natural  resource extraction,  the environmental  community                                                            
continues  to "push development  offshore  to third world  countries                                                            
assuring  the exploitive  development  in  the absence  of  adequate                                                            
environmental protection laws."                                                                                                 
Mr. Carter emphasized  the approximate $6.5 million  investment made                                                            
in the tourism  industry and additional  financial support  provided                                                            
to  the  seafood  industry  through  the  Alaska  Seafood  Marketing                                                            
Institute (ASMI).  He stressed these  efforts are to strengthen  the                                                            
state's economy. He added  that the promotion of the diverse mineral                                                            
resources,  timber and  oil and  gas development  would  be a  "wise                                                            
Mr. Carter concluded the  creation of the Resource Development Board                                                            
would  further  the   constitutional  mandate  to  develop   natural                                                            
resources   by  making  them  available   for  maximum  use   in  an                                                            
environmentally responsible manner.                                                                                             
Senator Austerman noted  the language in the bill does not appear to                                                            
contain perimeters on how the money would be expended.                                                                          
Mr.  Carter responded  the  intent is  that the  seven-member  board                                                            
would  create perimeters  regarding  what  is deemed  worthy of  the                                                            
grants this legislation  would also provide. He suggested accounting                                                            
methods  would be  established.  He noted  that if  the legislature                                                             
wanted  allocation restrictions  in  statute, the  sponsor would  be                                                            
willing to amend the legislation to reflect these.                                                                              
Senator Austerman reminded  that the Committee has recently passed a                                                            
fast  track  supplemental  appropriation  for  FY 01  granting  $1.5                                                            
million  to Arctic  Power to  promote oil  and gas  development.  He                                                            
asked  if  the  $2.6  million  proposed  for  distribution  in  this                                                            
legislation could be entirely  allocated to Arctic Power if that was                                                            
the board's desire.                                                                                                             
Mr. Carter  affirmed it could  if that were  the board's desire.  He                                                            
qualified that  this is not the intention, but that  it is possible.                                                            
He assumed  that the board would require  a follow-up accounting  of                                                            
how the money was spent.                                                                                                        
Senator Hoffman asked if  the board could award grants to non-profit                                                            
organizations   that  would  support   or  oppose  initiatives   for                                                            
constitutional amendments or candidates for public office.                                                                      
Mr. Carter  responded that  the issue of  supporting candidates  had                                                            
not been  considered. He noted  it is not  the intended use  for the                                                            
grants to promote  one candidate over  another, but that  the intent                                                            
is to provide  a "balanced  message."  He  shared, "We feel  that we                                                            
are lacking  in that regard today  where we have what seems  to be a                                                            
ever-expanding   amount  of   money  coming   in  to  environmental                                                             
organizations from Lower  48 groups. They are unfamiliar with issues                                                            
in Alaska. We think that they skew the message."                                                                                
Senator Hoffman  asked why the seafood  industry is not represented                                                             
as a member of this board.  He stressed that the seafood industry is                                                            
one of  the largest  industries in  the state.  He listed  by-catch,                                                            
interception, trans-boundary issues and other pertinent issues.                                                                 
Mr. Carter  assured there was no intent  to "cast disparage"  to the                                                            
seafood  industry,  only  that  it  would  be  redundant  given  the                                                            
existence of ASMI.  He suggested that the legislature  could instead                                                            
appropriate  general  funds directly  to ASMI,  in  addition, or  in                                                            
place of, the  revenues generated  from industry taxation.  He noted                                                            
that  the tourism  industry  was excluded  for similar  reasons  and                                                            
emphasized  that  all these  industries  are important  to  Alaska's                                                            
Senator Austerman  assumed  the timber industry  is omitted  for the                                                            
same reasons.                                                                                                                   
Mr. Carter  informed  that the timber  industry  is included  in the                                                            
board make-up.                                                                                                                  
Senator Austerman understood  the proposed $2.6 million in royalties                                                            
is otherwise deposited into the general fund.                                                                                   
Mr. Carter affirmed  this is not new revenue, but  rather taken from                                                            
the general fund and used as an investment.                                                                                     
AT EASE 7:05 PM / 7:09 PM                                                                                                       
The Committee next took public testimony.                                                                                       
SFC 01 # 54, Side B 07:09 PM                                                                                                    
HUGH BROWN,  Alaska Conservation Voters,  testified that  he saw the                                                            
bill as an investment in  Alaska, which he agreed is required by the                                                            
constitution, but noted  he shared Senator Austerman's concerns with                                                            
the vagueness  of the legislation.  Mr. Brown stressed the  need for                                                            
"a balanced message  to all segments of the community."  He proposed                                                            
amending the bill to insert  direction to the board that the message                                                            
the  board  sends  is  developed  by  a  diverse  group  of  people,                                                            
including   minorities,   women,   those  representing    non-profit                                                            
organizations and local  advocates. He indicated that the recipients                                                            
of the grants should also  be diversified. He stressed that many are                                                            
unaware that  timber and mining are  resources and that this  should                                                            
be conveyed through the  board's action.  He spoke of the importance                                                            
of  educating  youth to  the  importance  of  science and  math.  He                                                            
understood this  would increase the cost and suggested  an increased                                                            
fiscal note.                                                                                                                    
SUSAN SCHRADER,  Alaska Conservation Voters, testified  in Juneau to                                                            
read a statement into the record as follows.                                                                                    
     Alaska  Conservation  Alliance and Alaska  Conservation  Voters                                                            
     are  sister nonprofit  organizations  dedicated  to  protecting                                                            
     Alaska's  environment  through public  education and  advocacy.                                                            
     Our  44 member  organizations  and  businesses  represent  over                                                            
     35,000 registered  Alaskan voters, who, as most  Alaskans, work                                                            
     hard  to support their  families.  Conservationists  throughout                                                            
     the state  are committed to maintaining  a healthy economy  for                                                            
     the benefits  it provides all  Alaskans. We agree with  Senator                                                            
     Torgerson, the bill's  sponsor, that we can promote responsible                                                            
     development of our  resources while protecting the environment.                                                            
     And we believe resource  development industries can prosper and                                                            
     meet shareholders'  expectations while complying with state and                                                            
     federal environmental laws.                                                                                                
     The  concept of  the state using  general funds  for grants  to                                                            
     non-profits to promote  for-profit industries, many of whom are                                                            
     huge,  trans-national  corporations   that  employ significant                                                             
     numbers  of  nonresidents,  is  nonsensical.  We  believe  most                                                            
     Alaskans  will not endorse  the idea  of taking state  revenues                                                            
     that  could go to  improving education,  social services,  road                                                            
     maintenance,  or  any number  of  other significant  needs  and                                                            
     using  those monies to  do the promotion  and advertising  work                                                            
     that the  resource industry can  easily accomplish themselves.                                                             
     Instead,  we would encourage the legislature  to fully fund the                                                            
     outreach  activities of  existing state  agencies and  programs                                                            
     that facilitate  responsible resource development,  such as the                                                            
     Division  of  Community  and  Business   Development  at  DCED.                                                            
     Further, we would  encourage resource industries and businesses                                                            
     to  enhance  their  financial  support of  local  and  regional                                                            
     economic  development councils  and similar organizations.  The                                                            
     large  corporations doing the  business of extracting  Alaska's                                                            
     resources  are clearly able to  contribute to the promotion  of                                                            
     development that will  benefit the smaller players in our state                                                            
     The mining  industry in Alaska  was valued at $1.12  billion in                                                            
     1999,  while  30.7%  of  their workforce  in  Alaska  was  non-                                                            
     resident.  Should  Alaskan  families  be  helping to  pay  this                                                            
     industry's   advertising   and  marketing   bill?  Should   the                                                            
     legislature  be diverting public  funds to trade organizations                                                             
     that should be funded by the private sector?                                                                               
     Alaska Conservation  Voters urges legislators to oppose SB 136.                                                            
CAROL CARROLL,  Director, Division  of Support Services,  Department                                                            
of Natural  Resources,  testified in  Juneau to  address the  fiscal                                                            
note.  She stated  that $2.6  million would  be  relocated from  the                                                            
general fund to the resource  development fund for this program. She                                                            
noted that most of this  revenue would be generated from oil and gas                                                            
royalties paid to the state.                                                                                                    
Ms. Carroll  expressed  that there would  be a  cost to operate  the                                                            
program  and that  the department  attempted to  be "reasonable"  in                                                            
assessing these. She shared  that it is assumed that the board would                                                            
request  an Executive Director  and an  Administrative Assistant  to                                                            
assist in the  grant activities and  board operations. She  stressed                                                            
the detail required in  this work, which the board would depend upon                                                            
when making  its decisions.  She then  noted indirect  costs  to the                                                            
department,  pointing out that no  new positions would be  added for                                                            
accounting personnel.  She stated that the impact  on the department                                                            
would depend upon the number of grants the board issues.                                                                        
Ms. Carroll  told  the Committee  that the department  supports  the                                                            
Senator  Leman opined  that  administering  this program  would  not                                                            
require an  Administrative Assistant  and an Executive Director.  He                                                            
suggested  that existing  staff should  be instructed  to  undertake                                                            
these  duties.  He  was  concerned  with  incremental  increases  to                                                            
Ms. Carroll  understood, but stressed  that the department  has been                                                            
operating for  several years under  the "do more with less"  theory.                                                            
She stated  that there is insufficient  existing staff to  undertake                                                            
additional  duties.  She admitted  that the  board  could decide  to                                                            
forgo  the Executive  Director  position,  but that  staff would  be                                                            
required  to do  the  administrative  tasks.  She noted  that  other                                                            
expenses  such as  office space  leasing, computer  maintenance  and                                                            
supplies  have not  been  placed in  the fiscal  note  and would  be                                                            
absorbed in the department's existing operating budget.                                                                         
Senator  Leman countered  that it  is "not  that big  of a deal"  to                                                            
administer   grant  funds.   He  stated  his   frustration   by  the                                                            
"continuing creep" of new positions and new expenditures.                                                                       
Senator  Austerman   spoke  to  basic  concerns   he  had  with  the                                                            
legislation.  He cited  language  on page  3 of  the bill  regarding                                                            
promotions,    marketing,    research,    advertising,    education,                                                            
establishing  and operating  a system for  responding to  inquiries,                                                            
publishing  and  distributing  information,   and  establishing  and                                                            
maintaining Internet  sites. He understood the desire  for promotion                                                            
of  resources  to  ensure  the  greatest   value,  but  noted  other                                                            
industries  that  provide  matching  funds like  tourism  and  still                                                            
others, such as the seafood  industry, that has no general funds and                                                            
must provide for  these costs itself. He wanted to  consider whether                                                            
the minerals  industry  should be  required to  contribute  matching                                                            
Co-Chair  Kelly  noted other  questions  that  were raised  at  this                                                            
hearing. He expressed that  these funds should not be utilized for a                                                            
political  candidate  and he did  not think  they could  be used  to                                                            
campaign for or  against a ballot initiative due to  other statutory                                                            
Mr. Carter noted that he  had researched the matter and learned that                                                            
because  these are  state  grants,  they are  subject  to the  state                                                            
accounting  process, including  an audit  trail.  He added that  the                                                            
funds could  not go to political candidates  or initiatives  because                                                            
no state funds are allowed for these election purposes.                                                                         
Co-Chair Kelly asked Co-Chair Donley if this was correct.                                                                       
Co-Chair  Donley did not  know if there was  a prohibition  on using                                                            
state funds for ballot initiatives.                                                                                             
Co-Chair Kelly requested  the sponsor to meet with Senator Austerman                                                            
to address his concerns.                                                                                                        
The bill was HELD in Committee.                                                                                                 
Co-Chair Pete Kelly adjourned the meeting at 07:25 PM                                                                           

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