Legislature(2003 - 2004)

05/08/2003 09:00 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                              MINUTES                                                                                         
                     SENATE FINANCE COMMITTEE                                                                                 
                           May 08, 2003                                                                                       
                              8:56 AM                                                                                         
                                                                                                                                
                                                                                                                                
TAPES                                                                                                                       
                                                                                                                                
SFC-03 # 82,  Side A                                                                                                            
SFC 03 # 82,  Side B                                                                                                            
SFC 03 # 83,  Side A                                                                                                            
                                                                                                                              
CALL TO ORDER                                                                                                               
                                                                                                                                
Co-Chair Gary Wilken convened  the meeting at approximately 8:56 AM.                                                            
                                                                                                                                
PRESENT                                                                                                                     
                                                                                                                                
Senator Lyda Green, Co-Chair                                                                                                    
Senator Gary Wilken, Co-Chair                                                                                                   
Senator Con Bunde, Vice Chair                                                                                                   
Senator Ben  Stevens                                                                                                            
Senator Donny  Olson                                                                                                            
Senator Robin Taylor                                                                                                            
Senator Lyman Hoffman                                                                                                           
                                                                                                                                
Also Attending:    SENATOR FRED  DYSON; SENATOR  KIM ELTON;  SENATOR                                                          
HOLLIS FRENCH; REPRESENTATIVE  MIKE HAWKER; MIKE BARRY, Chair, Board                                                            
of Directors,  Alaska Industrial Development  and Export  Authority;                                                            
SARA  FISHER-GOAD,   Alaska   Industrial   Development  and   Export                                                            
Authority;  PORTIA  PARKER, Assistant  Commissioner,  Department  of                                                            
Corrections;  LAURIE HUGONIN,  Alaska Network  on Domestic  Violence                                                            
and Sexual  Assault;                                                                                                            
                                                                                                                                
Attending via Teleconference:   From off net locations: DON JOHNSON;                                                          
BARBARA  BRINK,  Director,  Public Defender  Agency,  Department  of                                                            
Administration; From Ketchikan: JULIE BENSON;                                                                                   
                                                                                                                                
SUMMARY INFORMATION                                                                                                         
                                                                                                                                
HB  11-DEPOSITS TO THE PERMANENT FUND                                                                                           
                                                                                                                                
The bill was reported from Committee.                                                                                           
                                                                                                                                
SB  73-AIDEA: BONDS & MUNICIPAL TAX EXEMPTION                                                                                   
                                                                                                                                
The  Committee heard  from  the Alaska  Industrial  Development  and                                                            
Export Authority.  A committee substitute  was adopted and  a motion                                                            
to adopt an amendment was  placed on the table. The bill was held in                                                            
Committee.                                                                                                                      
                                                                                                                                
HB 203-AIDEA DIVIDENDS TO STATE                                                                                                 
                                                                                                                                
The  Committee heard  from  the sponsor  and the  Alaska  Industrial                                                            
Development and Export Authority. The bill moved from Committee.                                                                
                                                                                                                                
SB  56-SPORT FISHING FEES FOR YUKON RESIDENTS                                                                                   
                                                                                                                                
The Committee heard from  the sponsor and a member of the public. An                                                            
amendment was adopted and the bill moved from Committee.                                                                        
                                                                                                                                
SB  26-STATE EMPLOYEES CALLED TO MILITARY DUTY                                                                                  
                                                                                                                                
The Committee  heard from  the sponsor and  a member of the  public.                                                            
The bill was held in Committee.                                                                                                 
                                                                                                                                
SB  85-REPEAT SERIOUS SEX OFFENSES/VICTIM COMP.                                                                                 
                                                                                                                                
The  Committee   heard   from  the   sponsor,   the  Department   of                                                            
Corrections, the  Public Defenders Agency and the  Alaska Network of                                                            
Domestic  Violence   and  Sexual   Assault.  The  bill  moved   from                                                            
Committee.                                                                                                                      
                                                                                                                                
                                                                                                                                
     HOUSE BILL NO. 11                                                                                                          
     "An Act relating to  deposits to the Alaska permanent fund from                                                            
     mineral  lease rentals, royalties,  royalty sale proceeds,  net                                                            
     profit  shares under AS 38.05.180(f)  and (g), federal  mineral                                                            
     revenue  sharing payments  received by  the state from  mineral                                                            
     leases, and bonuses  received by the state from mineral leases,                                                            
     and  limiting deposits  from those  sources  to the 25  percent                                                            
     required  under art. IX, sec. 15, Constitution  of the State of                                                            
     Alaska; and providing for an effective date."                                                                              
                                                                                                                                
                                                                                                                                
This was  the second  hearing for  this bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
Senator Bunde  offered a  motion to report  the bill from  Committee                                                            
with individual recommendations and accompanying fiscal note.                                                                   
                                                                                                                                
There  was  no  objection  and  HB  11  MOVED  from  Committee  with                                                            
accompanying  Department   of  Revenue  fiscal  notes:  #1  for  the                                                            
Permanent  Fund  Dividend  component,  #2  for  the  Permanent  Fund                                                            
Corporation component, and #3 for the Tax Division component.                                                                   
                                                                                                                                
                                                                                                                                
     SENATE BILL NO. 73                                                                                                         
     "An Act relating to the authority of the Alaska Industrial                                                                 
     Development and Export Authority to issue bonds; and providing                                                             
     for an effective date."                                                                                                    
                                                                                                                                
                                                                                                                                
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
Co-Chair  Wilken referenced  a letter to himself  dated May  1, 2003                                                            
from Mike  Barry, Chairman  of the Board  and Ron Miller,  Executive                                                            
Director of the  Alaska Industrial Development and  Export Authority                                                            
(AIDEA)/Alaska  Energy  Authority (AEA).  [Copy  on file.]  Co-Chair                                                            
Wilken  this letter  provides  answers  to  questions  posed at  the                                                            
previous hearing on the issue of AIDEA bonds.                                                                                   
                                                                                                                                
Co-Chair Wilken stated  that this bill "makes several changes to the                                                            
AIDEA  loan  participation  program  and  secondly,  authorizes  the                                                            
Alaska  Energy Authority  to acquire  the Healy  Clean Coal  project                                                            
from AIDEA." He  reminded the Members that AIDEA brought  additional                                                            
matters  to  his  attention,  which   is  reflected  in  a  proposed                                                            
committee substitute.                                                                                                           
                                                                                                                                
Senator  Bunde moved for  adoption of  CS SB 73,  23-GS1018\D,  as a                                                            
working draft.                                                                                                                  
                                                                                                                                
Senator Olson objected for an explanation.                                                                                      
                                                                                                                                
Co-Chair Wilken  pointed out that page 2 lines 23  through 28 of the                                                            
committee substitute contain  the language of the original bill. The                                                            
remaining language, he stated, is new.                                                                                          
                                                                                                                                
AT EASE 9:00 AM \ 9:01 AM                                                                                                       
                                                                                                                                
MIKE   BARRY,  Chair,   Board   of  Directors,   Alaska   Industrial                                                            
Development  and Export Authority,  testified that this legislation                                                             
is "for the good of the  State." He reported that interest rates are                                                            
lower then  they have been  in approximately  50 years, and  because                                                            
AIDEA  holds a  significant  portion  of  its assets  in  government                                                            
securities, as interest  rates begin to increase, a "minus earnings"                                                            
could  occur   for  a  period   of  time.   He  learned  that   loan                                                            
participation  with  banks  has historically  provided  the  largest                                                            
earnings for  AIDEA and also directly  relates to the AIDEA  mission                                                            
to  diversify  the State's  economy  and  providing  employment.  He                                                            
remarked that  the loan participation  program affects every  region                                                            
of the State and  involves all financial institutions  in the State.                                                            
As a result  of this situation,  he expressed  intent to expand  the                                                            
loan participation  program  and create more  earning assets  in the                                                            
program. To accomplish  this he offered suggestions,  which he cited                                                            
from the May 1, 2003 letter as follows.                                                                                         
                                                                                                                                
     The  proposed changes  will enhance the  loan program,  bring a                                                            
     greater   benefit  to   Alaskan  businesses,   increase   AIDEA                                                            
     revenues,  and increase the AIDEA  dividend paid to  the state.                                                            
     Specifically,  the amendment proposes the following  changes to                                                            
     the program.                                                                                                               
                                                                                                                                
     1. Increases the  percentage in loan participants by AIDEA from                                                            
        80%  to  90%.  This  provides  a  greater  benefit  for  the                                                            
        borrower  by allowing  a larger  portion of  the loan  to be                                                            
        amortized  over a  longer term than  provided by the  banks,                                                            
        thereby reducing debt service.                                                                                          
     2. Increases  the maximum dollar amount AIDEA  can purchase per                                                            
        loan  transaction from $10 million to $20  million, allowing                                                            
        AIDEA  the opportunity  to participate  in larger  financial                                                            
        transactions  to the benefit of Alaska banks and businesses.                                                            
     3. Allows  for equity  extractions  to finance  other  business                                                            
        activities  in Alaska that are not necessarily  connected to                                                            
        the  financed   project.  Many  Alaskan  entrepreneurs   are                                                            
        involved  in  multiple  businesses.  Allowing  a  person  to                                                            
        refinance  an established  business  and extract equity  for                                                            
        use  in  a  new business  will  benefit  the  state  economy                                                            
        immensely.                                                                                                              
     4. In  order to  resolve lending  limit  problems of  financial                                                            
        institutions,   the  amendment  allows  AIDEA   to  purchase                                                            
        participations   in   existing  qualified   loans  held   by                                                            
        financial  institutions.  This  change will  provide an  in-                                                            
        state  solution for  Alaska banks  to resolve lending  limit                                                            
        problems.  Effectively,  this frees  up lending capacity  so                                                            
        the banks can  continue to extend short-term loans and lines                                                            
        of credit to their customers.                                                                                           
     5. Allows  for the  establishment  of a  minimum interest  rate                                                            
        regardless    of   AIDEA's    funding   source    for   loan                                                            
        participation,   which  is either  bond  proceeds  or  AIDEA                                                            
        funds. Currently,  the funding source dictates the method of                                                            
        establishing  an interest rate on the loan participation. If                                                            
        bond  proceeds are used the  interest rate is set  in statue                                                            
        as AIDEA's  cost to borrow plus an additional  percentage to                                                            
        cover the loan  servicing costs. If AIDEA uses its own funds                                                            
        the interest  rate is determined by adopting the regulations                                                            
        and  may be no  less than  the interest  rate used if  AIDEA                                                            
        were to issue bonds.                                                                                                    
                                                                                                                                
Mr. Barry  pointed  out that  the provision  outlined  in the  first                                                            
paragraph  of  the letter  would  be  a reversion  to  the  original                                                            
statutes  and initial method  of operation.  He informed that  AIDEA                                                            
performs  independent  underwriting investigation  on  all loans  it                                                            
purchases in addition  to the underwriting performed  by the issuing                                                            
bank and therefore, AIDEA  does not "simply rubber stamp" the loans.                                                            
Because of these  assurances, he stated that AIDEA  should acquire a                                                            
larger  portion of  those  loans identified  as "good  credit",  and                                                            
beneficial  to the AIDEA portfolio.  He qualified that banks  do not                                                            
always offer  a greater portion  of the loans,  although changes  to                                                            
statute would  allow borrowers to  request the more favorable  terms                                                            
that AIDEA  is able to  offer. He emphasized  this would not  change                                                            
the loan  to value, but  rather the maximum  allocation between  the                                                            
bank and AIDEA.                                                                                                                 
                                                                                                                                
Mr. Barry stated  that the $10 million limitation  has been in place                                                            
for several  years and he assured  the increased limit would  not be                                                            
"used widely".  He exampled  the history  of the loan participation                                                             
program in  which only two  credits were acquired  in the amount  of                                                            
$10 million.                                                                                                                    
                                                                                                                                
Senator Bunde  asked if any  pending projects  would be impacted  by                                                            
this change.                                                                                                                    
                                                                                                                                
Mr. Barry knew of none.                                                                                                         
                                                                                                                                
Mr. Barry  continued with  the third item  listed in the letter  and                                                            
qualified  that the loan  extractions should  be allowed so  long as                                                            
the investment  is made into  another Alaska  business. He  found in                                                            
many smaller communities  a "lack" on entrepreneurs  and that one or                                                            
two entrepreneurs could be operating several businesses.                                                                        
                                                                                                                                
Senator  Olson  asked  about  any  negative  experiences  with  loan                                                            
extractions.                                                                                                                    
                                                                                                                                
Mr.  Barry responded  that  banks have  informed  AIDEA of  "serious                                                            
problems"  without  the loan  extraction  option, in  attempting  to                                                            
service customers who own more than one business.                                                                               
                                                                                                                                
Mr. Barry explained  the forth item,  which proposes to allow  AIDEA                                                            
to purchase  loans from a  financial institution  in the event  that                                                            
institution  reaches  a limit  in  the amount  of lending  it  could                                                            
provide.  He gave an  example of  a business with  an existing  loan                                                            
from a  bank plus  an application  for additional  financing,  which                                                            
would exceed  the credit  amount the bank  has established  for each                                                            
customer. He  stated that in this  instance the bank could  "sell" a                                                            
portion  of the existing  loan to  either AIDEA  or another  lending                                                            
institution,  and  that this  usually  occurs  with "the  very  best                                                            
customers"  with good credit  ratings and  is called an "override".                                                             
However,  he  informed  that AIDEA  is  not getting  many  of  these                                                            
overrides to banks  outside Alaska because current  statute requires                                                            
the banks to rewrite  the loan before it could be  sold to AIDEA. He                                                            
stated that  refinancing these  loans is  expensive for the  Alaskan                                                            
business and involve payment  of fees, an appraisal, title insurance                                                            
and other costs.  This statutory change, he said,  would allow AIDEA                                                            
to purchase  existing  loans in addition  to new  loans. He  relayed                                                            
opposition  to this proposal was voiced  by one bank concerned  that                                                            
this  change  would  allow  its  smaller   competitors  to  be  more                                                            
competitive with them.  He noted this is the only proposed change to                                                            
AIDEA that has received  opposition from a bank and that other banks                                                            
have either abstained from  commenting or fully support the changes.                                                            
                                                                                                                                
Mr. Barry explained  the fifth item  listed in the overview  relates                                                            
to changing  the interest rate criteria.  Currently, he stated  that                                                            
AIDEA  prices  its loans  "on  a very  simple  basis"  for either  a                                                            
variable rate  or a fixed rate, and the term of that  fixed rate. He                                                            
proposed  to allow  "risk based  pricing" and  described that  AIDEA                                                            
could charge  a "slightly  higher" rate for  a loan offered  at a 90                                                            
percent  participation   than  a  loan  offered  at  an  80  percent                                                            
participation  because AIDEA  would be involved  in that loan  for a                                                            
longer  term  than   the  financial  institution  and  subsequently                                                             
increase  the risk  to  AIDEA. He  stressed  that this  proposal  is                                                            
different  than the method  that banks apply  risk based pricing  in                                                            
grading  an   applicant's  credit   against  another's  credit.   He                                                            
predicted this  would be discriminatory  against residents  of rural                                                            
communities.                                                                                                                    
                                                                                                                                
Co-Chair Wilken  pointed out the provision  proposed in item  two is                                                            
also contained  in Section  1 of SB 112;  however, that legislation                                                             
also includes language relating to the Red Dog Mine.                                                                            
                                                                                                                                
Senator Olson  asked if the third  proposal could be implemented  to                                                            
subsequently allow  Cominco to secure funding for  some of its "less                                                            
than profitable" ventures.                                                                                                      
                                                                                                                                
Mr.  Berry clarified  this  statutory  change  applies  to the  loan                                                            
participation  program of  loans originated  by banks, and  that the                                                            
equity  would be  extracted  on behalf  of  the borrower,  i.e.  the                                                            
bank's customer.  He stated that AIDEA has no mechanism  through the                                                            
loan participation  program to extract  any equity from a  borrower.                                                            
                                                                                                                                
Co-Chair Wilken  referenced a letter dated April 24,  2003 from Marc                                                            
Langland,  President of Northrim  Bank addressed  to AIDEA  [copy on                                                            
file] requesting  that AIDEA increase approval authority  of the in-                                                            
house credit  committee from $3 million  to $6 million. He  asked if                                                            
this  matter was  considered  and  whether it  is addressed  in  the                                                            
aforementioned five items.                                                                                                      
                                                                                                                                
Mr.  Barry clarified  this  is  a regulatory  issue,  not  requiring                                                            
statutory  changes, and that  the board of  directors would  address                                                            
the matter.                                                                                                                     
                                                                                                                                
Co-Chair  Wilken  relayed  concern expressed  by  Wells  Fargo in  a                                                            
letter dated April  25, 2003 from Executive Vice President  James L.                                                            
Cloud to  AIDEA [copy on  file] relating to  item five and  the need                                                            
for an understanding of the proposal's intent.                                                                                  
                                                                                                                                
Mr. Barry  reiterated that  another bank  opposed this proposal  and                                                            
that Wells Fargo "chose to take no stand" on the matter.                                                                        
                                                                                                                                
Senator Olson removed his  objection to the motion and the committee                                                            
substitute Version "D" was ADOPTED.                                                                                             
                                                                                                                                
Senator  Taylor requested  the  record reflect  that  he joined  the                                                            
meeting at 9:04 am.                                                                                                             
                                                                                                                                
Co-Chair  Wilken noted  this legislation  also  addressed the  Healy                                                            
Clean Coal project.                                                                                                             
                                                                                                                                
Mr.  Barry   explained  the  committee   substitute  would   provide                                                            
statutory  authority  for  the  Alaska  Energy  Authority  (AEA)  to                                                            
acquire the  Healy Clean Coal asset.  He informed that the  transfer                                                            
of AEA to AIDEA  did not include authority  for AEA to initiate  new                                                            
projects  without  legislative  consent. He  stated  that the  AIDEA                                                            
Board of  Directors also  acts as  the board of  directors for  AEA,                                                            
although  AIEDA  and  AEA  are  separate  companies  with  separated                                                            
accounting.  He   stated  that  AIDEA  owns  Healy   Clean  Coal,  a                                                            
generating  asset located  along  the Railbelt,  and  that AEA  owns                                                            
another generating  asset, called  Bradley Lake, and a transmission                                                             
asset,  called  the  Alaska  Intertie,  both  also  located  on  the                                                            
Railbelt.  He expressed  intent to  transfer Healy  Clean Coal  from                                                            
AIDEA to AEA in the future  so all State-owned energy assets located                                                            
along the  Railbelt would  be in  the same company.  He indicated  a                                                            
potential  conflict  of  interest  of  the  board  of  directors  in                                                            
addressing these assets  separately and noted possible "flexibility"                                                            
in locating  all the assets within  one company. He assured  that if                                                            
the transfer were arranged,  AIDEA would present the proposal to the                                                            
Legislature  for approval  and that the change  in this legislation                                                             
would provide advanced notice of intent.                                                                                        
                                                                                                                                
Co-Chair  Wilken asked  the extent  of the "distress"  of the  Healy                                                            
Clean Coal project in the intent to transfer the asset to AEA.                                                                  
                                                                                                                                
Mr. Barry replied  that as a new chair  of AIDEA, he would  not have                                                            
perceived a conflict with  the board of directors if the Healy Clean                                                            
Coal project  were not in  distress. He qualified  that no  conflict                                                            
has been identified  to date; however,  precautions should  be taken                                                            
against future conflict.                                                                                                        
                                                                                                                                
Co-Chair Wilken  announced intent  to hold the bill in Committee  at                                                            
this hearing.                                                                                                                   
                                                                                                                                
SARA   FISHER-GOAD,   AIDEA,  testified   that   Brenda   Applegate,                                                            
Controller,  AIDEA and  Sue Weimer  of the AIDEA  Credit  Department                                                            
were available on teleconference to answer questions.                                                                           
                                                                                                                                
Senator Olson  asked if any implications resulted  from the transfer                                                            
of AEA to AIDEA.  He recalled a letter of intent drafted  by parties                                                            
involved in the Healy Clean Coal Project [copy not provided].                                                                   
                                                                                                                                
Mr.  Barry stressed  that  some  "serous  issues" must  be  resolved                                                            
before a transfer of the  Clean Coal project could occur.  He listed                                                            
permits issued  to AIDEA  for operation of  the project that  may or                                                            
may not be  transferable, and an outstanding  agreement with  Golden                                                            
Valley Electric  Association. He remarked that no  transfer would be                                                            
attempted  without input from  the Association  and noted a  meeting                                                            
was planned between the boards of both organizations.                                                                           
                                                                                                                                
Senator Olson asked the  relationship between Golden Valley Electric                                                            
Association and the Healy Clean Coal project.                                                                                   
                                                                                                                                
Mr. Barry  told of a power  sales agreement  reached in 1991,  which                                                            
was  terminated  in  April  2003  by  the  Golden   Valley  Electric                                                            
Association;   however,  a  settlement   agreement  resulting   from                                                            
litigation  filed in 1999  is still valid.  He assured that  neither                                                            
AIDEA nor the  Golden Valley Electric  Association is attempting  to                                                            
avoid their obligations.                                                                                                        
                                                                                                                                
Senator Hoffman  commented  that the language  of Section 2  appears                                                            
"broad  and open  ended"  and asserted  he  would not  support  this                                                            
provision unless  he knew specifically  if a purchase or  lease were                                                            
under  consideration  and  the  conditions  of  that  proposal.  The                                                            
language of Section 2 reads as follows.                                                                                         
                                                                                                                                
     Sec. 2. AS 44.83.080 is amended by adding a new paragraph to                                                               
     read:                                                                                                                      
                (16) to acquire, by purchase or lease, a coal-fired                                                             
     electric  generation  project owned  by the  Alaska  Industrial                                                            
     Development  and Export  Authority that  qualified for  federal                                                            
      financial participation under P.L. 99-190, as amended.                                                                    
                                                                                                                                
Senator Hoffman  understood  that the Healy  Clean Coal project  was                                                            
not earning  a profit, in part because  of high operating  costs. He                                                            
expressed the  need to know of the  conditions of an AIDEA  purchase                                                            
to identify  the State's obligation  and whether further  debt would                                                            
be incurred. He  wanted to know if AIDEA would "cut  it's losses" if                                                            
the project  were  unprofitable and  subsequently  write down  those                                                            
losses. He  also informed  that federal legislation  related  to the                                                            
project is unresolved.                                                                                                          
                                                                                                                                
Mr.  Barry  responded that  the  provision  in  Section 2  does  not                                                            
actually  request the  transfer, but  rather  notifying "the  world"                                                            
that such an  acquisition could occur.  He assured that legislative                                                             
authority would  be required for such a purchase.  He furthered that                                                            
feasibility  studies  to  determine  such  matters  as  whether  the                                                            
permits could be transferred, have not been conducted to date.                                                                  
                                                                                                                                
Mr. Barry asserted that  the fact that the Healy coal project is not                                                            
a profitable operation  is not in dispute. During  the previous year                                                            
and in  1999, he stated  that AIDEA "took  a very significant  write                                                            
down  on  impairment  of  assets"  to account  for  the  losses.  He                                                            
emphasized  the board of directors'  intent to make every  effort to                                                            
determine  whether  this resource  generating  capability  could  be                                                            
utilized for the benefit of the State of Alaska.                                                                                
                                                                                                                                
Senator Hoffman asked the amounts of the two write-downs.                                                                       
                                                                                                                                
Mr. Barry replied  that he joined  the Board in January and  was not                                                            
familiar  with the details.  He estimated the  first write  down was                                                            
$131 million and the second was approximately $66 million.                                                                      
                                                                                                                                
Senator  Hoffman opined  that a decision  must be  made quickly  and                                                            
that  conducting  studies  would   be "prolonging   the  agony".  He                                                            
stressed the need  for AIDEA and the Legislature to  act as "prudent                                                            
business people", noting  that Golden Valley Electric Association is                                                            
"already  cutting their  losses" and  that the State  should  do the                                                            
same.                                                                                                                           
                                                                                                                                
Co-Chair Wilken announced intent to hold this bill in Committee.                                                                
                                                                                                                                
Amendment  #1:  This  amendment  inserts  "and to  a  municipal  tax                                                            
exemption for  certain assets and projects of the  Alaska Industrial                                                            
Development  and Export  Authority" to  the title  of the bill.  The                                                            
amended language reads as follows.                                                                                              
                                                                                                                                
     "An Act  relating to powers of  the Alaska Energy Authority  to                                                            
     acquire  a  coal-fired  electric generation  project  from  the                                                            
     Alaska   Industrial  Development   and  Export  Authority,   to                                                            
     exemption  from  the  State  Procurement   Code  for  contracts                                                            
     related  to a coal-fired electric  generation project  that the                                                            
     Alaska  Energy Authority  acquires from  the Alaska  Industrial                                                            
     Development and Export  Authority, to regulations of the Alaska                                                            
     Industrial  Development and Export Authority,  to the authority                                                            
     of the  Alaska Industrial Development  and Export Authority  to                                                            
     issue  bonds,  and to  a municipal  tax exemption  for  certain                                                            
     assets  and projects of the Alaska  Industrial Development  and                                                            
      Export Authority; and providing for an effective date."                                                                   
                                                                                                                                
This amendment also inserts  a new bill section on page 6, line 5 to                                                            
read as follows.                                                                                                                
                                                                                                                                
     Sec. 11. Section 19, ch. 117 SLA 2000, is amended to read:                                                                 
          Section 19. Section 3 of this act takes effect July 1,                                                                
     2012 [2004].                                                                                                             
                                                                                                                                
     New Text Underlined [DELETED TEXT BRACKETED]                                                                             
                                                                                                                                
Senator B. Stevens moved for adoption.                                                                                          
                                                                                                                                
Co-Chair Wilken objected for clarification.                                                                                     
                                                                                                                                
Senator B. Stevens explained  this amendment relates to changes made                                                            
to the companion bill,  HB 112, which imposed a repeal of the sunset                                                            
date. He stated  this amendment represents  a compromise  in that it                                                            
would   not   repeal  the   exemption   of   the   DeLong   Mountain                                                            
transportation  system, but rather extend the exemption  to the year                                                            
2012. He noted  this date also marks the end of the  pilot agreement                                                            
between the Northwest  Arctic Borough and Cominco  in which payments                                                            
are made  to the  Borough in  lieu of  taxes. He  expressed that  he                                                            
disagrees   with  the  State  tax   assessor's  position   that  the                                                            
transportation system is not a State-owned asset, held by AIDEA.                                                                
                                                                                                                                
Co-Chair Wilken  objected to this  amendment on the grounds  that it                                                            
"brings before this Committee,  some significant policy calls and we                                                            
can deal  with those  in House Bill  112. If we  bring it into  this                                                            
bill, it adds  nothing to the bill;  in fact detracts from  the bill                                                            
and detracts  from the  discussion  and the benefit  that this  bill                                                            
provides." He assured he was committed to addressing HB 112.                                                                    
                                                                                                                                
Senator  Taylor thanked  the sponsor  of the  amendment,  expressing                                                            
that he shares  the concerns. He recalled  the Legislature  reaching                                                            
the  initial  agreement  and remarked  that  a  "deal was  a  deal,"                                                            
whether or not he supported it at the time.                                                                                     
                                                                                                                                
Senator  Hoffman supported  the amendment  as well.  He shared  that                                                            
AIDEA reports  the single largest  revenue producer of this  project                                                            
is Cominco Alaska  Red Dog Mine and that Cominco has  a nonexclusive                                                            
priority right to use the  DeLong Mountain transportation system. He                                                            
commented that the Legislature  must consider how its actions affect                                                            
the corporation and the bond ratings.                                                                                           
                                                                                                                                
A roll call was taken on the motion.                                                                                            
                                                                                                                                
IN FAVOR:  Senator Olson,  Senator B. Stevens,  Senator Taylor,  and                                                            
Senator Hoffman                                                                                                                 
                                                                                                                                
OPPOSED: Senator Bunde, Co-Chair Green, and Co-Chair Wilken                                                                     
                                                                                                                                
The motion PASSED (4-3)                                                                                                         
                                                                                                                                
The amendment was ADOPTED.                                                                                                      
                                                                                                                                
Senator  Taylor stated  that  the extension  of the  exemption  date                                                            
reflects  only  one  portion  of  the  provisions  in  HB  112.  The                                                            
definition  of  a  roadway and  the  purposes  of  a transportation                                                             
corridor, he noted are  not addressed in the committee substitute to                                                            
SB 73.                                                                                                                          
                                                                                                                                
Co-Chair Wilken  announced the matter would be addressed  at a later                                                            
date.                                                                                                                           
                                                                                                                                
Co-Chair Wilken ordered the bill HELD in Committee.                                                                             
                                                                                                                                
                                                                                                                                
     HOUSE BILL NO. 203                                                                                                         
     "An  Act  relating  to  the definitions  of  'net  income'  and                                                            
     'unrestricted  net  income'  for purposes  of  calculating  the                                                            
     dividends  to be  paid to the  state by  the Alaska  Industrial                                                            
     Development   and  Export  Authority;  and  providing   for  an                                                            
     effective date."                                                                                                           
                                                                                                                                
                                                                                                                                
This was  the second  hearing for  this bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
Co-Chair Wilken  reminded that questions were posed  at the previous                                                            
hearing  and answers were  provided  in a letter  dated May  7, 2003                                                            
from Ron Miller, Executive Director, AIDEA.                                                                                     
                                                                                                                                
REPRESENTATIVE  MIKE HAWKER, sponsor of the bill,  deferred to AIDEA                                                            
to expound on the information.                                                                                                  
                                                                                                                                
SARA FISHER-GOAD,  AIDEA,  testified  she was  available to  provide                                                            
further detail if necessary.                                                                                                    
                                                                                                                                
AT EASE 9:35 AM / 9:37 AM                                                                                                       
                                                                                                                                
Senator  Taylor offered  a motion  to report HB  203 from  Committee                                                            
with  individual  recommendations   and accompanying   fiscal  note.                                                            
[Note: although  the motion indicated a Senate committee  substitute                                                            
existed, no committee substitute was presented for this bill.]                                                                  
                                                                                                                                
There was  no objection and  HB 203, with  zero fiscal note  #1 from                                                            
the Department  of Community  and Economic  Development, MOVED  from                                                            
Committee.                                                                                                                      
                                                                                                                                
                                                                                                                                
     CS FOR SENATE BILL NO. 56(FIN)                                                                                             
     "An Act relating to sport fishing license fees and anadromous                                                              
     king salmon tag fees for residents of Yukon, Canada; and                                                                   
     providing for an effective date."                                                                                          
                                                                                                                                
                                                                                                                                
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
Co-Chair Wilken stated  that this bill would "allow residents of the                                                            
Yukon Territory to purchase  fishing licenses at the in-State rate."                                                            
                                                                                                                                
SENATOR  FRED DYSON,  sponsor, recalled  similar  efforts were  made                                                            
several years  prior. He stated that the Yukon Territory  "has a lot                                                            
in common"  with Alaska,  particularly the  interior regions  of the                                                            
State  and that  the Territory  has  been  experiencing significant                                                             
financial reverses  and declining  population. He opined  that Yukon                                                            
Territory  residents "are  amongst our very  best friends"  and that                                                            
efforts such  as extension of the  Alaska Railroad, a gas  pipeline,                                                            
"circle tourism routes"  and import-export activities, are occurring                                                            
between the State and the Territory.                                                                                            
                                                                                                                                
Senator Dyson  assured that Yukon residents would  not be considered                                                            
Alaskan  resident fishers  under  the provisions  of  this bill  and                                                            
therefore  their activities  would  be regulated  in  the manner  of                                                            
other nonresident participants.                                                                                                 
                                                                                                                                
Senator  Dyson  remarked  that  the  fiscal  note should  be  in  an                                                            
indeterminate  amount, as  the number of  Yukon Territory  residents                                                            
that would participate  is unknown. He suggested the loss of revenue                                                            
could be insignificant  if more Yukon  Territory residents  purchase                                                            
licenses  and participate  in Alaskan fisheries.  He furthered  that                                                            
several coastal  Alaskan communities generate revenue  from visiting                                                            
fishers.                                                                                                                        
                                                                                                                                
Senator Dyson  indicated a letter of endorsement for  this bill from                                                            
the Alaska State Chamber of Commerce [copy on file.]                                                                            
                                                                                                                                
Senator Taylor  offered a motion to  move SB 56 from Committee  with                                                            
individual recommendations and accompanying fiscal note.                                                                        
                                                                                                                                
Co-Chair Wilken indicated further discussion was necessary.                                                                     
                                                                                                                                
Senator  Bunde objected  to the  motion  and commented  he "was  not                                                            
interested  in doing anything to help  any Canadian at this  point."                                                            
He  questioned  how  the State  could  allow  only  certain  foreign                                                            
nationals access to Alaska resources.                                                                                           
                                                                                                                                
DON JOHNSON  testified via teleconference  from an off net  location                                                            
in Soldotna, that if the  State would going to provide lower license                                                            
fees to Canadians, United  States residents from the Lower 48 should                                                            
receive  the same  benefits.  He  disagreed  with giving  rights  to                                                            
aliens that are denied to U.S. citizens.                                                                                        
                                                                                                                                
Co-Chair Wilken asked whether  the sponsor would prefer an effective                                                            
date to  allow this  legislation to  be in effect  for the  upcoming                                                            
summer fishing season.                                                                                                          
                                                                                                                                
                                                                                                                                
SFC 03 # 82, Side B 09:45 AM                                                                                                    
                                                                                                                                
                                                                                                                                
Senator Dyson affirmed.                                                                                                         
                                                                                                                                
Senator  Taylor  WITHDREW   his  motion  to  report  the  bill  from                                                            
Committee without objection.                                                                                                    
                                                                                                                                
Amendment #1:  This conceptual amendment  would add a new  Section 2                                                            
to  the  bill  to  make   the  provisions  of  this  Act   effective                                                            
immediately.                                                                                                                    
                                                                                                                                
Co-Chair Wilken moved for adoption.                                                                                             
                                                                                                                                
The amendment was ADOPTED without objection.                                                                                    
                                                                                                                                
Senator  Taylor  requested  the  sponsor  respond  to  the  witness'                                                            
comments.                                                                                                                       
                                                                                                                                
Senator  Dyson  appreciated   the  point  and  spoke  to  the  close                                                            
proximity of the  Yukon Territory and the cooperative  management of                                                            
shared resources,  including fisheries. He stressed  that building a                                                            
relationship is important.                                                                                                      
                                                                                                                                
Senator  Dyson  pointed  out  that  the  language  of  the  bill  is                                                            
"permissive"  in that it allows the  commissioner of the  Department                                                            
of Fish and Game  to determine whether to extend the  resident rate.                                                            
                                                                                                                                
Senator Olson  furthered that although  he has opposed the  Canadian                                                            
government  on  various issues,  this  legislation  would  encourage                                                            
Yukon  fishers to  catch fish  on the  Alaskan side  of the  border,                                                            
rather than  waiting until  the salmon migrated  upstream,  and thus                                                            
capitalize on their efforts.                                                                                                    
                                                                                                                                
Co-Chair  Green commented  that her  children were  born in  Alaska;                                                            
however,  when  they visit  the  State,  they  must pay  the  higher                                                            
nonresident  license  fees.  She  stated  that  extending   resident                                                            
license fees  to Canadians and not  to former Alaskan residents  "is                                                            
not right".                                                                                                                     
                                                                                                                                
Senator  Bunde  asserted  that Canadians  should  amend  their  laws                                                            
relating to guns to be "friendlier" to Alaskans.                                                                                
                                                                                                                                
Senator Dyson commented  that Yukon residents feel as alienated from                                                            
their national  government as Alaskan residents do  with relation to                                                            
gun laws.  He relayed  that  at a conference  he  and Senator  Olson                                                            
attended, he learned  that the residents of the Yukon  Territory are                                                            
"diametrically   in  opposition"   to  their  federal  government's                                                             
position on this and other matters.                                                                                             
                                                                                                                                
Senator Bunde  told of an opportunity he had to attend  a conference                                                            
in Canada and that he refused based on that nation's policies.                                                                  
                                                                                                                                
Senator Dyson  opined that  while it is "appropriate  to punish  the                                                            
guilty,"  it  would  be  "immoral  and  unethical"   to  punish  the                                                            
innocent.                                                                                                                       
                                                                                                                                
Senator  Taylor offered  a motion to  move SB  56, as amended,  from                                                            
Committee with  individual recommendations  and accompanying  fiscal                                                            
note.                                                                                                                           
                                                                                                                                
A roll call was taken on the motion.                                                                                            
                                                                                                                                
IN FAVOR:  Senator Olson,  Senator B. Stevens,  Senator Taylor,  Co-                                                            
Chair Green and Co-Chair Wilken                                                                                                 
                                                                                                                                
OPPOSED: Senator Hoffman and Senator Bunde                                                                                      
                                                                                                                                
The motion PASSED (5-2)                                                                                                         
                                                                                                                                
CS SB 56 (FIN) with zero  fiscal note #1 from the Department of Fish                                                            
and Game was REPORTED from Committee.                                                                                           
                                                                                                                                
                                                                                                                                
     CS FOR SENATE BILL NO. 26(STA)                                                                                             
     "An Act relating to state employees who are called to active                                                               
     duty as reserve or auxiliary members of the armed forces of                                                                
     the United States; and providing for an effective date."                                                                   
                                                                                                                                
                                                                                                                                
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
Co-Chair Wilken  stated that this  bill "allows State employees  who                                                            
are members of a reserve  military unit and who are called to active                                                            
duty, to  receive their  previous salary  and some  or all of  their                                                            
State benefits. This provision  in law is triggered only by an order                                                            
of the Governor and is retroactive to September 11, 2001."                                                                      
                                                                                                                                
SENATOR KIM ELTON, co-sponsor  of the bill with Senator Taylor, gave                                                            
two examples of the benefits  of this legislation. First, he told of                                                            
Master Sergeant  Steve Fernandez who was called from  reserve status                                                            
to serve  in the Persian  Gulf. Senator Elton  informed that  Master                                                            
Sergeant  Fernandez  received backfill  pay  and benefits  from  his                                                            
civilian  employer   Williams  Petroleum  in  North   Pole,  Alaska.                                                            
Senator  Elton  then described  the  situation  of an  Alaska  State                                                            
Trooper stationed  in Ketchikan,  who was  also called from  reserve                                                            
status,  and  the   inability  for  the  State  to  provide   salary                                                            
compensation and benefits for this employee.                                                                                    
                                                                                                                                
Senator Elton  pointed out  this legislation  would not require  the                                                            
State  to  pay  these  salaries  and  benefits,   but  rather  would                                                            
authorize  the  governor  to  do  so  through  the  issuance  of  an                                                            
administrative  order.  He also indicated  that  the Governor  could                                                            
determine the extent of the backfill pay and benefits provided.                                                                 
                                                                                                                                
Senator  Elton  listed  43 State  employees  enlisted  in  the  Army                                                            
National  Guard,  83 enlisted  in  the Air  National  Guard, and  12                                                            
enlisted in the State Defense Force.                                                                                            
                                                                                                                                
Senator Elton  noted the Committee  considered SB 177, sponsored  by                                                            
Senator  B.  Stevens   that  extended  similar  benefits   to  State                                                            
retirees.                                                                                                                       
                                                                                                                                
Senator Elton also informed  that if this legislation were in effect                                                            
during the  previous year  and the Governor  had issued a  pertinent                                                            
administrative order, the  maximum cost to the State would have been                                                            
approximately  $80,000  for  the eight  State  employees  called  to                                                            
active military duty.                                                                                                           
                                                                                                                                
Senator Taylor  clarified  "backfill" pay as  the difference  in the                                                            
State  employee's regular  salary and  the military  salary paid  to                                                            
that employee  while  called to active  duty. He  remarked that  the                                                            
State would  incur a savings,  as only a  portion of the  employee's                                                            
regular salary would be paid.                                                                                                   
                                                                                                                                
Co-Chair  Wilken expressed  his only concern  relates to the  fiscal                                                            
impact of this legislation and that more effort is necessary.                                                                   
                                                                                                                                
Co-Chair  Green  clarified  that the  Governor  may  implement  this                                                            
option  and  asked  if a  provision  exists  that  would  allow  the                                                            
Governor to rescind or  modify the administrative order in the event                                                            
that a conflict continued for an extended period of time.                                                                       
                                                                                                                                
Senator Elton  assured such action  would be authorized through  the                                                            
issuance of another administrative order.                                                                                       
                                                                                                                                
Senator Olson wanted to  ensure no "double dipping" would occur with                                                            
State employees  collecting a salary from both the  military and the                                                            
State.                                                                                                                          
                                                                                                                                
Senator Elton  assured this would not occur and furthered  that some                                                            
State  employees called  to  active military  duty  actually earn  a                                                            
higher  salary  for  their military  service.  He  stated  that  the                                                            
backfill pay portion  of this legislation would therefore  not apply                                                            
to these employees.                                                                                                             
                                                                                                                                
Senator  Bunde requested  a  listing of  those State  employees  who                                                            
actually earn a higher salary in military service.                                                                              
                                                                                                                                
Co-Chair  Wilken  suspected  pilots, colonels,  and  other  military                                                            
positions  pay   wages  higher  than  those  paid   for  many  State                                                            
positions.                                                                                                                      
                                                                                                                                
Senator Elton  gave an example of  a custodian working in  the State                                                            
Capitol Building, who was  called to active military duty and paid a                                                            
higher salary.  Senator Elton emphasized that although  a cost would                                                            
be  incurred   from  this   legislation,   another  value   must  be                                                            
considered. He intended  some State employees would be encouraged to                                                            
join the military reserves and "serve their country".                                                                           
                                                                                                                                
Co-Chair Wilken  noted a letter in support of this  legislation from                                                            
Julie Benson [copy on file].                                                                                                    
                                                                                                                                
JULIE BENSON testified  via teleconference from Ketchikan  about the                                                            
importance  of  this legislation  to  herself  and her  husband,  an                                                            
Alaska State  Trooper and military  reservist called to active  duty                                                            
in 2002 for six  months. She informed that once called  for military                                                            
service,   her   husband's    State   benefits   were   immediately                                                             
discontinued,  resulting in  a loss of  retirement contributions  as                                                            
well  as salary  increases he  would have  received  if he  remained                                                            
employed by the State.  She furthered that when her husband returned                                                            
to State  service, his  annual salary  increase  was denied on  that                                                            
basis that he "failed to  demonstrate a greater value to the State."                                                            
She challenged  that this failure  was due to his deployment  to the                                                            
Middle East to  support for Operation Enduring Freedom.  She pointed                                                            
out that  her husband's  military  salary is not  comparable  to his                                                            
salary  as  an  Alaska   State  Trooper  and  qualified   that  they                                                            
understood  this when  he enlisted.  However, she  stated they  were                                                            
unaware that he  would not receive State salary advancements  during                                                            
his absence.                                                                                                                    
                                                                                                                                
Ms. Benson  remarked that  State employees  serving in the  military                                                            
reserves  should  not be  penalized  in  this  manner, particularly                                                             
during a time  of "significant national crisis." She  commented that                                                            
under current policy, those  State employees "almost feel punished",                                                            
adding to the difficulties of being separated from family.                                                                      
                                                                                                                                
Senator Taylor thanked  the witness for her efforts in bringing this                                                            
matter to the Legislature's attention.                                                                                          
                                                                                                                                
Co-Chair  Wilken  thanked  the witness  and  her husband  for  their                                                            
service to the nation.                                                                                                          
                                                                                                                                
Co-Chair Wilken  announced he has requested further  detail from the                                                            
Division of  Personnel, Department  of Administration regarding  the                                                            
fiscal impacts of this legislation.                                                                                             
                                                                                                                                
Senator  B. Stevens reminded  the Committee  of similar legislation                                                             
relating to benefits for  retired State employees. He also supported                                                            
this bill.                                                                                                                      
                                                                                                                                
Co-Chair Wilken also supported  the legislation, but stressed a need                                                            
to understand the fiscal implications.                                                                                          
                                                                                                                                
Co-Chair Green  referenced an article  dated February 23,  2003 from                                                            
the Associated  Press  regarding the  State of  Tennessee  extending                                                            
similar  backfill pay  benefits for  its State  employees called  to                                                            
active military  service [copy on file]. She noted  the provision in                                                            
this program  limiting the  amount of payments  to $1,000 per  month                                                            
for each affected  employee. She suggested  this provision  could be                                                            
implemented in Alaska as well if necessary.                                                                                     
                                                                                                                                
Co-Chair  Wilken told of  a married couple,  both of whom are  State                                                            
employees  called to  active military  service, and  the impacts  of                                                            
this deployment on the family.                                                                                                  
                                                                                                                                
Senator  Bunde informed  he  has family  members  who  serve in  the                                                            
reserves, one of whom has  been called to active duty. Senator Bunde                                                            
remarked  that for  20  years, this  relative  has also  received  a                                                            
salary for  his military service and  therefore, the temporary  loss                                                            
of State salary is compensated.                                                                                                 
                                                                                                                                
Co-Chair Wilken ordered the bill HELD in Committee.                                                                             
                                                                                                                                
                                                                                                                                
     CS FOR SENATE BILL NO. 85(STA)                                                                                             
     "An Act relating to sentencing and to the earning of good time                                                             
     deductions for certain sexual offenses."                                                                                   
                                                                                                                                
                                                                                                                                
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
Co-Chair  Wilken  stated  this bill  "increases  the  penalties  for                                                            
repeat  sex offenders.  In  addition repeat  sex  offenders are  not                                                            
eligible to reduce their prison time for good time behavior."                                                                   
                                                                                                                                
Co-Chair  Wilken noted  new  fiscal notes  were submitted  for  this                                                            
legislation.                                                                                                                    
                                                                                                                                
SENATOR  HOLLIS FRENCH,  sponsor,  testified that  Alaska has  "long                                                            
held the unfortunate  position as  leading the nation in  per capita                                                            
reported rapes." He asserted  that a small portion of the population                                                            
create a majority  of this problem  and therefore, this legislation                                                             
addresses repeat sex offenders.                                                                                                 
                                                                                                                                
Senator  French  explained  that upon  conviction  of  a second  sex                                                            
offense, this  bill imposes a separate  and more stringent  category                                                            
of presumptive  sentencing and removes the "good time".  He remarked                                                            
that this bill  is punitive and designed  to treat repeat  offenders                                                            
in a "more  serious manner" by sentencing  them to longer  terms and                                                            
keeping them in prison  longer. He noted the provisions would affect                                                            
unclassified, A, B and C felony classification.                                                                                 
                                                                                                                                
Senator French  qualified that this  bill would result in  increased                                                            
costs  to the  State; however,  he asserted  that  these repeat  sex                                                            
offenders  "cycle through  the  system" at  a significant  rate.  He                                                            
exampled that of the over  700 sex offenders currently incarcerated,                                                            
over half  have been incarcerated  ten or  more times. He  suggested                                                            
that some savings  could therefore occur in the "transaction  costs"                                                            
of releasing and the reincarceration of these offenders.                                                                        
                                                                                                                                
Senator  Bunde  noted  he  was involved  in  a  previous  effort  of                                                            
drafting Alaska's "three  strikes" statutes. He asked if the sponsor                                                            
had reviewed  these statutes  and whether they  could be applied  to                                                            
repeat sex offenders.                                                                                                           
                                                                                                                                
Senator  French replied  that the  statutes would  address the  more                                                            
serious cases  of sexual assault;  however, the qualifying  previous                                                            
conviction criterion is  stringent and therefore difficult to apply.                                                            
He stated  that the proposed  legislation  specifically relating  to                                                            
sexual offenders  would avoid  the sentencing  other offenders  to a                                                            
40-year term upon conviction of a C felony.                                                                                     
                                                                                                                                
Senator  Bunde wanted  to work with  the sponsor  to readdress  this                                                            
issue.                                                                                                                          
                                                                                                                                
Senator French  assured the Committee  of his willingness  to do so.                                                            
                                                                                                                                
BARBARA  BRINK,  Director,  Public Defender  Agency,  Department  of                                                            
Administration,  testified   via  teleconference  from  an  off  net                                                            
location  in Anchorage,  in favor  of efforts to  reduce repeat  sex                                                            
offences.   However,   she  expressed   concerns   with  the   bill,                                                            
particularly  with  the elimination  of the  good  time credit.  She                                                            
questioned  the  rationalization  of holding  certain  offenders  in                                                            
prison for  longer terms  because of concern  of future crimes  they                                                            
might  commit. She  suggested  that this  could be  in violation  of                                                            
equal protection rights  because it singles out a particular offense                                                            
rather than a class of offenses.                                                                                                
                                                                                                                                
Ms. Brink cautioned  that although the Public Defender  Agency (PDA)                                                            
fiscal note is  in an indeterminate amount, she stressed  that costs                                                            
would be incurred.  She predicted increased litigation  would result                                                            
due to the more  serious consequences and the removal  of discretion                                                            
for the prosecution  to negotiate  sentencing. She pointed  out that                                                            
many clients  of the PDA are rural  indigent Natives, and  that many                                                            
of the offenses include  serious substance abuse issues that are not                                                            
addressed in this legislation.                                                                                                  
                                                                                                                                
Senator French acquiesced  that the prospect of additional trials is                                                            
possible; however by increasing  the severity of all classifications                                                            
of repeat  sex offenses,  the bill  would allow  the prosecution  to                                                            
negotiate  a lesser offense.   He  informed that  sexual abuse  of a                                                            
minor  cases  are  "notoriously"  difficult   to prosecute   because                                                            
typically the  only witness is a child who usually  has some type of                                                            
relationship with  the accused. In such cases with  other convincing                                                            
evidence,  he stated  that the  offender  could be  convicted of  an                                                            
unclassified  felony and  receive a  maximum sentence  of 30  years.                                                            
However,  he continued  that  in cases  with an  incentive to  avoid                                                            
trial, such  as extensive  trauma to the  child, or difficulty  with                                                            
other  witnesses  or evidence,  the  prosecutor  could  negotiate  a                                                            
lesser charge.  He stated that although  the offender would  receive                                                            
"an enormous  break" with regard to  the potential prison  sentence,                                                            
the  actual  sentence  would  still  be  significant.  He  therefore                                                            
predicted more cases would be settled.                                                                                          
                                                                                                                                
Senator Bunde  commented that similar arguments of  increased trials                                                            
were made in  opposition to the three  strikes legislation;  however                                                            
the court system has not been overloaded.                                                                                       
                                                                                                                                
Senator Taylor  clarified  that the standards  of the three  strikes                                                            
statutes  is high  and  subsequently  difficult for  prosecutors  to                                                            
invoke.                                                                                                                         
                                                                                                                                
Senator French  agreed and detailed  that to invoke this  provision,                                                            
an offender  must  be convicted  of three  unclassified  or Class  A                                                            
felonies in separate cases.  He noted that upon a second conviction,                                                            
an offender would  receive a significant jail term  and probably not                                                            
be out of prison to commit  a third major crime. He pointed out that                                                            
this provision is normally  reserved for the most serious offenders,                                                            
those who commit homicide, first-degree rape, etc.                                                                              
                                                                                                                                
Senator  Taylor commented  that Alaska historically  imposes  longer                                                            
sentences  than   most  other  states  for  comparable   crimes  and                                                            
therefore the three strikes statute is not often invoked.                                                                       
                                                                                                                                
PORTIA PARKER,  Assistant Commissioner,  Department of Corrections,                                                             
described the Department  fiscal note, which was calculated based on                                                            
the high recidivism  rate of sex offenders.  She listed that  of the                                                            
727 sex offenders  currently interned,  581 or 80 percent  have been                                                            
"through  the State system"  at least once  before, with an  average                                                            
recidivism rate of 6.24  times. Of the 80 percent, she furthered, 52                                                            
percent  of the inmates  have been  previously  incarcerated ten  or                                                            
more times. She  informed that bookings, inmate transfers  and other                                                            
costs related  to processing inmates  in and out of custody  are the                                                            
highest  costs to  the Department.  She  pointed out  this does  not                                                            
include  other costs  to  the judicial  system,  including  arrests,                                                            
court time, prosecutors  and public defenders. Therefore, she stated                                                            
this legislation  would reduce those expenses and  result in minimal                                                            
increases.                                                                                                                      
                                                                                                                                
Senator  Taylor  noted  the  significant  recidivism  rates  of  sex                                                            
offenders. He  asked if data was available to predict  the number of                                                            
offenders who  would be impacted by this legislation  within a given                                                            
period of time.                                                                                                                 
                                                                                                                                
Ms. Parker replied that  upon further research, an estimate could be                                                            
produced. She noted that  many current inmates serving sentences for                                                            
sex  offenses had  committed  different  crimes resulting  in  their                                                            
previous convictions. She  stated that 15 percent of the 727 inmates                                                            
serving time for a sex  offence have a prior sex offense conviction.                                                            
                                                                                                                                
                                                                                                                                
Senator  Taylor  clarified  that  15 percent  is  serving  a  second                                                            
sentence for a sexual crime.                                                                                                    
                                                                                                                                
Ms. Parker affirmed.                                                                                                            
                                                                                                                                
Senator Taylor  asked the length of sentence these  inmates received                                                            
for their second sex offense.                                                                                                   
                                                                                                                                
Ms. Parker did not have this information.                                                                                       
                                                                                                                                
Senator Taylor  requested this information,  commenting that  before                                                            
changes are  made to the  current process,  it should be  determined                                                            
whether  changes are necessary.  He suggested  that these  offenders                                                            
could already be receiving comparable sentencing.                                                                               
                                                                                                                                
Senator Taylor  did not oppose the  legislation and did not  want it                                                            
delayed, however  he expressed concern  with the argument  that this                                                            
could result in violations of equal protection.                                                                                 
                                                                                                                                
Senator French  noted similar  legislation  has been adopted  in six                                                            
other states  and is under  consideration  in additional states.  He                                                            
opined  that the  equal  protection  challenge would  be  "thwarted"                                                            
because  other provisions  are directed  at repeat  drunken  driving                                                            
offenders.  He  explained  that  these  provisions  do not  treat  a                                                            
specific  class unfairly,  but rather demonstrate  a rational  basis                                                            
for the State's actions,  that being high recidivism and significant                                                            
harm caused by these crimes.                                                                                                    
                                                                                                                                
Senator  Taylor directed  the record must  reflect Senator  French's                                                            
comments in  the event this legislation  is challenged in  court. He                                                            
furthered that  the provisions identify specific violations  as well                                                            
as a unique character  and personality type. He remarked  that these                                                            
offenders  could be treated  as a "definable  and a separate  group"                                                            
without violating  the equal protection clause of  either the Alaska                                                            
or the US Constitution.                                                                                                         
                                                                                                                                
LAURIE  HUGONIN,  Alaska Network  on  Domestic Violence  and  Sexual                                                            
Assault,  testified   in  Juneau   that  during  fiscal   year  2002                                                            
approximately  2,000  victims of  sexual assault  sought  assistance                                                            
from various programs in  Alaska. She cited the Child Welfare League                                                            
data that one  in four girls and one  is six boys would be  sexually                                                            
assaulted before  the age of 18. She  furthered that sex  offenders,                                                            
particularly  child  abusers,  usually  commit  multiple  violations                                                            
before entering  the judicial system. While treatment  is beneficial                                                            
to reduce recidivism, she  stressed that the safest course of action                                                            
to prevent repeated sexual  assaults is to keep offenders out of the                                                            
community.  She referenced studies  showing that treatment  does not                                                            
completely  change an  offender's  behavior, but  rather delays  the                                                            
amount of time before re-offending occurs.                                                                                      
                                                                                                                                
Ms.  Hugonin  understood  the benefits  of  encouraging  inmates  to                                                            
behave while  serving their  sentences; however,  the safety  of the                                                            
community  is more  important  and repeat  sex offenders  should  be                                                            
incarcerated for as long as possible.                                                                                           
                                                                                                                                
Ms. Hugonin noted that  other states that do not allow for good time                                                            
for  sexual offenders  despite  extending  good time  provisions  to                                                            
other  classifications  of  prisoners.  She  listed  Arizona,  which                                                            
utilizes  this  provision  for  sex offenders;   Tennessee  requires                                                            
offenders convicted  of child rapists and multiple  rapists to serve                                                            
the  entire sentence  imposed  by  the court  "undiminished  by  any                                                            
sentence  reduction credits";  Oregon does  not allow "earned  time"                                                            
for a class  of crimes including sexual  assault and sexual  assault                                                            
of  a  minor;  and  Illinois  reduces  the  amount  of  "good  time"                                                            
available   for  sex  offenders.   She  also   informed  that   this                                                            
legislation would not impose  the strictest provisions, as the State                                                            
of Iowa  requires offenders  convicted  more than  once of a  felony                                                            
sexual  predatory  offense  to serve  twice  the maximum  period  of                                                            
incarceration.                                                                                                                  
                                                                                                                                
Senator Taylor  expressed that although  he supports the  concept of                                                            
this  legislation,  DNA  evidence  and other  events  have  occurred                                                            
resulting  in exoneration  of convicts.  He  told of  a case in  the                                                            
State of Washington  in which a group  of people who operated  a day                                                            
care center  were, "persecuted  by a zealous  district attorney  who                                                            
attempted  to show  a valid  case of  child sexual  abuse."  Senator                                                            
Taylor stated this situation,  in which the defendants were cleared,                                                            
should be avoided in Alaska.                                                                                                    
                                                                                                                                
Senator  Taylor charged that  legislation  relating to sex  offender                                                            
registers and  increased penalties  for "sex oriented crimes",  "and                                                            
to be blunt,  it's a sexy  thing to do for  a Legislator because  it                                                            
carries a  lot of political  hammer out there  with the public."  He                                                            
qualified  that the  public intends  the Legislature  to make  every                                                            
effort  to punish  and reduce sexual  offense,  which he  supported.                                                            
However, he  cautioned that "responsibility  and integrity"  must be                                                            
invested in district attorneys and prosecutors.                                                                                 
                                                                                                                                
                                                                                                                                
SFC 03 # 83, Side A 10:33 AM                                                                                                    
                                                                                                                                
                                                                                                                                
Senator Taylor  continued that  each time he  has requested  data on                                                            
child sexual  abuse cases investigated  by the Department  of Health                                                            
and Social  Services, the annual statistics  indicate an  average of                                                            
70  percent of  all  investigations  found no  "basis  in fact".  He                                                            
contended  that during these  investigations,  children are  removed                                                            
from families  and "arrests  are made." He  was therefore  concerned                                                            
with increased penalties and sex offender registration lists.                                                                   
                                                                                                                                
Senator  Taylor offered  a  motion to  report  CS SB  85 (STA)  from                                                            
Committee with  individual recommendations  and accompanying  fiscal                                                            
notes.                                                                                                                          
                                                                                                                                
Without objections  CS SB  85 (STA) REPORTED  from Committee  with a                                                            
zero fiscal note #1 from  the Department of Law, a zero fiscal note,                                                            
dated  4/29/03   from  the   Department  of   Corrections,   and  an                                                            
indeterminate  fiscal  note dated  4/29/03  from the  Department  of                                                            
Administration.                                                                                                                 
                                                                                                                                
Co-Chair Wilken  comment on need to  keep tomorrows debate  focused.                                                            
                                                                                                                                
ADJOURNMENT                                                                                                                 
                                                                                                                                
Co-Chair Gary Wilken adjourned the meeting at 10:37 AM                                                                          

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