Legislature(2003 - 2004)

02/17/2004 09:08 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                     SENATE FINANCE COMMITTEE                                                                                 
                         February 17, 2004                                                                                    
                              9:08 AM                                                                                         
SFC-04 # 11,  Side A                                                                                                            
SFC 04 # 11,  Side B                                                                                                            
SFC 04 # 12,  Side A                                                                                                            
CALL TO ORDER                                                                                                               
Co-Chair Gary Wilken convened  the meeting at approximately 9:08 AM.                                                            
Senator Lyda Green, Co-Chair                                                                                                    
Senator Gary Wilken, Co-Chair                                                                                                   
Senator Con Bunde, Vice Chair                                                                                                   
Senator Fred Dyson                                                                                                              
Senator Ben Stevens                                                                                                             
Senator Lyman Hoffman                                                                                                           
Senator Donny Olson                                                                                                             
Also   Attending:   SENATOR  GENE   THERRIAULT;   JOEL  GILBERTSON,                                                           
Commissioner, Department  of Health and Social Services; DAVID TEAL,                                                            
Legislative  Fiscal  Analyst, Legislative  Finance  Division;  MARIE                                                            
DARLIN, Coordinator,  Capital City Task Force, AARP;  DIANE BARRANS,                                                            
Executive Director,  Postsecondary Education Commission,  Department                                                            
of Education  and Early  Development and  Executive Officer,  Alaska                                                            
Student Loan Corporation                                                                                                        
Attending via  Teleconference: From Anchorage: HAROLD  HEINZE, Chief                                                          
Executive Officer,  Alaska Natural Gas Development  Authority; STEVE                                                            
PORTER, Deputy Commissioner,  Office of the Commissioner, Department                                                            
of Revenue                                                                                                                      
SUMMARY INFORMATION                                                                                                         
HB 374-SENIORCARE                                                                                                               
The  Committee  heard  from  the Department  of  Health  and  Social                                                            
Services,  considered   but  failed  to  adopt  one  amendment,  and                                                            
reported the bill from Committee.                                                                                               
SB 241-APPROP: NATURAL GAS DEVELOPMENT AUTHORITY                                                                                
The  Committee   heard  testimony   from   the  bill's  sponsor,   a                                                            
representative  from the Alaska Natural  Gas Development  Authority,                                                            
and  the Department  of  Natural Resources.  The  bill  was held  in                                                            
SB 277-STUDENT LOAN PROGRAMS                                                                                                    
The Committee  heard testimony from the Department  of Education and                                                            
Early Development. The bill was held in Committee.                                                                              
     CS FOR HOUSE BILL NO. 374(FIN) am                                                                                          
     "An Act  establishing the senior  care program and relating  to                                                            
     that program;  creating a new fund for the provision  of senior                                                            
     services;  relating to  aid to senior  citizens; and  providing                                                            
     for an effective date."                                                                                                    
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Co-Chair  Wilken  noted  that  this  bill  is  similar  to  SB  259-                                                            
SENIORCARE,  which the  Committee  had previously  heard. He  stated                                                            
that  the bill  would establish  a senior  care  program within  the                                                            
Department  of Health  and Social  Services to  provide either  cash                                                            
assistance  or a drug  prescription  benefit to  Alaskans age  65 or                                                            
older. He  specified that  CS HB 374(FIN)am,  Version 23-GH2123\W.A                                                             
and its accompanying fiscal notes are before the Committee.                                                                     
JOEL GILBERTSON,  Commissioner, the Department of  Health and Social                                                            
Services  reviewed that this  legislation  was proposed by  Governor                                                            
Frank  Murkowski  in December  2003  as a  method through  which  to                                                            
provide  a prescription  drug  subsidy or  cash assistance  for  the                                                            
purchase  of prescription  drugs to  the State's  seniors until  the                                                            
federal prescription  Medicare drug  program becomes operational  in                                                            
January,  2006.  He specified  that  qualifying  recipients  of  the                                                            
legislation would  be senior citizens who are living  at 135 percent                                                            
or less  of the  federal  poverty level  (FPL). He  noted that  this                                                            
level would  equate to a single individual  living at approximately                                                             
$15,000 a year or a couple  living at $20,500 a year. He shared that                                                            
these  individuals  are  currently  eligible  for  the Department's                                                             
Senior Assistance  Program that was established after  the Longevity                                                            
Bonus Program was eliminated  in the fall of FY 04. This program, he                                                            
commented,   provides  $120  per   month  cash  assistance   to  its                                                            
recipients.  Furthermore,  he stressed  that the  recipients of  the                                                            
Senior  Assistance   Program  could,  upon  the  enactment   of  the                                                            
SeniorCare   program,   elect  to   continue  receiving   the   cash                                                            
assistance,  which  would  amount to  $1,440  annually,  or elect  a                                                            
prescription  drug subsidy, which  would equate to $1,600  annually.                                                            
Commissioner  Gilbertson continued  that the  seniors who elect  the                                                            
$1,600 prescription  drug subsidy would additionally  receive a $600                                                            
per month federal Medicare  subsidy and a prescription drug discount                                                            
card which  would provide an additional  ten to twenty-five  percent                                                            
savings on  a prescription purchase.  He stated therefore,  that the                                                            
average senior  would receive approximately  $2,450 in prescription                                                             
drug assistance, if living at or below the FPL.                                                                                 
Commissioner Gilbertson  continued that seniors living at 135 to 150                                                            
percent  of the  FPL  would  qualify for  a  $1,000 per  year  State                                                            
prescription  drug subsidy. He noted  that a single individual  or a                                                            
couple in this category  would be living at approximately $17,000 or                                                            
$23,000,   respectfully.   Furthermore,   he   stated   that   these                                                            
individuals would also  receive the prescription drug discount card.                                                            
He  reiterated  that  this  legislation  would  terminate  upon  the                                                            
enactment of the federal Medicare drug prescription program.                                                                    
Commissioner   Gilbertson  communicated   that  during  the   bill's                                                            
progress  through  the House  of  Representatives,  the Legislative                                                             
Legal  and  Research  Services,  Legislative   Affairs  Agency  made                                                            
"technical and  stylist changes," that did not substantially  change                                                            
the bill.                                                                                                                       
Co-Chair Wilken noted that  the Members have been provided a summary                                                            
of the changes [copy on file] being referenced.                                                                                 
Commissioner   Gilbertson  continued  that  the  House   bill  would                                                            
establish  a SeniorCare  Fund, which  would be  a front-funded  sub-                                                            
account in  the general fund to fund  the SeniorCare Program  during                                                            
its projected  three fiscal  year program.  He noted that were  this                                                            
legislation adopted "in  short order," it could begin in April, 2004                                                            
and would, therefore,  incur expenses in the last  quarter of FY 04,                                                            
the full year  of FY 05, and half of FY 06. He noted  that any funds                                                            
remaining in the  SeniorCare Fund would lapse into  the general fund                                                            
upon its termination.                                                                                                           
Commissioner  Gilbertson  noted  that  the House  also  amended  the                                                            
manner through  which a prescriber could prescribe  brand name drugs                                                            
when a generic  brand is available,  in that, he explained,  in this                                                            
situation, the  prescriber must denote on the prescription  that the                                                            
name brand  drug is  "medically  necessary." He  specified that  the                                                            
prescriber  would  not  be  required  to state  the  reason  as  was                                                            
required in the original bill.                                                                                                  
Commissioner Gilbertson  noted that language in the  bill that would                                                            
have denied  the prescription drug  benefit to individuals  residing                                                            
in public facilities  or long-term care facilities  was also amended                                                            
in the  House. He  communicated that  the reason  this language  was                                                            
originally  included was  the understanding  that these individuals                                                             
received prescription drug  coverage through the rate that the State                                                            
paid the facility or that  a process already existed to provide this                                                            
benefit  to them.  He  also noted  that  to provide  the  SeniorCare                                                            
benefit  to  a senior  in  the Pioneer's  Home,  might,  in  affect,                                                            
increase their  financial resources  and result in their  rent being                                                            
increased. He  stated that the House change would  allow individuals                                                            
residing  in  public facilities  or  long-term  care  facilities  to                                                            
continue to receive the benefit for up to three months.                                                                         
Senator Bunde  ascertained  therefore, that  a senior residing  in a                                                            
Pioneer's Home  could, as a consequence,  have their rent  increased                                                            
for three months.                                                                                                               
Commissioner  Gilbertson affirmed  that the rent could be  affected.                                                            
However, he  noted that the frequency  of a rent payment  review and                                                            
whether  the individual  had opted  to receive  the cash  assistance                                                            
option of the SeniorCare program would be determining factors.                                                                  
Senator  Bunde  worried  that   this  might  present  a  "Catch  22"                                                            
situation wherein  the recipient would  receive SeniorCare  benefits                                                            
and at the same time is required to pay more rent as a result.                                                                  
Commissioner Gilbertson  expressed that "there would be no net harm"                                                            
to the recipient  as the income would  offset the rent increase.  He                                                            
stated, however,  that this situation would increase  administrative                                                            
expenses related to the bill.                                                                                                   
Senator  Bunde surmised,  therefore,  that  while two  Pioneer  Home                                                            
residents  might  be receiving  the  SeniorCare  cash  benefit,  one                                                            
resident,  as a result of  a rent review,  might pay more rent  than                                                            
the other who had not undergone a rent review.                                                                                  
Commissioner  Gilbertson responded  that "theoretically"  that might                                                            
Co-Chair Green  asked whether changing the word "may"  to "shall" as                                                            
was done  in Section 1, subsection  (a) on  line 8, page 1  would be                                                            
characterized as a "stylist change" or a substantive change.                                                                    
Commissioner  Gilbertson responded  that the  referenced change  was                                                            
the result  of an [unspecified]  amendment  that was adopted  in the                                                            
House Finance Committee.                                                                                                        
Co-Chair Green  inquired as to whether  the change is acceptable  to                                                            
the Department.                                                                                                                 
Commissioner Gilbertson responded in the affirmative.                                                                           
Senator   Bunde  asked   for  further  information   regarding   the                                                            
SeniorCare  Fund; specifically,  whether  the unspent  money in  the                                                            
Fund would lapse back to  the general funds at the end of the fiscal                                                            
Commissioner Gilbertson  responded that while the SeniorCare Fund is                                                            
expected  to lapse  in FY  06; the  language  is not  specific to  a                                                            
termination  date because  it  is dependent  upon  when the  federal                                                            
Medicare drug prescription  program is implemented. He asserted that                                                            
this  is a  "complex program"  with  an indeterminable  termination                                                             
DAVID  TEAL,   Legislative  Fiscal   Analyst,  Legislative   Finance                                                            
Division,  noted  that rather  than  being required  to appropriate                                                             
program funds  each fiscal year, the  House Finance Committee  opted                                                            
to establish a  single front-loaded SeniorCare Fund  that would fund                                                            
the program's  anticipated expenses  in FY 04, FY 05, and  FY 06. He                                                            
confirmed  that upon the  program's termination,  the funding  would                                                            
Commissioner Gilbertson  noted that the bill would  allow seniors to                                                            
retain  their prescription  drug  benefits  provided  they were  not                                                            
absent  from  the  State  for more  than  30  days  for non-medical                                                             
purposes such as vacations or business trips.                                                                                   
Commissioner    Gilbertson   also   noted   that    the   House   of                                                            
Representatives'  version  of  the bill  changed  a portion  of  the                                                            
original bill to align  its eligibility requirements to those of the                                                            
Permanent  Fund Dividend  program,  which allows  family members  to                                                            
remain eligible  when accompanying relatives receiving  out-of-State                                                            
medical care.                                                                                                                   
MARIE  DARLIN, Coordinator,  AARP  Capital City  Task Force,  voiced                                                            
support  for all  of the  changes  that have  been  proposed to  the                                                            
SeniorCare  program.  She  noted that  AARP  has  submitted  written                                                            
testimony [copy on file] in support of the program.                                                                             
Amendment  #1: This amendment  replaces language  on page one,  line                                                            
five of the  bill that reads "Section  1. The uncodified  law of the                                                            
State of Alaska  is amended by adding  a new section to read:"  with                                                            
new language that reads as follows.                                                                                             
      Section 1. AS 47.65 is amended by adding a new section.                                                                   
In addition, the  Amendment deletes "SENIORCARE PROGRAM"  on page 1,                                                            
line 7 and replaces it with the following language.                                                                             
          Article 4. Cash and Drug Benefit for Older Alaskans.                                                                  
     Sec. 47.65.300. Senior care program.                                                                                       
The amendment  also deletes all material on page five,  beginning on                                                            
line 26 through  page six, line 3.  This language reads as  follows.                                                            
       Sec.  4.  (a) This  Act  is repealed  on  the date  that  the                                                            
     Medicare  Part D benefit  under P.L.  101-173 for prescription                                                             
     drugs for Medicare  recipients is operational for recipients in                                                            
     this state,  as communicated to the commissioner  of health and                                                            
     social services  by the United States Department  of Health and                                                            
     Social Services.                                                                                                           
          (b) The commissioner of health and social services shall                                                              
     notify the revisor  of statutes of the date described in (a) of                                                            
     this section.                                                                                                              
          (c) Money in the fund established in sec. 2 of this Act                                                               
     reverts  to  the unreserved  general  fund  on June  30 in  the                                                            
     fiscal  year in which  this Act is repealed  under (a)  of this                                                            
Senator Olson moved to adopt Amendment #1.                                                                                      
Co-Chair Green objected.                                                                                                        
Senator Olson explained  that this amendment would make this program                                                            
permanent  in statutes rather  than being  temporary. He  referenced                                                            
Commissioner  Gilbertson's comments  regarding the unpredictability                                                             
of when  the federal  program would  be implemented.  He also  noted                                                            
that the State  has no control regarding  changes that might  occur,                                                            
overtime, in the complex  federal program. Therefore, he stated that                                                            
in order to assure  that the State's seniors would  be provided for;                                                            
this program should  be permanent in State statute.  In addition, he                                                            
noted that were the federal  program to differ from the State's cash                                                            
supplement  program, seniors who might  have become dependent  on it                                                            
to supplement their needs would be negatively impacted.                                                                         
Commissioner  Gilbertson   summarized  that  this  amendment   would                                                            
eliminate  the legislation's  termination date.  He reiterated  that                                                            
the legislation was introduced  to serve as "a bridge program" until                                                            
such time as the  federal senior Medicare prescription  drug benefit                                                            
program would  become operational  "in early  2006." He agreed  with                                                            
Senator  Olson's  contention  "that  there are  always  delays  when                                                            
programs  begin;"  however,  he contended  that  the bill  has  been                                                            
drafted  in such  a manner  as to  continue the  SeniorCare  program                                                            
"until the full federal program is available to seniors."                                                                       
Commissioner Gilbertson  informed the Committee that  seniors living                                                            
below 135  percent of FPL  as well as those  living between  135 and                                                            
150 percent of  FPL would "receive preferential treatment  under the                                                            
Medicare  prescription  drug benefit."  He  assured  that, once  the                                                            
federal Medicare  prescription drug benefit program  begins, seniors                                                            
living at below 135 percent  of FPL "would have virtually no out-of-                                                            
pocket  costs,  including deductible  for  prescription  drugs."  He                                                            
continued that  seniors living between  135 and 150 percent  of FPL,                                                            
"would receive  drastically  lower deductibles,  additional  premium                                                            
support,  and  a reduced  co-pay  on prescription  drugs"  than  the                                                            
general federal  Medicare population.  He declared that "a  seamless                                                            
transition"  would occur  and that  were the  SeniorCare program  to                                                            
continue,  some  of  the  federal  and  State   services  "would  be                                                            
Co-Chair  Wilken surmised  therefore, "that  while the amendment  is                                                            
well-intentioned," it is unnecessary.                                                                                           
Commissioner  Gilbertson  concurred.  He replied,  "that  it is  the                                                            
position of the Administration  that it's not necessary" because the                                                            
Medicare  drug benefit would  be available  "to essentially  provide                                                            
every service  that  is going to  be delivered"  via the  SeniorCare                                                            
program.  He stressed that  the SeniorCare  program "was  originally                                                            
designed to mirror the  federal drug program benefits." Furthermore,                                                            
he noted that  safety protocols are included in this  legislation to                                                            
ensure that  the SeniorCare  program would  continue until  the full                                                            
federal Medicare drug benefit program is operational.                                                                           
Senator Olson declared  that rather than debating the particulars of                                                            
the  program,  the  emphasis  should be  on  providing  the  State's                                                            
seniors  with  "a  lifeline"  to assure  them  that  they  would  be                                                            
provided  for. He  opined that  the Legislature  should establish  a                                                            
State program  tailored to the State's situation instead  of relying                                                            
on a federal program  developed by individuals who  might have never                                                            
visited the State  and who might not have a grasp  on the complexity                                                            
of the  State's needs. He  urged the Committee  to keep the  program                                                            
simple and  permanent and tailored  to address the State's  seniors'                                                            
Senator Bunde  declared that regardless of the efforts  or intent of                                                            
any  Legislature,  unless  specific  language  is  included  in  the                                                            
State's  Constitution, "nothing  binds" a  future Legislature"  from                                                            
changing  a program. Therefore,  he contended,  were this  amendment                                                            
adopted,  there  is no  guarantee  that  it would  not  be  changed.                                                            
Continuing,  he  shared  that, were  "the  automatic  repealer"  not                                                            
included  in this legislation,  he could  envision "the battle  that                                                            
would  ensue  in  2006  "about  another  entitlement  that  we  have                                                            
created"  that   people  have  become   to  depend  upon   that  the                                                            
Legislature "could  not take back." He concluded therefore,  that he                                                            
could not support the amendment.                                                                                                
Senator  Hoffman  countered  that  no  battle  had  erupted  in  the                                                            
Legislature  regarding the funding  of the Longevity Bonus  Program,                                                            
which was eventually terminated by Governor Murkowski's veto.                                                                   
Senator  Hoffman noted  that  the Department  of  Health and  Social                                                            
Services'  fiscal  note  #9  analysis depicts  that  90  percent  of                                                            
eligible  program   recipients  would  elect  the  SeniorCare   cash                                                            
program. He  wondered whether the  cash program would be  one of the                                                            
duplicated  services that the Commissioner  had alluded to.  To that                                                            
point,  he  inquired  as to  whether  a  similar  prescription  cash                                                            
prescription   program  would  be  available  through   the  federal                                                            
prescription drug program.                                                                                                      
Commissioner  Gilbertson responded  that it  is "a high assumption"                                                             
that most  seniors would  elect the cash payment  as, he noted,  the                                                            
majority  of  the  individuals  currently  enrolled  in  the  Senior                                                            
Assistance  Program receive  money,  because it is  the only  option                                                            
provided in that  program. He stated therefore that  the majority of                                                            
those individuals  would choose "no  change." He qualified  that the                                                            
cash component of the SeniorCare  bill was included "to continue the                                                            
benefit as  currently constructed."  He acknowledged that  while the                                                            
receipt of  cash is "more  flexible," the  Department believes  that                                                            
"the majority  of individuals  in these income  ranges use  the cash                                                            
assistance" to purchase  prescription drugs because that expense "is                                                            
very high." He  pointed out that the Senior Cash Assistance  program                                                            
is not the  only cash assistance program  offered by the  Department                                                            
as another  program, the  Adult Public Assistance"  program  is also                                                            
available.  He  stressed  that a  total  of $220  million  worth  of                                                            
programs are available  directly to seniors through  the Department.                                                            
He stated  that  the Adult  Public Assistance  (APA)  program is  an                                                            
entitlement  program  that is  included in  this  $220 million,  and                                                            
furthermore, he  contended, while a number of seniors  might qualify                                                            
for the APA, they have not applied.                                                                                             
Senator Hoffman reiterated  that the question is whether there would                                                            
be a  duplicative cash  benefits program  at the  federal level.  He                                                            
stated that this is the issue at "the heart of the amendment."                                                                  
Commissioner  Gilbertson   responded  that  through  the  State  APA                                                            
program, seniors would continue to receive cash assistance.                                                                     
Senator Hoffman interjected  that this program already exists at the                                                            
State  level,  and  he  continued,  the  question  pertains  to  the                                                            
upcoming federal Medicare prescription drug assistance program.                                                                 
Commissioner  Gilbertson responded  that the federal program,  "once                                                            
instituted,   will  be   health  care  insurance."   Therefore,   he                                                            
continued, the degree to  which individuals are paying out of pocket                                                            
for  prescription drugs"  would  be determined  by  the health  care                                                            
insurance system. He declared  that the recipients would not receive                                                            
a direct cash payment.                                                                                                          
Senator Hoffman surmised therefore that the answer is no.                                                                       
Commissioner Gilbertson  affirmed that there would be no direct cash                                                            
payment by the federal government.                                                                                              
Senator Olson informed  the Committee that the proposed amendment is                                                            
supported by the Pioneers  of Alaska. He asked that AARP be provided                                                            
an opportunity to express their position on the amendment.                                                                      
Ms. Darlin  expressed that  while AARP  understands Senator  Hoffman                                                            
and Senator  Olson's concern regarding  the program, and  while AARP                                                            
does not object to the  amendment, it has no "definite stand" on the                                                            
amendment,  as,  she reiterated,   AARP's primary  objective  is  to                                                            
assure  that the  SeniorCare prescription  program  be adopted  this                                                            
Legislative  Session. She  noted however,  that when the  SeniorCare                                                            
cash assistance  program  terminates, seniors  could participate  in                                                            
the State's APA cash assistance program.                                                                                        
Senator Olson  asked for clarification  that AARP's position  is the                                                            
desire "to get  the bill through one way or another,"  regardless of                                                            
whether  the amendment  is adopted  or not. He  contended that  this                                                            
desire  rather than  AARP  being opposed  to  the amendment  is  the                                                            
primary objective.                                                                                                              
Ms. Darlin concurred.                                                                                                           
Senator  Bunde  stated that  were  the cash  assistance  program  to                                                            
continue, some seniors  might regard it as a welfare program, and in                                                            
that case, he contended, some seniors would refuse to apply.                                                                    
A roll call was taken on the motion.                                                                                            
IN FAVOR: Senator Hoffman and Senator Olson                                                                                     
OPPOSED: Senator Bunde,  Senator Dyson, Senator B. Stevens, Co-Chair                                                            
Green, and Co-Chair Wilken                                                                                                      
The motion FAILED (2-5)                                                                                                         
Amendment #1 FAILED to be adopted.                                                                                              
Co-Chair  Green  moved  to  report  the  bill  from  Committee  with                                                            
individual recommendations and accompanying fiscal notes.                                                                       
There  being no  objection,  CS HB  374(FIN)(am)  was REPORTED  from                                                            
Committee with  five fiscal notes from the Department  of Health and                                                            
Social Services:  zero fiscal note #10; $14,649,600  fiscal note #9;                                                            
$7,100 fiscal  note #8; $184,300 fiscal note #7; and  $61,500 fiscal                                                            
note #6.                                                                                                                        
AT EASE: 9:46 AM / 9:46 AM                                                                                                      
     SENATE BILL NO. 241                                                                                                        
     "An Act making an appropriation to the Alaska Natural Gas                                                                  
     Development Authority; and providing for an effective date."                                                               
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Co-Chair  Wilken  explained  that  SB 241  would  appropriate  $2.15                                                            
million to the  Alaska Natural Gas Development Authority  (ANGDA) to                                                            
conduct an analysis  regarding the development of  an Alaska natural                                                            
gas pipeline. These funds,  he shared, would lapse in the year 2009.                                                            
Continuing,  he  noted  that  a  new  Finance  Committee   committee                                                            
substitute has been provided  for consideration that would: increase                                                            
the amount  of the appropriation  to $3  million; would appropriate                                                             
the funds to the Department  of Revenue rather than ANGDA; and would                                                            
expand the scope of how the funds could be used.                                                                                
Co-Chair  Green  moved  to adopt  the  Finance  Committee  committee                                                            
substitute, Version 23-LS1279\H, as the working document.                                                                       
There being  no objection,  Version "H" was  adopted as the  working                                                            
SENATOR  GENE THERRIAULT,  the bill's  sponsor,  explained that  the                                                            
original bill  was introduced to support  "the wishes of  the public                                                            
to create" the Alaska Natural  Gas Development Authority (ANGDA) "to                                                            
bring the natural  gas on the North  Slope to market via  a pipeline                                                            
to tidewater  in Valdez" in a liquefied  form "to serve Pacific  Rim                                                            
markets."  He noted that  the bill, as  introduced, specified  $2.15                                                            
million to support the  project because that was the amount of money                                                            
that ANGDA had  remaining in the previous year's appropriation,  and                                                            
he had determined  that that amount "would be a good  starting point                                                            
for discussion." Continuing,  he shared that he had clarified to the                                                            
ANGDA Board of Directors  that they would be required to justify the                                                            
funding in  order to receive the appropriation.  He stated  that the                                                            
ANGDA  Board of  Directors  has  been meeting  with  Governor  Frank                                                            
Murkowski's  Administration   since  the  beginning  of  the  second                                                            
session of  the Twenty-third  Legislature.  He noted that the  State                                                            
has received  two applications, through  the Stranded Gas  Act, that                                                            
are also furthering  the necessity to consider developing  a natural                                                            
gas  pipeline to  deliver  the gas  via  an overland  route  through                                                            
Canada to the Midwest or to Canadian markets.                                                                                   
Senator Therriault continued  that the committee substitute, Version                                                            
"H,"  "is a  blending  of  the two  ideas"  in  that it  focuses  on                                                            
bringing  the natural gas  from the North  Slope "to market"  rather                                                            
than specifying  that either  an overland  or tidewater pipeline  be                                                            
furthered.  Furthermore, he envisioned  that the objectives  of both                                                            
the  ANGDA   Board  and  the  Administration's   Stranded   Gas  Act                                                            
negotiations be combined  to further the goal of bringing the gas to                                                            
market.  He  noted  that  routing  the  appropriation   through  the                                                            
Department of  Revenue mirrors how the appropriation  was previously                                                            
funneled to ANGDA from  such entities as the Division of Legislative                                                            
Budget & Audit  and the Administration. He stated  that this routing                                                            
would also provide the  ANGDA Board with the Department of Revenue's                                                            
auditing,  contracting,  and  accounting   mechanism  resources.  He                                                            
reiterated that  questions seeking justification for  the $3 million                                                            
appropriation  amount  should be  directed  at the  ANGDA Board.  He                                                            
noted that  at the  February 16,  2004 ANGDA meeting,  the Board  of                                                            
Directors passed a resolution  in support of the language in Version                                                            
"H." He read a portion of that resolution as follows.                                                                           
     "The  Alaska Natural  Gas  Development Authority  supports  the                                                            
     appropriation  of $3 million  in the remainder of FY  04 to the                                                            
     Department  of  Revenue for  work related  to  bring the  North                                                            
     Slope natural gas to market."                                                                                              
Senator Hoffman  inquired  to the reason  that ANGDA was  eliminated                                                            
from the language in the committee substitute.                                                                                  
Senator  Therriault  responded   that  the  reason  that  ANGDA  was                                                            
eliminated  was "the realization"  that the  efforts to further  the                                                            
goal of getting  natural gas to market would involve  an overlapping                                                            
of  various  entities.  He  continued  that  "generic"  rather  than                                                            
specific legislation would be more beneficial to that end.                                                                      
Senator Bunde  noted that while he  knows what LNG is, he  is unsure                                                            
of the definition of "LPG."                                                                                                     
Senator Therriault  stated that the representative  from ANGDA would                                                            
best explain LPG.                                                                                                               
Co-Chair Green  asked whether the  Stranded Gas Act Application  fee                                                            
of $1.5 million would be used to support this endeavor.                                                                         
Senator Therriault  responded that the $1.5 million  fee is required                                                            
to fund the  expenses associated with  processing, negotiating,  and                                                            
evaluating  each  proposal.  He  shared  that while  the  fee  would                                                            
provide  funding for the  process associated  with the application,                                                             
the $3  million  attached to  this bill  would support  the  State's                                                            
endeavor to  be adequately prepared  "to negotiate with some  degree                                                            
of knowledge  and strength."  Furthermore,  he noted that  currently                                                            
the $1.5 million  Stranded Gas Act  applicant fee could not  be used                                                            
to "cover any costs" associated  with the ANGDA proposal. Therefore,                                                            
he continued,  the generic terminology presented in  the Version "H"                                                            
committee  substitute would  allow the Administration  to use  those                                                            
funds to prepare  for negotiations relating to the  Stranded Gas Act                                                            
and to help  gather information pertinent  to the ANGDA project.  To                                                            
include, he  continued, studies relating  to spur pipelines,  access                                                            
taps along the pipeline  to serve local markets, and economic impact                                                            
Co-Chair  Green asked which  entities, in  addition to ANGDA,  might                                                            
request funding in this endeavor.                                                                                               
Senator Therriault responded  that other State agencies, such as the                                                            
Department  of Natural Resources,  might need to "secure  particular                                                            
expertise"  or a consultant  or funding for  a Request for  Proposal                                                            
(RFP) in order to develop an economic model.                                                                                    
Co-Chair  Green asked whether  the sponsor  is comfortable  with the                                                            
broadened  language  in  Version  "H;"  specifically   the  language                                                            
pertaining  to getting the product  from the North Slope  to market.                                                            
Senator  Therriault  responded  that  he  is  comfortable  with  the                                                            
"fairly broad  language" because he  is familiar with the  multitude                                                            
of legislation  that the Legislature  has entertained regarding  the                                                            
issue. In addition,  he stressed the  importance of the State  being                                                            
"well-prepared  and tough  advocates  on behalf of  the citizens  of                                                            
Alaska…."  In order  to accomplish  that objective,  he stated  that                                                            
funding "for  some preparation and  some technical advice"  would be                                                            
Senator   Therriault  reiterated   that  he   had  introduced   this                                                            
legislation  to "jump start  the discussions;"  however, he  advised                                                            
the Committee that as long  as the funding issue "moved forward," he                                                            
would  not  object  were  other  legislation  submitted  or  another                                                            
funding mechanism or level of funding identified.                                                                               
SFC 04 # 11, Side B 09:56 AM                                                                                                    
HAROLD  HEINZE,   Chief  Executive   Officer,  Alaska  Natural   Gas                                                            
Development Authority,  testified via teleconference  from Anchorage                                                            
and referred  the  Committee  to a graph  that ANGDA  had  developed                                                            
titled  "Alaska Natural  Gas  Development  Authority  FY 04  Funding                                                            
Plan" [copy on file]. This  graph, he noted, depicts ANGDA's initial                                                            
funding;  the $2.1 million  that was added  in FY 04; and the  FY 04                                                            
Total Funding of $2.5 million.                                                                                                  
Mr. Heinze  reviewed that $150,000  initial funding was used  to set                                                            
up the Corporation and  conduct some Board of Directors meetings. He                                                            
stated  that the outcome  of those  meetings  was the determination                                                             
that a Liquid Natural Gas  (LNG) project and the delivery of natural                                                            
gas  in  Alaska  would "make  sense"  provided  the  State  use  its                                                            
financial  abilities to support  the project,  as, he explained,  it                                                            
might not attract  private support due to the fact  that there might                                                            
not  be the  potential  for  a high  rate  of return  to  commercial                                                            
investors or "high interest  borrowers." He commented that the State                                                            
could participate  via the Authority. He also noted  that during the                                                            
initial meetings, the Authority  identified some of the major issues                                                            
that would require addressing.                                                                                                  
Mr. Heinze  stated that the Board  requested an additional  $200,000                                                            
to fund the  Business Contractors  component depicted on  the graph,                                                            
which includes  such things as a Benefit  Analysis, Market  Insight,                                                            
and  Tax  Advice.  He stated  that  the  Authority  determined  that                                                            
previous  Benefit Analysis  studies  of the project  were narrow  in                                                            
scope in that they were  limited to such things as "a rate of return                                                            
type model for  making decisions" or "how much money  was flowing to                                                            
the State of  Alaska in forms of government  revenue." He  continued                                                            
that the Authority  recognized that  "the benefit of bringing  North                                                            
Slope gas to  market were much more  broader than that and  had much                                                            
more  value." He  stated  that the  Tax  Advice and  Market  Insight                                                            
followed the Benefit Analysis  determination. He summarized that the                                                            
Current  Spending  Column  on the  graph  reflects how  the  initial                                                            
$350,000 funding authorization was used.                                                                                        
Mr.  Heinze  continued   that  the  graph  also  depicts   that  the                                                            
additional FY 04 funding  authorization of $2.15 million was used to                                                            
fund the operations  of the ANGDA Board and the Business  Contracts.                                                            
Additionally,  he specified that the funds were expanded  to support                                                            
the Project  Contract component.  He stressed  that identifying  the                                                            
proper business  structure is important as it would  address how "to                                                            
lower the  cost of service  of transporting  the gas" as that  would                                                            
"increase  the value  at the wellhead,  and that  makes the  project                                                            
better  for  both  project  proponents  as  well  as  increases  the                                                            
revenues to the State of Alaska."                                                                                               
Mr.  Heinze   stressed  the  importance   of  getting  Alaskans   to                                                            
understand and support  the concept of producing natural gas, as, he                                                            
contended,  its  development  would lower  residents'  expenses.  He                                                            
noted that  people living  in Anchorage  are currently experiencing                                                             
low natural gas  supplies and consequently, are paying  high prices.                                                            
He stated that  were a spur natural gas line provided,  communities,                                                            
such  as Anchorage,  would  benefit. In  addition,  he reminded  the                                                            
Committee that  the Authority was charged with addressing  the basic                                                            
project,  project design,  and project scheduling  in the  Statewide                                                            
Ballet  Measure 3  Initiative  that  established the  Authority.  He                                                            
shared that,  early in the  process, the  Authority worked  with the                                                            
Murkowski Administration  to identify  the types of contractors  who                                                            
would  be  required  to conduct  the  various  jobs;  the  kinds  of                                                            
expertise  that  would  be  required;  questions  and  issues  would                                                            
require answers;  what internal resources  were available;  and what                                                            
kind of  work had already  been conducted.  Therefore, he  clarified                                                            
that the Project  Contractors specified on the graph  are those that                                                            
the State does not have expertise in.                                                                                           
Mr. Heinze  noted that the  fact that two  Stranded Gas natural  gas                                                            
applications  have  recently  been  received  is  important  to  the                                                            
Authority,  as some of the work already  conducted by the  Authority                                                            
would contribute  to the State's efforts in moving  forward with the                                                            
applications.  He avowed that the  fact that the first 530  miles of                                                            
both the over-land  and to tidewater  routes are in common  and thus                                                            
could   "contribute   toward  each   other's   financial   success."                                                            
Additionally,   he  attested,  that   while  both  the  applicant's                                                             
"benefits to  Alaska are weak," ANGDA  "could help in that  regard."                                                            
Mr. Heinze informed  that ANGDA has responded favorably  to Governor                                                            
Murkowski's Administration  request that it "work as part of a team"                                                            
in  the endeavor  to  bring  Alaska's  North  Slope natural  gas  to                                                            
market, and in  that regard, he mentioned that ANGDA  has introduced                                                            
itself to both of the Stranded Gas applicants.                                                                                  
Senator Hoffman  inquired as to whether ANGDA would  be providing an                                                            
annual  report  of its  expenditures  to  the Legislature  and  also                                                            
whether additional funding requests might be forthcoming.                                                                       
Mr. Heinze  replied  that the Authority  has been  established  as a                                                            
public corporation, and  as public entity, convenes monthly Board of                                                            
Director's  meetings and generates  full monthly accountings  of the                                                            
it's expenditures  and contracts.  Therefore, he stated that  a full                                                            
accounting  on a monthly  or annual basis  could be provided  to the                                                            
Mr.  Heinze  communicated  that  while  the  two  Stranded  Gas  Act                                                            
applications  have caused an increase  in activity, he is  unsure of                                                            
the affect  the applications would  have on the Authority.  However,                                                            
he shared  that,  in anticipation  of  further involvement,  he  has                                                            
developed alternate funding  models for the corporation. He reminded                                                            
that  the  Authority   is  statutorily  charged  with   providing  a                                                            
development plan for the  spur project by June 15, 2004; however, he                                                            
stated  that were ANGDA  directed  to assist with  the Stranded  Gas                                                            
applications that  requirement might be deferred.  He mentioned that                                                            
while this  might delay some of ANGDA's  activities, he anticipated                                                             
the  delay to  be  short term.  He  deferred  to the  Department  of                                                            
Revenue to  provide a more  thorough analysis  of ANGDA's  budgetary                                                            
Senator B. Stevens commented  that the cost of developing a LNG spur                                                            
line has been consistently  estimated to cost $20 million. He voiced                                                            
that the amount is confusing  in that other legislation and expanded                                                            
routing alternatives  have  been proposed that  might have  had some                                                            
affect on the spur line's expense.                                                                                              
Mr. Heinze corrected that  rather than being $20 million, the amount                                                            
in question  is $20,000. Continuing,  he explained that the  amount,                                                            
which is a "rough estimate,"  focuses on determining the feasibility                                                            
of a spur line rather than  being inclusive to such things as design                                                            
work.  Furthermore,  he noted  that the  engineering  and cost  work                                                            
expenses are low because  a lot of the expertise has been donated or                                                            
provided at no charge.  He stated that were ANGDA to have fully paid                                                            
for all  the components  required,  the expense  would have been  in                                                            
"the tens of millions  of dollars." He stated that  the goal of this                                                            
exercise  is for the State  to be able to  make a decision  based on                                                            
adequate  information. He  contended that  there are numerous  other                                                            
studies that must be conducted over time.                                                                                       
STEVE  PORTER,  Deputy Commissioner,  Office  of  the Commissioner,                                                             
Department of  Revenue, testified via teleconference  from Anchorage                                                            
and explained  that the $3 million  funding request included  in the                                                            
legislation  would assist the State  in addressing the two  Stranded                                                            
Gas applications.  He noted that per an agreement  between the State                                                            
and each  applicant, the  applicant could  be required to  reimburse                                                            
the State for  expenses associated  with such things as independent                                                             
contractors. He  noted that while the funding recipient  was changed                                                            
from  ANGDA  to the  Department  of  Revenue,  the process  has  not                                                            
changed.  Furthermore,  he  stated  that  were  expertise  available                                                            
within the Department of  Revenue, the service and information would                                                            
be provided at  no charge. However, he continued were  the expertise                                                            
unavailable  in house, or had been  conducted by another  entity, it                                                            
might require  a purchase. He stated  that either the Department  of                                                            
Revenue  or  ANGDA  could  make  the  purchase,   depending  on,  he                                                            
declared,  how the  information would  be utilized.  He stated  that                                                            
were "the information  to be kept confidential then  ANGDA would not                                                            
be the proper  forum to request or fund it." In addition,  he stated                                                            
that  were  the expense  to  be a  reimbursable  expense,  then  the                                                            
Department  of Revenue  would  be the  proper forum.  Therefore,  he                                                            
concluded,  in  order to  maximize  efficiency,  the  most  flexible                                                            
manner to address  funding needs would  be to allocate the  funds to                                                            
the Department of Revenue.                                                                                                      
Senator  Hoffman  stated  that  the  backup  material  contains  two                                                            
separate LNG Project  schedules: one titled "ANGDA  All-American LNG                                                            
Project Conceptual Schedule"  amounting to $10 billion using Revenue                                                            
Bonds;  and  the  other  titled  "ANGDA   Project  Concept  &  Cost"                                                            
amounting  to  $12 billion.  He  asked  that  the two  schedules  be                                                            
Mr. Heinze responded that  the $2 billion difference is that two LNG                                                            
tankers would be leased rather than purchased.                                                                                  
Senator  Hoffman noted  that the  information contained  in the  $10                                                            
billion  project  specifies  that two  Jones  Act tankers  would  be                                                            
Mr. Heinze  clarified that  the information  is all encompassing  in                                                            
that it  reflects the  major elements  included  in the project.  He                                                            
clarified that the tankers would be built by another entity.                                                                    
Senator  Hoffman  understood  therefore   that  everything  but  the                                                            
tankers would be owned and operated by ANGDA.                                                                                   
Mr. Heinze  pointed out  that the term  "conceptual" best  describes                                                            
the plan as currently determined.  He stated that such things as the                                                            
business structure,  interest rates,  and bonds are unconfirmed.  He                                                            
stressed  that  the chart  is  designed to  reflect  components  and                                                            
monies  that  might  be supported   by bonds.  He  stated  that  the                                                            
Authority might  not be involved in all of the various  aspects that                                                            
have  been  itemized;  however,  he continued  it  is  charged  with                                                            
developing   a  comprehensive  plan   in  order  to  determine   the                                                            
feasibility  of the  project.  He exampled  that  while a  treatment                                                            
plant to remove CO2 must  be built on the North Slope, the producers                                                            
rather than the State might  desire to own the plant. He stated that                                                            
the  $2 million  treatment  plant  is included  in  the itemization                                                             
because  somebody would  be required  to build  it,  as part of  the                                                            
project's operational needs.                                                                                                    
Co-Chair Wilken asked regarding  the "Alaska Natural Gas Development                                                            
Authority Alternate  FY 04 Funding  Strategies" chart that  has been                                                            
Mr.  Heinze responded  that  this  chart  was developed  to  reflect                                                            
alternate  FY 04  funding strategies  that  might occur  due to  the                                                            
Authority's response and  involvement in the recent Stranded Gas Act                                                            
applications.  He noted that, in addition to providing  the entities                                                            
with information regarding  such things as tax write-offs, timelines                                                            
might require being revised as things develop.                                                                                  
Co-Chair Wilken  referenced the letter  from Mr. Heinze to  the Vice                                                            
Presidents  of ANS Gas Development,  ConocoPhillips; Alaska  Gas, BP                                                            
Exploration   Alaska;  and  ExxonMobil   Alaska  Production,   dated                                                            
February 13, 2004 [copy  on file] that references an alternate route                                                            
to the  Beaufort Sea. He  asked that further  information  regarding                                                            
the  reference to  this  route be  provided,  as that  route is  not                                                            
commonly considered to be an option.                                                                                            
Mr. Heinze responded that  this letter and the letter to MidAmerican                                                            
Energy Holdings  Company,  dated February 12,  2004, [copy  on file]                                                            
were  generated in  response  to these  entities'  Stranded Gas  Act                                                            
applications to the State.  He continued that the application by the                                                            
producers:  ConocoPhillips;  BP Exploration  Alaska; and  ExxonMobil                                                            
Alaska Production,  "made it  very clear that  in their minds,  both                                                            
routes  were on the  table." He  continued that  Governor  Murkowski                                                            
informed them that the  Beaufort Sea route was not to be considered.                                                            
However,  he  stated  that the  Authority's  desire  to  initiate  a                                                            
relationship with  the applicants is apparent in that  it recognizes                                                            
"the  fact the  one  of the  producers"  supports the  Beaufort  Sea                                                            
alternative.  Overall  though,  he stated  that  the intent  of  the                                                            
letter is  to offer assistance  in a mutually  beneficial manner  to                                                            
both the applicant and to ANGDA.                                                                                                
Co-Chair Wilken  thanked Mr. Porter for the explanation  as he would                                                            
not desire  "that sentence  to become a lighting  rod that  affects"                                                            
other efforts.                                                                                                                  
Co-Chair Wilken  stated that there are "two camps"  in regard to the                                                            
gas pipeline: those who  say "show me a customer and I'll show you a                                                            
gas line,"  or those who support building  a gas line as  the belief                                                            
is that the  customer will come."  He asked who potential  customers                                                            
of the State's natural gas might be.                                                                                            
Mr. Heinze  responded  that the  marketing question  of whether  the                                                            
pipeline or the customer  occurs first "is one of the key questions"                                                            
and issues  when seeking financing.  He noted that while  there is a                                                            
market for natural  gas in the State, this intrastate  market, while                                                            
important, is  not large enough "to justify the project."  Secondly,                                                            
he noted,  that the  process of  transiting the  natural gas  to LNG                                                            
would allow the  product to be shipped via tanker  to the west coast                                                            
of North  America or to  Asian economies such  as Japan, Taiwan  and                                                            
Korea  who are traditional  LNG  consumers. He  assured that  Alaska                                                            
natural gas could  be competitive in all those markets;  however, he                                                            
reiterated there  being "no single customer at any  single moment in                                                            
time" who would  purchase the volume required to support  the entire                                                            
project. Continuing, he  shared that discussions are underway with a                                                            
"mega-company,"    Mitsubishi   Corporation   that    acquires   and                                                            
distributes LNG to customers worldwide.                                                                                         
Co-Chair Wilken  stated that the conceptual schedule  specifies that                                                            
the gas could  be available for market as soon as  2010. Continuing,                                                            
he asked who the customers of that gas might be.                                                                                
Mr.  Heinze replied  that  those  "potential  customers  would be  a                                                            
mixture  of the  west coast  of  North America"  as  well as  Japan,                                                            
Taiwan, and Korea.                                                                                                              
Co-Chair   Wilken   asked  whether   conversations   with   specific                                                            
countries,  which might be  interested in  purchasing Alaska  gas in                                                            
2010, have occurred.                                                                                                            
Mr.  Heinze responded  that  the LNG  market  on the  West Coast  is                                                            
"rapidly  evolving," and that  a port in the  Baja, Mexico  area and                                                            
two or three  other ports on the West  Coast are moving forward.  He                                                            
anticipated  that the State would  be able to provide LNG  to one or                                                            
two of these ports. Additionally,  he stated that a port in Korea is                                                            
possible  and that the  State has  been encouraged  by the  response                                                            
from other Asian markets.  He stated that, "being able to compete is                                                            
the  essential  ingredient,"  and  therefore,  the  State  "needs  a                                                            
business  structure that  lowers our  cost of service  to the  point                                                            
that  we are  competitive."  He continued  that this  would  require                                                            
long-term commercial  transactions, and that the fact  the Alaska is                                                            
part  of  the  United  States  is  a  strong  element  in  terms  of                                                            
marketing.  None-the-less,   he stated  that  the  project  must  be                                                            
"economic and competitive."                                                                                                     
Senator Dyson  voiced that it is "very difficult"  to understand how                                                            
Alaska natural  gas could be competitive with other  worldly markets                                                            
on the Pacific Rim such as Qatar.                                                                                               
Mr. Heinze  expressed that  the proposed  $12 billion investment  in                                                            
Alaska LNG must  have a high rate of return in order  to advance. He                                                            
referenced  the "Notional  Cost of Service  Comparison" calculation                                                             
chart [copy on file] that reads as follows.                                                                                     
                  Notional Cost of Service Comparison                                                                           
                Does not include Wellhead Purchase Price                                                                        
                     High ROR        Not       Benefit Drive                                                                    
             Commercial      Taxable   Infrastructure                                                                         
     Pipeline        $ 1.40          $ 1.00          0.75                                                                       
     LNG             $ 1.50          $ 1.20          0.90                                                                       
     TOTAL COST      $ 2.90          $ 2.20         $1.65                                                                       
     OF SERVICE                                                                                                                 
Mr. Heinze stated  that, based on this calculation,  the natural gas                                                            
target level  should be $3.50. He  shared that experts in  the field                                                            
predict  that long-term  gas prices  would range  between $3.00  and                                                            
$3.50,  and that  some existing  fields, such  as the  one in  Qatar                                                            
ranges around $3.50. He  pointed out that were the cost of the total                                                            
$12 billion  Alaska natural  gas project factored  in, "the  cost of                                                            
service  becomes  very low  for our  gas," and  he  continued, at  a                                                            
wellhead value  ranging between $3.00 and $3.50, the  State could do                                                            
"very well," and "do more  than service our debt on the project." He                                                            
noted that price  factors would be affected by various  factors such                                                            
as whether the pipeline  follows the highway, is converted into LNG,                                                            
or distributed  into the  market in a number  of different  ways. He                                                            
noted  the "Estimated  Cost  of Service  Comparison  to WCNA"  (West                                                            
Coast  North  America)  chart   [copy  on  file]  and  stated  that,                                                            
depending  on how  the State  and the  Authority  use their  "unique                                                            
financial structures,"  the cost of service could be reduced further                                                            
and the State could be competitive with any of its competitors.                                                                 
Mr.  Heinze explained,  in  response  to  an earlier  question  from                                                            
Senator  Bunde, that LPG  is things  such as propane  or butane.  He                                                            
stated that natural  gas liquids (NGL) are liquids  that are derived                                                            
from gas that  is being produced,  and he continued that  LPG is the                                                            
same as  NGL except that  it is derived from  the gas after  the gas                                                            
has been transported.  He noted that  LPG fuels are easy  to use and                                                            
easy to transport.                                                                                                              
Mr. Heinze stressed  that the timing of the receipt  of this funding                                                            
is very  important to  ANGDA, as  the initial  $350,000 funding  has                                                            
been expended.  Therefore, he urged  the Committee to expedite  this                                                            
legislation, as more funding  would be required in order for further                                                            
work to be done.                                                                                                                
Mr. Porter also voiced  support for expediting the request, as there                                                            
are several  AGNDA contract requests  that are awaiting funding  and                                                            
should be "executed."                                                                                                           
Co-Chair Wilken ordered the bill HELD in Committee.                                                                             
     CS FOR SENATE BILL NO. 277(HES)                                                                                            
     "An  Act relating  to the  Alaska Commission  on Postsecondary                                                             
     Education;  relating to  the Alaska  Student Loan Corporation;                                                             
     relating  to bonds  of the  corporation; relating  to loan  and                                                            
     grant  programs of  the commission;  relating  to an  exemption                                                            
     from the State Procurement  Code regarding certain contracts of                                                            
     the commission  or corporation; making conforming  changes; and                                                            
     providing for an effective date."                                                                                          
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Co-Chair  Wilken  stated  that  this  legislation  pertains  to  the                                                            
student loan program and  is sponsored by the Senate Rules Committee                                                            
at  the request  of  the Governor.  He  noted that  the legislation                                                             
"would allow the Alaska  Student Loan Corporation to issue bonds and                                                            
use the proceeds  for purposes other than funding  student loans and                                                            
creates  a mechanism  for the  Corporation  to return  money to  the                                                            
State through  the financing  of capital  projects." He stated  that                                                            
$260 million  is anticipated to become  available over a  three year                                                            
period beginning  in FY  04 as a  result of this  bond issuance.  He                                                            
noted that a sectional  analysis of CS FOR SENATE  BILL NO. 277(HES)                                                            
is included in the Members packets.                                                                                             
SFC 04 # 12, Side A 10:44 AM                                                                                                    
DIANE   BARRANS,   Executive   Director,  Postsecondary    Education                                                            
Commission and  Executive Officer, Alaska Student  Loan Corporation,                                                            
read her testimony as follows.                                                                                                  
     Co-chair Wilken, Co-chair  Green, committee members, my name is                                                            
     Diane  Barrans and I  am the executive  director of the  Alaska                                                            
     Commission on Postsecondary  Education as well as the executive                                                            
     officer of  the Alaska Student loan Corporation.  Thank you for                                                            
     hearing the legislation before you today.                                                                                  
     Appearing  with  me  today  are  Sheila  King,  commission  and                                                            
     corporation finance  officer and by teleconference, Ken Vassar,                                                            
     Wolforth, Vassar, Johnson, and Brecht.                                                                                     
     Over the  past decade I have appeared before  you several times                                                            
     seeking your support for agency initiatives.                                                                               
     First,  the  Commission   asked  to  be  given  the  tools  and                                                            
     administrative  latitude  to modify  our processes  so that  we                                                            
     could  operate as a  self-sustaining  enterprise agency  of the                                                            
     state. The  next step was putting in place a  mechanism for the                                                            
     corporation  to begin paying  to the state some portion  of its                                                            
     annual  net  income,  as  a  return  on  the  state's  original                                                            
     investment in the corporation.                                                                                             
     Most  recently,  in  2001,  our  organization   requested  your                                                            
     approval  to redefine its role-becoming  Alaska's full  service                                                            
     financial  aid assistance and postsecondary education  planning                                                            
     On each  of these  occasions, you and  your fellow legislators                                                             
     consistently  exhibited  strong,  bipartisan  support  for  the                                                            
     mission of this agency,  to promote postsecondary participation                                                            
     and  success  by Alaskans,  and  you  unanimously  passed  this                                                            
     series of bills.                                                                                                           
     I am extremely pleased  to sit before you today and commend for                                                            
     your approval CSSB  277. The commission and corporation, having                                                            
     successfully  implemented the AlaskAdvantage  suite of programs                                                            
     and services  for Alaskans, now seek your support  for the next                                                            
     step of our organizational growth.                                                                                         
      The objectives of Senate Bill 277 which are five-fold:                                                                    
     1) To broaden the  scope of the Corporation's bonding authority                                                            
     to include  the ability to bond for the general  benefit of the                                                            
     state. To  contribute to statewide efforts to  use state assets                                                            
     as  efficiently as possible,  the corporation  has developed  a                                                            
     plan to return  a substantial portion of the  capital the state                                                            
     original  gave  the  corporation.  The  change  in corporation                                                             
     statue  is requested to  insure that,  as ASLC has capacity  to                                                            
     return  contributed capital back  to the state, it will  have a                                                            
     variety of  means to do so and will be able to  select the most                                                            
     beneficial way of doing so;                                                                                                
     2) To  reconstitute the state  student grant program  to better                                                            
     focus   on  Alaska's  workforce   needs  and  to  enhance   the                                                            
     Commission's current  outreach and early awareness initiatives;                                                            
     our  proposal redesigns  the grant program  to clearly  have an                                                            
     Alaska-centered focus.                                                                                                     
     3)  To  provide the  Commission  with  greater  flexibility  in                                                            
     offering  loan  consolidation  options  to  borrowers.  Current                                                            
     statutes  limit  the  way in  which  the Commission  can  offer                                                            
     consolidation  and certain  customers,  who have borrowed  from                                                            
     both  the  discontinued  loan program  and  the AlaskAdvantage                                                             
     loans, cannot currently be served through consolidation.                                                                   
     4) At  the recommendation of  the Department of Law,  this bill                                                            
     will  clarify  the  Commission's  ability  to administratively                                                             
     issue liens in the  collection of defaulted education loans and                                                            
     set  out the due process  for appealing  such an action  by the                                                            
     Commission; and                                                                                                            
     5) Lastly,  to provide an exemption from the  State Procurement                                                            
     Code   for  certain  services   related  to  guaranteeing   and                                                            
     disbursing   education  loans.   Under  the  current   business                                                            
     structure  for education  loans, a lender  must be prepared  to                                                            
     conduct  business  with the  guarantors and  disbursing  agents                                                            
     preferred  by the schools participating  in the loan  programs.                                                            
          In the Sectional analysis in your bill packet these                                                                   
     changes,  as well as  several minor  or conforming changes  are                                                            
     identified.  I would be happy to respond to specific  questions                                                            
     or provide a walk through of the bill, section by section.                                                                 
Co-Chair Wilken asked Ms.  Barrens to review the changes to the bill                                                            
that were made in the Senate  Health, Education, and Social Services                                                            
(HES) Committee.                                                                                                                
Ms. Barrans  stated that  one change, included  in Section 5  of the                                                            
bill, specifies  that an aggregate limit be placed  on the amount of                                                            
bonds that the Corporation could issue.                                                                                         
     Sec. 5.  AS 14.4.220 is amended  by adding a new subsection  to                                                            
          (g) The corporation may not issue bonds to finance                                                                    
     projects  under (a)(3) or this  section in an aggregate  amount                                                            
     that exceeds $280,000,000.                                                                                                 
Ms. Barrans stated  that the HES Committee determined  that while it                                                            
is anticipated  that the program "could return a substantial  amount                                                            
of the  contributed capital  to the  State, that  in the future  the                                                            
Student  Loan  Corporation  not be  looked  to,  to bond  itself  in                                                            
perpetuity  beyond  what it  could  afford  to do."  Therefore,  she                                                            
continued,  this aggregate  limit  was designated  to finance  State                                                            
Ms. Barrans  continued that  the second change  "is relevant  to the                                                            
prioritization  for  the  awarding  of  State grants"  in  that  the                                                            
original  version  of the  bill  allowed  individuals  "enrolled  in                                                            
programs  of study  leading  to employment"  in  specific  workforce                                                            
shortage areas. She shared  that the Senate HES Committee determined                                                            
that these  specification "were too  narrow and did not provide  for                                                            
the advent of  emerging workforce needs," and therefore,  she noted,                                                            
that language was eliminated.                                                                                                   
Co-Chair Wilken pointed  out that an additional change is located in                                                            
Section  23, subsection  (2)  on page  11, line  24,  in which  "ten                                                            
percent" was changed to 15 percent as follows.                                                                                  
          (2) "severe shortage" means a current or recurring job                                                                
     vacancy  rate of 15  percent of greater,  as determined  by the                                                            
     Department  of Labor  and Workforce Development  or by  another                                                            
     workforce  data source determined  reliable by the commission.                                                             
Ms. Barrans  affirmed. She noted that  this change is the  result of                                                            
the aforementioned broadening  of the workforce area shortage needs.                                                            
Senator Hoffman  asked why the bill's language limits  the amount of                                                            
bonds that  could be available to  finance projects to $280  million                                                            
as opposed  to Ms. Barrens' testimony  specifying that $260  million                                                            
would be available for this purpose over a three-year period.                                                                   
Ms. Barrans  responded that the bill's  language would deliberately                                                             
establish  the  amount  at  $280  million  in  order  to  allow  the                                                            
associated  costs of  bond issuance  to be  paid for  from the  bond                                                            
proceeds. Furthermore,  she noted that it would be  beneficial to be                                                            
able to  finance the  minimal reserve  fund from  the bond  proceeds                                                            
rather than requiring the  Corporation to utilize other resources to                                                            
fund either the cost of issuance or the reserve fund.                                                                           
Senator Hoffman  surmised therefore  that the bond issuance  expense                                                            
and the  reserve fund  expenses  would amount  to approximately  $20                                                            
Ms. Barrans  concurred.  She shared  that it is  typical for  a Bond                                                            
Reserve  Fund  to be  approximately  ten  percent  and the  cost  of                                                            
issuance to be approximately two percent of the bond amount.                                                                    
Senator Bunde asked that  further information be provided in regards                                                            
to  the grant  program,  specifically  the definition  of  financial                                                            
need. He additionally asked  whether a student could be eligible for                                                            
both a grant and a student loan.                                                                                                
Ms. Barrans  responded that the Commission  would like to  work with                                                            
"financial  aid  officers  at  Alaskan  institutions  to  develop  a                                                            
formula  that would best  serve this constituency."  Typically,  she                                                            
noted, the Commission "would  rely on a needs analysis that is based                                                            
on  a federal  free  form for  student  financial  aid,  which is  a                                                            
standard calculation  for financial  need." However she noted  that,                                                            
"one point  of discussion…is whether  we should use…a standard  cost                                                            
of education  in order to level the  playing field " in a  situation                                                            
where a student  might elect to attend a more expensive  institution                                                            
as  opposed  to  a  less  expensive  institution.   She  voiced  the                                                            
understanding  that, in order  to efficiently  utilize grant  funds,                                                            
"the standard  cost of education would  be considered in  that mix."                                                            
Senator  Bunde  understood  that  the grants  would  be  limited  to                                                            
students who chose to attend college in the State.                                                                              
Ms. Barrans  replied  that this  is true,  however,  she noted  that                                                            
while the  standard cost  of education to  attend the University  of                                                            
Alaska  might  range  between   $8,000  and  $12,000,  the  cost  of                                                            
attending  another institution  such as Sheldon  Jackson College  or                                                            
Alaska Pacific University  "might be considerably higher." She noted                                                            
that  students  could be  recipients  of  both  the grant  and  loan                                                            
Senator  Bunde opined  that  a student  might require  both  funding                                                            
Ms. Barrans agreed.                                                                                                             
Senator  Olson stated  whether some  schools might  not qualify  for                                                            
some  of  the  eligibility  and  priority  specifications  that  are                                                            
identified  in Section  23 of  the bill  beginning on  page ten  and                                                            
continuing through  page eleven; specifically in subsection  (2) (A)                                                            
that reads as follows.                                                                                                          
     (2) enrolled or about to be enrolled                                                                                       
          (A) at an institution approved to participate in federal                                                              
     financial aid programs under 20 U.S.C. 1070 - 1099c-2, as                                                                  
     amended, located in this state; and                                                                                        
Ms. Barrans responded  yes, "some very small vocational  schools" in                                                            
the State "are not regionally or nationally accredited."                                                                        
Senator  Olson  asked  whether  the  Kotzebue  Technical  Center  in                                                            
Kotzebue  or the  Ilisagvik  College in  Barrow are  accredited  and                                                            
therefore would qualify for the grant money.                                                                                    
Ms. Barrans  responded  that the  Ilisagvik College  and the  Alaska                                                            
Vocational  Technical Center  in Kotzebue  are accredited;  however,                                                            
she was unsure  of the status of the  Kotzebue Technical  Center and                                                            
would supply that information to him.                                                                                           
Co-Chair Wilken asked for  confirmation that the money that would be                                                            
available  from  the  sale  of bonds  would  be  separate  from  the                                                            
Corporation's  dividend program that has been contributing  funds to                                                            
the State's general funds for the past four years.                                                                              
Ms. Barrans affirmed that, "it is a separate initiative."                                                                       
Co-Chair Wilken concluded,  therefore, that the State would continue                                                            
to receive "the dividend  in addition to the payback." He voiced the                                                            
understanding that proceeds  from the bond dividend must be used for                                                            
capital projects.                                                                                                               
Ms. Barrans  clarified that the Internal  Revenue Service  specifies                                                            
that the  proceeds from  tax-exempt bonds  are federally limited  to                                                            
specific  types of  projects and  that typically  a capital  project                                                            
would qualify.  She noted  that "principle  payments on outstanding                                                             
debt service" is also an approved use of the funds.                                                                             
Co-Chair Wilken  noted that the Corporation has provided  additional                                                            
information,  titled  "Alaska  Student Loan  Corporation  Return  of                                                            
Contributed  Assets  to State"  [copy on  file],  that could  supply                                                            
Committee members with further information.                                                                                     
Senator Bunde  asked the current status of the Commission's  student                                                            
loan default rate as compared to the rate a decade earlier.                                                                     
Ms. Barrans  responded that the most  recent year's default  rate is                                                            
approximately  four percent  and is approximately  13 percent  lower                                                            
that the default rate of ten years prior.                                                                                       
Co-Chair Wilken shared  that when he had served on the Commission in                                                            
the late 1990's,  it was determined that the State  could garnish an                                                            
individual's  permanent fund  dividend (PFD)  check when their  loan                                                            
was outstanding. He asked  how much the Commission garnishes in this                                                            
manner each year.                                                                                                               
Ms. Barrans responded  that approximately $6.8 million  was recently                                                            
collected in this manner.                                                                                                       
Co-Chair Wilken  recalled that during  the first two years  that the                                                            
garnishing  of  one's  PFD was  allowed,  the  State  collected  $13                                                            
million and $12 million, respectively.                                                                                          
Ms.  Barrans  agreed  that  being  able  to  garnish  PFD's  is  "an                                                            
effective tool."                                                                                                                
Co-Chair Wilken  noted that the State's Student Loan  Corporation is                                                            
fairly unique in the nation.                                                                                                    
Ms. Barrans agreed  that while there are similar programs  operating                                                            
in the country, the Corporation's  programs and services are unique.                                                            
Senator Hoffman  informed the Committee that he would  be developing                                                            
an amendment to this legislation  that would allocate ten percent of                                                            
the funds to support maintenance  needs of the University of Alaska,                                                            
another ten  percent to  support major maintenance  of schools,  and                                                            
the remaining 80 percent would be retained by the State.                                                                        
Co-Chair  Wilken  noted  therefore,  that  the bill  would  be  held                                                            
pending drafting of the amendment.                                                                                              
Senator Olson  voiced concern regarding the fact that  the intent of                                                            
this legislation  is  to fund State  capital projects  now, via  the                                                            
student  loan  program's  issuance  of bonds  that  "might  encumber                                                            
future generations  of students."  He questioned  whether trying  to                                                            
solve  a problem  by  using  these bonds  is  the best  option,  and                                                            
therefore, he asked whether  "there are other loan type corporations                                                            
that are also contributing to the State's general fund."                                                                        
Co-Chair  Green opined  that  each of the  programs  that have  been                                                            
funded with  State general fund dollars  "have the obligation,  when                                                            
they  can,  to pay  a dividend."   Therefore,  she stated  that  she                                                            
recognizes this proposal "to be a dividend back to the State."                                                                  
Senator Olson  responded that  the Corporation  is already  paying a                                                            
dividend. Continuing, he  restated that his concern is that it would                                                            
"encumber future generations."                                                                                                  
The bill was HELD in Committee.                                                                                                 
Co-Chair Gary Wilken adjourned the meeting at 11:03 AM                                                                          

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