Legislature(2003 - 2004)

03/10/2004 09:05 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                     SENATE FINANCE COMMITTEE                                                                                 
                          March 10, 2004                                                                                      
                              9:05 AM                                                                                         
SFC-04 # 35,  Side A                                                                                                            
SFC 04 # 35,  Side B                                                                                                            
SFC 04 # 36,  Side A                                                                                                            
CALL TO ORDER                                                                                                               
Co-Chair Gary Wilken convened  the meeting at approximately 9:05 AM.                                                            
Senator Lyda Green, Co-Chair                                                                                                    
Senator Gary Wilken, Co-Chair                                                                                                   
Senator Con Bunde, Vice Chair                                                                                                   
Senator Ben Stevens                                                                                                             
Senator Lyman Hoffman                                                                                                           
Senator Donny Olson                                                                                                             
Also Attending:  SENATOR  GARY STEVENS; CRAIG GORMAN, Vice President                                                          
of  Research,  University  of  Alaska  Statewide;  SCOTT  GOLDSMITH,                                                            
Institute  of Social and  Economic Research,  University of  Alaska,                                                            
Anchorage;  THOMAS  CASE,  Dean,  College  of  Business  and  Public                                                            
Policy,  University  of  Alaska, Anchorage;   JOE BALASH,  Staff  to                                                            
Senator Gene Therriault; PAUL FUHS, Backbone2                                                                                   
Attending  via  Teleconference:    From  Anchorage:  STEVEN  PORTER,                                                          
Deputy Commissioner,  Department  of Revenue;  HAROLD HEINZE,  Chief                                                            
Executive Officer, Alaska Natural Gas Development Authority                                                                     
SUMMARY INFORMATION                                                                                                         
SB 273-ASMI BOARD/ SEAFOOD TAXES & ASSESSMENTS                                                                                  
The  Committee  heard  from  the  sponsor.  The  bill  was  held  in                                                            
SB 241-APPROP: NORTH SLOPE NATURAL GAS                                                                                          
The Committee  heard from  the sponsor, the  Department of  Revenue,                                                            
the  Alaska  Natural  Gas  Development  Authority  and  an  advocacy                                                            
organization. Two amendments  were adopted and the bill was reported                                                            
from Committee.                                                                                                                 
SB 271-NATURAL GAS DEVEL AUTHORITY PROJECTS                                                                                     
This bill was scheduled but not heard.                                                                                          
             Presentation by the University of Alaska                                                                           
                    "Economics of UA Research"                                                                                  
Co-Chair Wilken  prefaced the presentation by stating  that research                                                            
activities bring "new dollars into our State".                                                                                  
CRAIG  GORMAN, Vice  President  of Research,  University  of  Alaska                                                            
Statewide,  stated that  each of  the presenters  would discuss  the                                                            
role of research and development within the State.                                                                              
SCOTT GOLDSMITH,  Director of the  Institute of Social and  Economic                                                            
Research,  College  of Business  and  Public Policy,  University  of                                                            
Alaska,  Anchorage,  gave  a  presentation   titled,  "The  Economic                                                            
Importance of University Research" [copy on file] as follows.                                                                   
     Page 1                                                                                                                     
     Research is a $264 Billion Industry                                                                                        
     [Pie  chart  demonstrating  the distribution  of  the  research                                                            
     conducted  in the United States between industry,  universities                                                            
     ($36  billion), the  federal government,  and other  non-profit                                                            
Mr.  Goldsmith stated  that  research is  a $250  billion  industry,                                                            
accounting  for approximately   2.5 percent  of the  gross  national                                                            
product.  The majority of  research is funded  by industry,  but the                                                            
federal government and  non-profit organizations also fund research.                                                            
Universities fund approximately  15 percent of total research, which                                                            
in  2001  was  approximately   $36  billion.  Industry  understands                                                             
research,  as it increases  productivity  growth,  is "one of  three                                                            
legs" that  drive the economy. Increased  capital expenditures,  and                                                            
increased  quality of the  labor force are  the other two "legs"  of                                                            
the economy.                                                                                                                    
     Page 1                                                                                                                     
     Top Research States                                                                                                        
     State Rank in 1999                                                                                                         
                     Amount                               Share of GSP                                                          
                     (Billion $)                          (Percent)                                                             
     1. California        $48.0                New Mexico      6.40%                                                            
     2. Michigan           18.8                Michigan        6.10%                                                            
     3. New York           14.1                Rhode Island    5.10%                                                            
     4. Texas              12.4                Massachusetts 4.60%                                                              
     5. Massachusetts      12.2                Maryland        4.60%                                                            
     Page 2                                                                                                                     
     Research in Alaska: How We Compare                                                                                         
     Alaska R&D Profile        rank       amount    % US avg  data                                                              
     Total R&D (million $)      47          $196               2000                                                             
     Industry R&D (million $)  50             $9               2000                                                             
     Academic R&D (million $)  42           $116               2001                                                             
     Population (% US)          48         0.22%               2002                                                             
     Total R&D ($ per capita)  32           $467       49%     2001                                                             
     R&D Intensity (R&D/GSP)  41           1.04%       38%     2001                                                             
     Federal R&D ($ per capita)13           $335      116%     2001                                                             
     Fed R&D/Total Fed $        22         3.30%       72%     2001                                                             
Mr. Goldsmith  stated that Alaska's  research and development  ranks                                                            
just  below the  median of  states  in per  capita terms,  and as  a                                                            
percentage  of the gross State product.  Alaska ranks even  lower in                                                            
research and development as a percentage of the U.S. average.                                                                   
     Page 2                                                                                                                     
      Funding for University Research is Growing 8% per Year                                                                    
     [Graph  showing  the increases  of federal,  institutional  and                                                            
     other sources of funding  from 1980 through 2002 in billions of                                                            
Mr.  Goldsmith  noted  that  "other  sources"  includes   non-profit                                                            
organizations  and private  industry.  He informed  that the  growth                                                            
rate of  university  research, at  over eight-percent  annually,  is                                                            
faster than the overall growth rate of the economy.                                                                             
     Page 3                                                                                                                     
     Top Research Universities                                                                                                  
     University R&D Spending: 2002                                                                                              
     Rank       Institution               Budget                                                                                
                                          (Million $)                                                                           
     1          Johns Hopkins             $999                                                                                  
     2          UCLA                      $693                                                                                  
     3          U of Wisconsin            $604                                                                                  
     4          U of Michigan             $601                                                                                  
     5          U of Washington           $590                                                                                  
     95         UAF                       $110                                                                                  
     Page 3                                                                                                                     
     University Research in Alaska: How We Compare                                                                              
     UAF R&D Profile in 2001              Rank      Amount     US Avg                                                           
                                               (Million $)                                                                      
     Total R&D                             95       $110.0                                                                      
     Math and Computer Science             12        $16.3                                                                      
     Atmospheric, Earth, Oceanography      16        $30.5                                                                      
     Physical                              54        $13.6                                                                      
     Life Science                         150        $16.6                                                                      
     Federal Funding                      105        $55.3                                                                      
     Institutional Funding                 na        $23.6                                                                      
     Total/Institutional Funding           na         4.58%      4.99%                                                          
     Total R&D - All Campuses              68       $115.0                                                                      
Mr. Goldsmith  commented that most of University of  Alaska research                                                            
is conducted at the Fairbanks campus.                                                                                           
     Page 4                                                                                                                     
     University Research as an Enterprise -                                                                                     
     New Money into the Economy                                                                                                 
        · Import Substitution                                                                                                   
             o Arctic Basic Research                                                                                            
             o Applied Research on Alaska Problems                                                                              
        · Adding to the Export Base                                                                                             
             o Footloose Research                                                                                               
Mr. Goldsmith  pointed  out that  almost all  funds appropriated  to                                                            
research  activities are  "new money". Economists  characterize  two                                                            
methods of economic  growth: import substitution and  increasing the                                                            
export base. A  "surprising amount" of arctic research  is conducted                                                            
in other  parts  of the  country rather  than in  Alaska.  Similarly                                                            
applied  research  performed  on  Alaska's  problems,  such  as  the                                                            
engineering of  highways and oil and gas production  techniques, are                                                            
also  conducted  out of  the  State. Import  substitution  could  be                                                            
achieved  by   redirecting  more   Alaska-related  research   to  be                                                            
conducted  in  the  State.  University  research  also  acts  as  an                                                            
enterprise  by adding  directly to  the export base.  He added  that                                                            
research is not  tied to a specific location and could  be conducted                                                            
     Page 4                                                                                                                     
     University Research as an Enterprise:                                                                                      
     Direct Economic Impact 2003 (Million $)                                                                                    
     $121.6     Total UA Research*                                                                                              
          $45.2      Wages                                                                                                      
          $17.5      Benefits                                                                                                   
          $33.6      Contracted Services                                                                                        
           $8.4      Capital Equipment                                                                                          
           $8.1      Commodities                                                                                                
           $5.7      Travel                                                                                                     
           $2.0      Student Aid                                                                                                
           $1.0      Miscellaneous                                                                                              
     $???       Visiting Scientists                                                                                             
Mr. Goldsmith emphasized  that research is very labor-intensive, and                                                            
most of the money  spent on wages and benefits remains  in the State                                                            
and  is  re-circulated  through  the  economy.  Contracted  services                                                            
consist of  maintenance, professional,  business and other  services                                                            
that are often  provided locally.  Much of the funding expended  for                                                            
capital  equipment  leaves   the State   with  one  exception  being                                                            
construction  costs. The commodities  component includes  items such                                                            
as paper and fuel,  which are mainly purchased by  local businesses.                                                            
The  travel funds  include  travel  within  and outside  of  Alaska,                                                            
supporting both local and  outside businesses. Additionally, several                                                            
facilities in  Alaska provide opportunities for visiting  scientists                                                            
to travel to the  State to conduct research. These  visitors provide                                                            
economic  benefits  through  their  research  and  as  tourists.  In                                                            
summary, much  of the costs expended for university  research remain                                                            
in the State where  they foster economic activity  in a wide variety                                                            
of local businesses.                                                                                                            
     Page 5                                                                                                                     
     University Research as an Enterprise:                                                                                      
     Total Economic Impact                                                                                                      
        · Jobs                                                                                                                  
             o 2,310 Total                                                                                                      
             o 1,228 University-full and part time                                                                              
             o 1,082 Private                                                                                                    
        · Payroll                                                                                                               
             o $80.3 Million-Total                                                                                              
             o $45.2 Million-University                                                                                         
             o $35.0 Million-Private                                                                                            
        · Private Business Sales                                                                                                
             o $106.8 Million-Total                                                                                             
             o $42 Million-Direct Procurement                                                                                   
             o $64.8 Million-Indirect                                                                                           
     Page 5                                                                                                                     
     University Research as an Enterprise:                                                                                      
     Characteristics of Jobs & Industry                                                                                         
        · Labor Intensive                                                                                                       
        · High Wage                                                                                                             
        · Year Round Jobs (not Seasonal)                                                                                        
        · Diverse Job Mix                                                                                                       
        · High Resident Share                                                                                                   
        · Stable Industry                                                                                                       
        · Footloose                                                                                                             
        · Environmentally Benign                                                                                                
        · Low Burden on Government Services                                                                                     
        · Tax Base                                                                                                              
        · Backward Linkages                                                                                                     
        · Forward Linkages                                                                                                      
        · "Value Added" Spinoffs                                                                                                
Mr.  Goldsmith  overviewed  these  points and  added  that  research                                                            
activities  are less subject to market  fluctuations than  resource-                                                            
intensive industries.  Research activities  also do not compete  for                                                            
government  services to  the level  of other  enterprises. The  high                                                            
labor intensity  of university research  indirectly generates  a tax                                                            
base   through  support   for   businesses  and   establishment   of                                                            
households.  Research  is  primarily  located  in urban  areas  with                                                            
developed  economic  infrastructures   where  backward  and  forward                                                            
linkages can easily occur.                                                                                                      
Senator  Bunde  requested  a  definition  of  backward  and  forward                                                            
Mr. Goldsmith  explained  that a  backward linkage  occurs when  the                                                            
University  of  Alaska purchases  goods  or  services  from a  local                                                            
business.  Forward  linkages  are sales  generated  as  a result  of                                                            
University research activities.                                                                                                 
     Page 6                                                                                                                     
     University Research as an Enterprise:                                                                                      
     Comparison to Metal Mining                                                                                                 
        · Operating Size                                                                                                        
             o $823 Million in Production Value in 2002                                                                         
             o $77 Million in Payroll                                                                                           
             o 1,153 Average Annual Employment                                                                                  
             o $67,000 Average Annual Wage                                                                                      
             o Local Procurement                                                                                                
        · Characteristics                                                                                                       
             o Capital Intensive                                                                                                
             o Resource Dependent                                                                                               
             o Resident Share                                                                                                   
             o Stability                                                                                                        
             o Environmental Impact                                                                                             
             o Competition with other Activities                                                                                
             o Cost Burden on Government                                                                                        
             o Tax Base                                                                                                         
             o Enclave                                                                                                          
        · Benefit/Cost                                                                                                          
             o Jobs                                                                                                             
             o Income                                                                                                           
             o Tax Base                                                                                                         
             o "Value Added" Spinoffs                                                                                           
     Page 6                                                                                                                     
     University Research as an Enterprise:                                                                                      
     A Role in Future Growth of Alaska                                                                                          
     [Bar graph demonstrating the following:]                                                                                   
     Projected Alaska Job Growth 2000-2010                                                                                      
     Health/Social Services          23,400                                                                                     
     Trade                            7,900                                                                                     
     Transportation                   4,700                                                                                     
     Business/Eng/Acct  Services      4,200                                                                                     
     Other Services                   3,400                                                                                     
     Lodging                          2,100                                                                                     
     Construction                       800                                                                                     
     Government                         700                                                                                     
     Mining                             500                                                                                     
     Manufacturing                        0                                                                                     
     Page 7                                                                                                                     
     University Research as an Enterprise:                                                                                      
     Industries for Alaska's Future                                                                                             
        · Oil and Gas                                                                                                           
        · Tourism                                                                                                               
        · Seafood                                                                                                               
        · Mining                                                                                                                
        · Air Cargo                                                                                                             
        · Timber                                                                                                                
        · University Research                                                                                                   
Mr. Goldsmith  pointed out that the  industries with high  projected                                                            
job growth are the services  and trade industries. The average wages                                                            
for new  jobs in  those industries  is  less than  that of  existing                                                            
jobs. This information  suggests that every opportunity must be made                                                            
to build "base  industries" that can drive the economy  by providing                                                            
solid jobs; university research is one of those industries.                                                                     
     Page 7                                                                                                                     
     University Research as an Enterprise:                                                                                      
     Growth Potential                                                                                                           
        · Import Substitution                                                                                                   
             o Increase Share of Nationally Funded Research About                                                               
             o Increase Share Locally Funded Research                                                                           
        · Export Growth                                                                                                         
             o Maintain Overall Share of Growing Market for                                                                     
                Federal Research                                                                                                
             o Increase Share of Nationally Funded Arctic Research                                                              
             o Increase Presence in Under Represented Fields                                                                    
Mr. Goldsmith  explained  that University  research has significant                                                             
growth  potential for  two reasons.  First, the  research budget  is                                                            
growing  faster than  the overall  economy. Second,  Alaska has  the                                                            
ability  to capture  a  larger  share of  research  currently  being                                                            
conducted in other parts of the country.                                                                                        
     Page 8                                                                                                                     
     University Research as an Enterprise:                                                                                      
     Benefit/Cost Analysis                                                                                                      
        · Cost                                                                                                                  
             o General Fund Appropriation (FY 03) = $16.6 Million                                                               
        · Benefits                                                                                                              
             o Economic Impact Return per $1 Million of GF                                                                      
                  ΠJobs = 139                                                                                                  
                  ΠPayroll = $4.8 million                                                                                      
             o "Value Added" Spinoff Returns for Alaska                                                                         
     Page 8                                                                                                                     
      University Research as a Tool for Economic Development                                                                    
        · New Business Creation - ABR Inc.                                                                                      
        · Business Innovation - Geoducks                                                                                        
        · Information for Business Decisions - Ice Roads                                                                        
         · Public Infrastructure Efficiency - Telemedicine                                                                      
        · Maximize Value of Public Assets - Fisheries Management                                                                
        · Professional Workforce Development - Engineers                                                                        
        · Resident Expertise Creation - Fisheries                                                                               
Mr. Goldsmith  highlighted one of  the significant contributions  of                                                            
university research: the  "value added spinoff". In other industries                                                            
value  added refers  to  profits,  but in  the  university  research                                                            
industry  the  value added  is  productivity  gains for  the  entire                                                            
Senator  Olson referred  to the  slide  titled "Research  is a  $264                                                            
Billion  Industry"  and  noted that  75-percent  of  the  nationwide                                                            
research  industry, some  $250 billion,  is funded  by industry.  He                                                            
asked why the  majority of Alaska's research funding  comes from the                                                            
federal government.                                                                                                             
Mr.  Gorman responded  that  the  nature  of research  conducted  in                                                            
Alaska  is  associated   with  the  environment,  and   the  special                                                            
characteristics  of  the arctic.  In addition,  Alaska  has a  small                                                            
industrial  and manufacturing base.  The University of Alaska  funds                                                            
57-percent of the State's  research, and only 7-percent is funded by                                                            
industry. From  a research standpoint,  the State is unique  in that                                                            
it is more reflective  of a developing country, than  of the rest of                                                            
the U.S.                                                                                                                        
Mr. Goldsmith added that  an important aspect of university research                                                            
is  the  student.  The   federal  government  considers   university                                                            
research a  method to "capture the  next generation". Undergraduate                                                             
and graduate students  play an integral role in university  research                                                            
causing  it  to  become  "an  intrinsic  part"  of  the educational                                                             
Mr.  Gorman  then  gave a  presentation  titled,  "Research  at  the                                                            
University  of Alaska,  Role  in the  State  Revenue, Organization,                                                             
Priorities, Plans" [copy on file] as follows.                                                                                   
     Page 1                                                                                                                     
     Some Perspectives                                                                                                          
     Nationally, Industry conducts 74 % of                                                                                      
     R&D, Universities conduct 14%                                                                                              
     In Alaska, UA conducts 57% of R&D                                                                                          
     and Industries 7%                                                                                                          
     Average State investment in R&D =                                                                                          
     2.5% GSP; Alaska Invests 0.5%                                                                                              
     Page 1                                                                                                                     
     UA total research revenue                                                                                                  
     FY 03: $133M                                                                                                               
     Good growth pattern:                                                                                                       
        · FY  98: $77M                                                                                                          
        · FY  99: $81M                                                                                                          
        · FY  00: $91M                                                                                                          
        · FY 01: $109M                                                                                                          
        · FY 02: $120M                                                                                                          
     Most $ currently at UAF - growing at all MAUs                                                                              
     Traditionally "academic" - becoming more applied                                                                           
Mr.  Gorman reemphasized  the  growth of  the research  industry  in                                                            
Alaska.  Traditionally,  the  majority of  University  research  has                                                            
taken  place  at  the  University  of  Fairbanks,  but  it  is  also                                                            
occurring in  Anchorage and Southeast  Alaska. Much of the  research                                                            
conducted in the State  is academic or basic research, which studies                                                            
fundamental  processes and  characteristics;  however, the State  is                                                            
becoming increasingly  focused on  applied and industrial  research.                                                            
University research is  growing and changing in the State of Alaska.                                                            
     Page 2                                                                                                                     
     UA Revenue by Different Sources                                                                                            
     1996 - 2003                                                                                                                
     [bar graph indicates the following data]                                                                                   
     $211,100 - State Appropriated Funds                                                                                        
     $133,082 - Externally Funded as a Result of Research                                                                       
     $59,749 - Tuition                                                                                                          
     $141,509 - Other                                                                                                           
     $168,963 - State Appropriated Funds                                                                                        
     $81,500 - Externally Funded as a Result of Research                                                                        
     $48,685 - Tuition                                                                                                          
     $104,747 - Other                                                                                                           
     $171,580 - State Appropriated Funds                                                                                        
     $63,816 - Externally Funded as a Result of Research                                                                        
     $48,965 - Tuition                                                                                                          
     $90,340 - Other                                                                                                            
     Page 2                                                                                                                     
     UA Revenue by Different Sources                                                                                            
     1996 - 2003                                                                                                                
     [bar graph indicates the following data]                                                                                   
     39% - State Appropriated Funds                                                                                             
     24% - Externally Funded as a Result of Research                                                                            
     11% - Tuition                                                                                                              
     26% - Other                                                                                                                
     42% - State Appropriated Funds                                                                                             
     20% - Externally Funded as a Result of Research                                                                            
     12% - Tuition                                                                                                              
     26% - Other                                                                                                                
     46% - State Appropriated Funds                                                                                             
     17% - Externally Funded as a Result of Research                                                                            
     13% - Tuition                                                                                                              
     24% - Other                                                                                                                
Mr. Gorman  commented on the growth  of the University of  Alaska in                                                            
comparison  to  other  institutions  receiving  State  appropriated                                                             
funds. He acknowledged  the increase in State appropriation funds to                                                            
the  University,  and  highlighted   the  increase  in  tuition  the                                                            
University implemented.                                                                                                         
Mr. Gorman  continued that the healthy  research environment  at the                                                            
University  of Alaska is  partially responsible  for its ability  to                                                            
attract  more  students  from  within  the  State.   Furthermore,  a                                                            
significant  amount of University  funding  is provided by  research                                                            
     Page 3                                                                                                                     
     UAF Funding Sources                                                                                                        
     (03 Research Expenditures - $m)                                                                                            
     Direct Federal                       72.8                                                                                  
          DOD                  5.9                                                                                              
          NIH                  5.6                                                                                              
          Interior             3.9                                                                                              
          Ag                   5.1                                                                                              
          Commerce             9.1                                                                                              
          NASA                 14.6                                                                                             
          NSF                  18.9                                                                                             
     State Agencies                        2.2                                                                                  
          Direct               1.4                                                                                              
          From Federal          .8                                                                                              
     Private (Univ, Corp, Found'n)        22.1                                                                                  
          Direct               7.6                                                                                              
          Federal Indirect     14.4                                                                                             
     General Fund                         14.3                                                                                  
     (UAA: 3.9, 1.9, 2.8, 2.2)                                                                                                  
Mr. Gorman  pointed  out the diverse  sources of  the University  of                                                            
Alaska, Fairbanks  research funding, but clarified  that the federal                                                            
government  contributes   the majority   of  funding.  Most  federal                                                            
research appropriations  come from the National Science  Foundation,                                                            
which is a very  competitive funding source. Increasing  efforts are                                                            
underway to secure  additional funds from the National  Institute of                                                            
Health  (NIH),  as this  is  the largest  federal  research  funding                                                            
source and  Alaska has been the least  successful state in  securing                                                            
NIH funds.                                                                                                                      
Co-Chair Wilken asked the  significance of the numbers following the                                                            
letters "UAA" at the bottom of the "UAF Funding Sources" slide.                                                                 
Mr.  Gorman  explained  that those  numbers  represent  the  funding                                                            
sources  of  research   funds  for  the  Anchorage   campus  of  the                                                            
University  of  Alaska.  He  noted   that  there  is  a significant                                                             
difference  in the  federal funding  provided  the Anchorage  campus                                                            
versus  the Fairbanks  campus;  however,  contributions  from  State                                                            
agencies  are comparable  between  the two campuses.  The  Anchorage                                                            
campus  has historically   been well  supported  by the  State.  The                                                            
funding variance  between the University  of Alaska's Fairbanks  and                                                            
Anchorage campuses  demonstrates their unique styles  and histories.                                                            
     Page 3                                                                                                                     
     Large sums from small pieces:                                                                                              
     864 Active Research Grants and Contracts                                                                                   
     340 New awards annually - 120% increase over FY 99                                                                         
     Legislative Performance Measures:                                                                                          
     215 Awards in Specified Areas                                                                                              
     222 Graduate Students Funded                                                                                               
     267 Active Applied Research Projects                                                                                       
Mr. Gorman  stated  that research  funding  does not  come in  large                                                            
sums, though a few exceptions  exist. For example, Alaska receives a                                                            
sizable amount  of computational science research  funding, the vast                                                            
majority of  which goes to the Arctic  Region Supercomputing  Center                                                            
with   an  annual   budget  of   approximately   $15  million.   The                                                            
Supercomputing  Center is funded by the U.S. Department  of Defense.                                                            
The University  of Alaska is attempting to increase  its utilization                                                            
of the Supercomputing  Center. Currently,  approximately  30-percent                                                            
of the Supercomputing  Center's capacity is used by  the University,                                                            
and the other  70-percent is utilized by the Department  of Defense.                                                            
     Page 4                                                                                                                     
     Organized Research Units                                                                                                   
          Geophysical Institute                                                                                                 
          Institute of Arctic Biology                                                                                           
          International Arctic Research Center                                                                                  
          Arctic Region Supercomputing Center                                                                                   
          UAF Museum                                                                                                            
     Within Schools and Colleges (examples)                                                                                     
          Business Enterprise Institute                                                                                         
          Institute for Social and Economic Research                                                                            
           Environmental and Natural Resources Institute                                                                        
          Institute for Circumpolar Health Studies                                                                              
          Institute of Northern Engineering                                                                                     
          Institute of Marine Science                                                                                           
          Arctic Energy Technology Development Lab                                                                              
          Alaska Native Language Center                                                                                         
          Minerals Industries Research Lab                                                                                      
          Center for Nanosensor Technology                                                                                      
          Agriculture and Forestry Experiment Station                                                                           
Mr.  Gorman  explained  that research  is  conducted  by  individual                                                            
faculties or  by research centers.  Within the University  of Alaska                                                            
there  are  bi-partite  faculties  who  are active  in  service  and                                                            
teaching,  and tri-partite  faculties  who participate  in  service,                                                            
teaching and research.   The majority of the University  of Alaska's                                                            
tenure-track   faculty  is  tri-partite.   When  a  coalescence   of                                                            
interest, or a federal  interest exists, research centers are formed                                                            
to conduct  research. The  largest, most  famous research center  in                                                            
the State  is the Geophysical  Institute,  which was established  by                                                            
the federal  government in 1948. The  State is playing an  extremely                                                            
important role  in both the national and the international  research                                                            
     Page 4                                                                                                                     
     BOR Strategic Plan                                                                                                         
     Areas of Statewide Leadership                                                                                              
          Social, Economic Policy                                                                                               
          Health delivery                                                                                                       
          Community Engagement                                                                                                  
          Finance, Business                                                                                                     
          Biomedical Science                                                                                                    
          Fisheries, Marine Science                                                                                             
          Remote Sensing                                                                                                        
          Natural Resources                                                                                                     
          Native Languages, Culture                                                                                             
          Arctic Research                                                                                                       
          Wildlife Biology                                                                                                      
          Energy Technology                                                                                                     
          Computational Science                                                                                                 
          Cold Regions Infrastructure                                                                                           
          Marine Biology                                                                                                        
          Environmental Technology                                                                                              
The University of Alaska's  Board of Regents has identified, as part                                                            
of  its  strategic   plan,  areas   of  leadership  within   various                                                            
administrative   units.   The  University   cannot   afford  to   be                                                            
"duplicitous"  in  its  research.  At  the  University  of  Alaska's                                                            
Anchorage  campus the  research focus  is on  the community,  social                                                            
economics,  business and  logistics. At the  University of  Alaska's                                                            
Fairbanks campus,  the research focus is on physical  scientists and                                                            
the arctic.  The Southeast  campus  of the University  of Alaska  is                                                            
primarily an  undergraduate institution,  but research is  occurring                                                            
there as well.                                                                                                                  
     Page 5                                                                                                                     
     SJR 44 (2nd Session, 22nd Legislature)                                                                                     
     Draft State R&D Plan (2/03)                                                                                                
     Lead Participants: UA, NPRB, Arctic Research Commission,                                                                   
     IARPC, ASTF                                                                                                                
        · Expand and Diversify Alaska's Economy                                                                                 
        · Protect Health of Alaskans and Alaska's Environment                                                                   
        · Strengthen State Research Institutions                                                                                
        · Identify ways for Federal and State Governments to work                                                               
     Conclusions and Recommendations:                                                                                           
        · Value in its own right; strategic tool for economic                                                                   
        · Establish    mechanism    for    planning    and    Agency                                                            
        · Maintain excellence and build competitive capacity                                                                    
        · Establish monitoring networks coupled to analytical                                                                   
        · Improve flow of information to decision makers, public                                                                
     Key Organizing Principle:                                                                                                  
        · Alaska Resource Assessment Network                                                                                    
Mr. Gorman informed that  the State legislature asked the University                                                            
to participate  with other agencies to develop the  State's research                                                            
and development plan. A  draft report was produced, though the State                                                            
agencies  did  not   participate  to  the  level  expected   by  the                                                            
University.  In the draft report the  value of research "in  its own                                                            
right" and as a "strategic  tool" was identified. A major conclusion                                                            
of  the draft  report was  that  the State  needed  a mechanism  for                                                            
planning  and developing  "enhanced agency  accountability"  for the                                                            
State agency's research priorities.                                                                                             
     Page 5                                                                                                                     
     Alaska Resource Assessment Network                                                                                         
     [Flow chart demonstrating the process of different types of                                                                
     research reaching agencies, decision makers and the public]                                                                
Mr. Gorman stressed that  the observation of data is important as is                                                            
disseminating  that data. The University needs improved  systems for                                                            
collecting, collating  and using data to provide better  information                                                            
to federal and  State agencies, decision makers, and  the public. He                                                            
identified a few  of the successful observation systems  that are in                                                            
place such as  the Alaska Ocean Observing System.  A national effort                                                            
titled   the  Integrated   Ocean  Observing   System  may   identify                                                            
significant  funding which  the University  of Alaska could  compete                                                            
for to make another observing system available.                                                                                 
     Page 6                                                                                                                     
     UA SJR 44 Follow-on                                                                                                        
     Areas for building capacity at UA:                                                                                         
        · Marine Sciences and Fisheries, Land Resource Management,                                                              
          Cold Regions Engineering and Infrastructure (esp. energy                                                              
          technologies), Health and Biomedicine, Education, Coupled                                                             
          Human and Natural Ecosystems                                                                                          
        · Improve Competitiveness, Facilities                                                                                   
        · Cross - MAU Transportation Research Center, Engineering                                                               
          Reorganization, BEI and Logistics Center, CNT PDDC, NIH                                                               
          Roadmap projects, Computational strategy, AOOS…                                                                       
     Enhance attention to State needs, applied research                                                                         
     Focus business, social, economic researchers on strategies for                                                             
     wealth generation and economic development (UAA CBPP Dean Tom                                                              
     Case will address)                                                                                                         
     Establish mechanism for continued R&D Planning:                                                                            
          From EPSCoR to SCoR                                                                                                   
Mr. Gorman informed  that the University would be  building capacity                                                            
in  research  areas  such as  health  and  biomedicine,  and  marine                                                            
science and  fisheries. The University  would be receiving  over $80                                                            
million  from the  federal government  for FY  06 and  FY 07 for  an                                                            
Alaska region  research vessel to  replace the existing Alpha  Helix                                                            
research   vessel.   The  University   intends   to   increase   its                                                            
competitiveness  in  the  research  industry.   Committing  to  high                                                            
quality research  facilities is one  technique the University  would                                                            
use to foster research competition.                                                                                             
Mr. Gorman  continued that  Alaska is an EPSCoR  state. EPSCoR  is a                                                            
national  program  for  states  that receive  less  than  a  certain                                                            
percentage  of  National  Science  Foundation  funds. EPSCoR  is  an                                                            
experimental program designed  to stimulate competitive research. As                                                            
a participant  of  the  federal Experimental  Program  to  Stimulate                                                            
Competitive  Research (EPSCoR)  Alaska is required  to form  a State                                                            
committee that  coordinates research  efforts. The president  of the                                                            
University  of Alaska, Mark  Hamilton, and  the Lieutenant  Governor                                                            
will co-chair the research  committee. The committee will attempt to                                                            
illicit  statewide  guidance  from  the  State  agencies  and  State                                                            
government to direct the University's future research.                                                                          
Co-Chair  Wilken   asked  how  long   the  University  has   been  a                                                            
participant in EPSCoR.                                                                                                          
Mr. Gorman  answered the  University has  been actively involved  in                                                            
EPSCoR for three or four years.                                                                                                 
Co-Chair  Wilken asked whether  digressing  from the EPSCoR  program                                                            
would allow the University to qualify for additional funding.                                                                   
Mr. Gorman affirmed and  explained that EPSCoR has specific capacity                                                            
building  programs that generate  an average  of $3 million  dollars                                                            
from the  National Science  Foundation and  comparable amounts  from                                                            
the National Institutes  of Health. Subsequently, the University has                                                            
focused its research efforts  on health and biomedicine, and on cold                                                            
regions engineering. The  University has gained significant capacity                                                            
in both of these research areas.                                                                                                
Co-Chair  Wilken  recalled  University  of  Alaska  president,  Mark                                                            
Hamilton,  addressing  EPSCoR  when it  was  just beginning  in  the                                                            
State, and detailing how it would grow.                                                                                         
Mr. Gorman detailed  that the University of Alaska  has successfully                                                            
completed  its "second  round" of  funding with  EPSCoR through  the                                                            
National  Science Foundation  and  is expecting  comparable  success                                                            
with the National  Institutes of Health. The goals  of EPSCoR are to                                                            
encourage the hiring of  new research staff, new facilities, and the                                                            
promotion  of competitive  research.  The University  of Alaska  has                                                            
achieved these goals.                                                                                                           
Senator  Bunde   questioned  if  researchers   are  tri-partite   by                                                            
definition,   and  whether  bi-partite   faculty  play  a   role  in                                                            
university research.                                                                                                            
Mr.  Gorman  replied  that  bi-partite  faculty  are  typically  not                                                            
involved  in research.  The  research  is conducted  by tri-partite                                                             
faculty,  or  by special  faculty  who  exclusively  participate  in                                                            
Mr. Bunde asked for further clarification of bi-partite faculty.                                                                
Mr. Gorman  clarified that  bi-partite faculty  are teachers;  their                                                            
tenure is not based on research.                                                                                                
THOMAS  CASE,   Dean,  College  of   Business  and  Public   Policy,                                                            
University  of  Alaska,  Anchorage,   gave  a presentation   titled,                                                            
"Economic Development and  Wealth Generation, Role of the University                                                            
of Alaska" [copy on file] as follows.                                                                                           
Mr. Case  highlighted some  of the subjects  he would be  presenting                                                            
such as the balance between  industry research funding and State and                                                            
federal  research funding.  In  addition,  he stated  his intent  to                                                            
discuss the University  of Alaska's statewide strategy for providing                                                            
linkages  between research  and its  application  in order to  drive                                                            
economic development.                                                                                                           
     Page 1                                                                                                                     
     Economic Development and Wealth Generation                                                                                 
        · Our Strategy:                                                                                                         
        · Growing business opportunities for Alaska through                                                                     
          excellence in business education                                                                                      
Mr. Case  explained  that excellence  in business  education is  the                                                            
linkage  between  research  and  its  application.  Research  is  an                                                            
economic  activity,   which  contributes  to  advancing   knowledge.                                                            
Research  must be  applied  through  business education  to  produce                                                            
economic development and wealth generation.                                                                                     
     Page 2                                                                                                                     
     Strategies for Wealth Generation                                                                                           
     Making Alaska attractive for investment                                                                                    
     1. Increase productivity                                                                                                   
     2. Add value through technology applications                                                                               
     3. Build international connections                                                                                         
     4. Expand local business capability                                                                                        
Mr. Case commented that  the University of Alaska's Anchorage campus                                                            
has a  logistics  program that  provides education  through  special                                                            
application   courses,  beginning   with  certificate  courses   and                                                            
continuing to graduate level courses.                                                                                           
     Page 2                                                                                                                     
     Wealth Generation                                                                                                          
     1. Increase Productivity                                                                                                   
        · Example: Supply chain research for productivity                                                                       
          improvements in Alaska business environment                                                                           
        · 10 - 15% improvement in productivity can result from                                                                  
          supply chain management optimization                                                                                  
        · Current collaborators Mat Maid, Horizon and TOTE                                                                      
        · 10% improvement in material movement within Alaska would                                                              
          be significant for the economy                                                                                        
     Page 3                                                                                                                     
     Wealth Generation                                                                                                          
     2. Add value through technology applications                                                                               
        · Data security and information management requirements                                                                 
          since 9-11 increased cost of business by $billions                                                                    
        · Business privacy and data security concerns from                                                                      
          Sarbannes-Oxley Act and National Security Administration                                                              
          cost $ billions.                                                                                                      
        · What we teach can save money in Alaska                                                                                
Mr. Case  listed several  sectors  of need and  opportunity such  as                                                            
data security,  and specifically software  security. The  University                                                            
of Alaska's Computer  Information Systems Department  faculty within                                                            
the College  of Business  and Public  Policy have  begun a  two-year                                                            
effort to increase the  Department's focus on software security. The                                                            
potential exists for a  Masters of Computer and Information Security                                                            
degree  to  be offered  by  the University  in  partnership  with  a                                                            
program  offered  by  the  National  Security  Agency.  This  degree                                                            
program would "meet a great need in Alaska."                                                                                    
Senator Bunde asked what  profit margin the University receives when                                                            
research  conducted  by  the  University  is used  to  increase  the                                                            
productivity of a business.                                                                                                     
Mr. Case  replied  that he is  advocating an  increased partnership                                                             
between the  University and local  businesses. He referenced  a book                                                            
sponsored by the  National Science Foundation titled,  "Managing the                                                            
Industry:  University   Cooperative  Research  Center"   that  gives                                                            
examples of how  universities could better structure  their industry                                                            
partnerships  to  produce university  revenue.  The  first phase  in                                                            
increasing  partnerships  is to make  the local  business  community                                                            
aware  of the  economic  value  the  University  has to  offer.  The                                                            
University is not yet receiving  profit margins, but as partnerships                                                            
and a structure for those  partnerships are developed in the future,                                                            
the University  will begin  to receive financial  support for  their                                                            
Senator Bunde  responded that the University is "obviously  an asset                                                            
for business."                                                                                                                  
     Page 3                                                                                                                     
     Wealth Generation                                                                                                          
     2. Add value through technology applications                                                                               
        · Master of Computer and Information Security - proposed                                                                
          for Spring 2005 - one of first in US to address this                                                                  
          issue for Information Security Professional training                                                                  
        · Results directly from CIS Department research $1,692,650                                                              
          on cyber-terrorism, internet data security systems, and                                                               
          wireless security                                                                                                     
          Chenega/UAA "DoD Data Management Enterprise Systems"                                                                  
Mr. Case informed  that Chenega Technical  Services received  a task                                                            
from the  federal  Department of  Defense involving  logistics  data                                                            
management. Chenega approached  the University asking for assistance                                                            
with the project, and a partnership was formed.                                                                                 
SFC 04 # 35, Side B 09:52 AM                                                                                                    
Mr.  Case  explained   that  two  University  faculty   members  are                                                            
conducting  research for  the Chenega project.  The faculty  members                                                            
have brought  eight research  students into  the Chenega-University                                                             
partnership.   The   students   are   participating    in   research                                                            
application, and gaining  industry experience while continuing their                                                            
education.   One  of the  students  has begun  a small  business  in                                                            
response to his interaction  with the Chenega project. This business                                                            
start-up is  an example of the "spin-offs"  University and  industry                                                            
partnerships are capable of producing.                                                                                          
Co-Chair Wilken asked if Chenega is a "local" company.                                                                          
Mr.  Case replied  that  Chenega  Technical  Services  is an  Alaska                                                            
Native corporation.                                                                                                             
     Page 4                                                                                                                     
     Wealth Generation                                                                                                          
     3. Build international connections                                                                                         
        · Value of Alaska exports (2001): $2.45B                                                                                
        · Chief trading partners: Japan, Korea, Canada, Germany,                                                                
          China, Mexico, Belgium, Russia                                                                                        
        · International Trade 10% of Alaska's GSP (2001)                                                                        
        · International R&D investment in UAA:                                                                                  
             o $17M Federal (American Russian Center)                                                                           
             o 49,000 SME owners and business leaders trained                                                                   
             o 160 trained in oil/gas project/logistics                                                                         
Mr. Case detailed  the specifics of the American Russian  Center. He                                                            
informed that the American  Russian Center was established after the                                                            
fall  of  the Soviet  Union.  Individuals   who had  lived  under  a                                                            
communist regime  for 80 years were  expected to suddenly  adopt and                                                            
comprehend  a  free-market  economy.  The  American  Russian  Center                                                            
addresses this difficult  transition from communism to a free-market                                                            
economy. The Center has  impacted 49,000 Russian owners and business                                                            
leaders.  These individuals  have been enabled  to enter  productive                                                            
business arrangements  with Alaskans  and others. An additional  160                                                            
Russian  individuals  were  trained  in  oil and  gas  projects  and                                                            
logistics  education  in order  to  work with  Alaskan  oil and  gas                                                            
Senator  Bunde  told  of individuals  traveling   to Russia  at  the                                                            
University's expense, who  proceeded to use their Russian experience                                                            
for  private  business  endeavors.  He  asked about  the  policy  to                                                            
protect  the intellectual  property  and products  developed at  the                                                            
University's expense.                                                                                                           
Mr.  Case responded  that  University  protection policies  must  be                                                            
closely  examined. State  ethics laws contain  restrictions  against                                                            
certain  policy  protections;  however  the  ethics  laws  could  be                                                            
reexamined. The intellectual  property rights of the University need                                                            
to be protected.  Other states have  developed procedures  to foster                                                            
economic   development   while   protecting   their   universities.                                                             
Legislation  is currently  pending that would  amend existing  State                                                            
university policy protection language.                                                                                          
Co-Chair Wilken stated  that the Senate Health, Education and Social                                                            
Services Committee  had recently heard  the legislation referenced,                                                             
and that committee passed the legislation.                                                                                      
     Page 4                                                                                                                     
     Wealth Generation                                                                                                          
     4. Build Local Business Capability                                                                                         
        · SBDC helped 10,500 clients statewide in 2003                                                                          
        · Generated Small Business Innovative Research awards                                                                   
          valued at $768,465 in 2003, and                                                                                       
        · A total of $4,265,734 in federal research and development                                                             
          funds to Alaska businesses                                                                                            
        · Average 12 interns in businesses per semester                                                                         
Mr.  Case spoke  of  the activities  of  the Alaska  Small  Business                                                            
Development   Center  (SBDC).   The  SBDC   is  a  partner   of  the                                                            
University's College of Business and Public Policy.                                                                             
     Page 5                                                                                                                     
     Strategies for Economic Development                                                                                        
     1. Build  Alaska's skilled labor  pool                                                                                     
     2. Meet  business and community  needs                                                                                     
     3. Business  applications of  research                                                                                     
     4. Create Alaska's economic opportunity                                                                                    
     Page 5                                                                                                                     
     Economic Development                                                                                                       
     1. Build Alaska's skilled labor pool                                                                                       
        · 60% of CBPP graduates are employed in Alaska, 75% remain                                                              
          in Alaska                                                                                                             
        · 71.5% of CBPP alumni are residents of Alaska                                                                          
        · CBPP graduates earned a total of $42.0 million in 2002                                                                
Mr. Case spoke  of the achievements  of the College of Business  and                                                            
Public Policy                                                                                                                   
     Page 6                                                                                                                     
     Economic Development                                                                                                       
     2. Meet Business and Community Needs                                                                                       
        · Accounting research on IRS tax violation problems in                                                                  
          rural Alaska let to Volunteer Tax and Loan Program                                                                    
        · Garnered $2,838,318 in refunds for 5,574 people in                                                                    
          villages throughout Alaska                                                                                            
Mr.  Case detailed  the  voluntary income  tax  preparation  program                                                            
conducted by the College  of Business and Public Policy's Accounting                                                            
Department.  The program is  the product  of a research partnership                                                             
with the  federal  Internal Revenue  Service.  The program  research                                                            
discovered  that  tax preparation  in  Alaska's rural  villages  was                                                            
problematic,   and  presented   an  opportunity   for  improvement.                                                             
University faculty  and students travel to these rural  villages and                                                            
prepare income tax returns on a voluntary basis.                                                                                
     Page 6                                                                                                                     
     Economic Development                                                                                                       
     2. Meet Business and Community Needs                                                                                       
        · RFID Tag applications for Alaska business to tap into                                                                 
          rapidly growing $ billion industry                                                                                    
        · Marketing research regarding e-commerce, customer                                                                     
          satisfaction and internet marketing                                                                                   
Mr.  Case  told  of  Radio   Frequency  Identification   (RFID)  tag                                                            
technology.  In October  2003,  the  federal Department  of  Defense                                                            
directed the Department  to begin transferring logistics  and supply                                                            
chain  management  to  RFID  tag  technology.   Wal-Mart  has  since                                                            
required its  primary suppliers to  adopt the RFID system.  RFID tag                                                            
technology  consists of a  small computer  chip, which transmits  an                                                            
active signal  identifying  the tagged object.  RFID allows  sensors                                                            
that have the  ability to monitor the condition of  the object to be                                                            
embedded  into  the  tag.  An example  of  RFID  tag  technology  is                                                            
exhibited  by tagging Copper  River salmon.  RFID can determine  the                                                            
temperature   and  vibrations  the   salmon  has  been  exposed   to                                                            
throughout  the shipping  process, and could  identify and  prohibit                                                            
counterfeit salmon.  Thousands of commercial applications  exist for                                                            
RFID  tag  technology.   In  addition,  many  significant   national                                                            
security applications exist.                                                                                                    
Senator  Bunde asked  how  this product  is  purchased,  and if  any                                                            
protections exist to hinder  an outside party from tracking the RFID                                                            
Mr.  Case replied  that  this  product is  in  the early  stages  of                                                            
development.  The  University needs  to  become involved  with  this                                                            
project early  to ensure that the  defense uses would be  compatible                                                            
with commercial  use. Many ethical, moral and safety  considerations                                                            
are introduced with the use of this product. .                                                                                  
     Page 7                                                                                                                     
     Economic Development                                                                                                       
     3. Business applications of research                                                                                       
        · Experimental Economics Laboratory through Rasmussen                                                                   
          Foundation and corporate support for empirical economic                                                               
        · Nobel laureate Vernon L. Smith working with faculty and                                                               
          industry to address problems of interest in resource                                                                  
          management and property valuation                                                                                     
Mr. Case detailed the University's  experimental economics research.                                                            
The University  has extended  its relationship  with Nobel  laureate                                                            
Vernon L. Smith  through funding from the Rasmussen  Foundation. The                                                            
University  is also in the process  of establishing an experimental                                                             
economics laboratory.                                                                                                           
     Page 7                                                                                                                     
     Economic Development                                                                                                       
     3. Business applications of research                                                                                       
        · Business Enterprise Institute partners with businesses to                                                             
          commercialize technology and meet business training and                                                               
          research needs.                                                                                                       
        · Provided opportunities for student research and spin-off                                                              
          business development                                                                                                  
Mr. Case restated the importance  of forming University partnerships                                                            
with local  businesses, and  highlighted the  central role  business                                                            
education plays in achieving those connections.                                                                                 
Mr. Case  thanked the  State legislature  for supporting  University                                                            
Senator Olson asked the  significance of the administrative costs of                                                            
conducting research in the State of Alaska.                                                                                     
Mr. Gorman  explained  that the  University negotiates  an  indirect                                                            
cost rate with  the federal government. This rate  is added onto the                                                            
cost of research.  Currently the rate established  with the State is                                                            
25-percent,  and  the rate  for federal  research  is approximately                                                             
twice the State rate, or 50-percent.                                                                                            
Senator Olson understood  that requests for State conducted research                                                            
have been inhibited  because of high administrative  costs in excess                                                            
of 25-percent.  The administrative costs of research  in the private                                                            
industry are as low as ten-percent.                                                                                             
Mr.  Gorman  clarified   that  administrative  research   costs  are                                                            
comparable  between  the State  and  the  private sector.  The  ten-                                                            
percent referenced  is typically a fee, not an administrative  cost.                                                            
The University  does  not require  fees for  research. The  indirect                                                            
cost rates  the University  establishes with  the State and  federal                                                            
governments  are  no different  than  the  administrative  costs  of                                                            
private industry.                                                                                                               
Senator  Olson asked  if a representative  from  the private  sector                                                            
would agree with Mr. Gorman's statements.                                                                                       
Mr. Gorman answered, "If he was an honest man he would."                                                                        
Co-Chair  Wilken commented  that natural resources  such as  oil and                                                            
gas,  gold and  coal,  are commonly  identified  as  strong  revenue                                                            
sources, but University  research as an economic enterprise is often                                                            
AT EASE 10:07 AM / 10:13 AM                                                                                                     
     SENATE BILL NO. 273                                                                                                        
     "An  Act relating to  the Alaska Seafood  Marketing  Institute,                                                            
     the seafood  marketing assessment,  the seafood marketing  tax,                                                            
     and  the seafood product  tax; and providing  for an  effective                                                            
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Co-Chair  Wilken  stated  this  bill,  sponsored   by  Senator  Gary                                                            
Stevens,  "reduces   the  size  of  the  Alaska  Seafood   Marketing                                                            
Institute  (ASMI) Board of  Directors from  25 members to nine,  and                                                            
changes ASMI's  tax structure to raise approximately  $2.8 million."                                                            
Co-Chair  Green moved for  adoption of CS  SB 273, 23-LS1366\E  as a                                                            
working document.                                                                                                               
Without objection the committee  substitute was ADOPTED as a working                                                            
SENATOR  GARY  STEVENS  stated  that the  Joint  Salmon  Task  Force                                                            
discussed the issues in  this bill. The two main issues that need to                                                            
be  addressed  within  ASMI  are  the  size of  the  ASMI  Board  of                                                            
Directors and the tax structure.  This legislation brings ASMI "into                                                            
the 21st century". This  bill would reduce the Board of Directors to                                                            
seven or  nine members. A  taxing structure  must be established  to                                                            
pay  for industry  marketing.  ASMI is  the only  organization  that                                                            
broadly  markets  Alaskan  seafood  products.  A  trigger  mechanism                                                            
exists within  this bill, which would allow the fishing  industry to                                                            
determine the  level of taxation they are willing  to accept to fund                                                            
ASMI.  Currently,   a  one-percent   salmon  fisherman  tax   and  a                                                            
processors' tax are in  place. This bill would require a vote of the                                                            
processors, based  on their value, to determine the  tax; a majority                                                            
vote  would be  required to  implement  a tax rate.  The  processors                                                            
could decide to impose  a 0.5-percent tax, maintain the current 0.3-                                                            
percent tax, or they could  opt out of the tax entirely. If the 0.5-                                                            
percent tax  were adopted  the Board of Directors  would have  seven                                                            
members,  and if the  0.5-percent  tax were  rejected two  fishermen                                                            
would  be  added  to the  Board  of  Directors  bringing  the  total                                                            
membership to nine.                                                                                                             
[Note:  in this paragraph  Senator  G. Stevens'  references to  ASMI                                                            
relate specifically  to the seafood  marketing assessment  component                                                            
of ASMI.] Senator G. Stevens  furthered that a determination must be                                                            
made whether  rational  exists to  continue ASMI.  He expressed  his                                                            
support of ASMI, but emphasized  that the processors should be given                                                            
the opportunity  to determine  whether they  want ASMI to  continue.                                                            
The processors  would  then be given  the opportunity  to decide  if                                                            
they want to  keep the current 0.3-percent  tax, terminate  the tax,                                                            
or increase the tax to 0.5-percent.                                                                                             
Senator  G.  Stevens  indicated   that  with  the  adoption  of  the                                                            
committee substitute, the fiscal note would become zero.                                                                        
Co-Chair Green  asked if a revised fiscal note has  been prepared to                                                            
the committee substitute.                                                                                                       
Senator  G. Stevens  answered an updated  fiscal  note has not  been                                                            
prepared, but  noted a representative  of the Department  of Revenue                                                            
is present to address the matter.                                                                                               
Co-Chair Wilken shared  that members of the Committee have requested                                                            
that this  legislation  be held in  Committee until  they can  fully                                                            
review the  committee substitute.  An updated  fiscal note  could be                                                            
presented at the next Committee hearing of this bill.                                                                           
Co-Chair Green  also requested an updated sectional  analysis of the                                                            
committee substitute.                                                                                                           
Senator G. Stevens  clarified that significant changes  were made to                                                            
this legislation in the committee substitute.                                                                                   
Co-Chair Green  cited the original  sectional analysis and  asked if                                                            
the committee  substitute would require  that an appropriation  from                                                            
seafood  marketing  tax  receipts  not be  made  using unrestricted                                                             
general funds.                                                                                                                  
Senator  G. Stevens  replied  that the  committee  substitute  would                                                            
involve no general fund spending.                                                                                               
Senator B.  Stevens thanked  Senator G. Stevens  for his efforts  on                                                            
this issue.                                                                                                                     
Senator  B.   Stevens  emphasized   the  need  to  inform   industry                                                            
participants that  while the election would determine  the amount of                                                            
the  landing  tax, revenues  from  the  tax would  be  utilized  for                                                            
marketing the entire seafood  industry, and not just salmon. Concern                                                            
existed that  the a few processors  would dictate the tax  structure                                                            
for  the  entire  seafood  industry.  This  concern  is unwarranted                                                             
because though  there are a limited  number of salmon processors,  a                                                            
large number of other seafood processors exist.                                                                                 
Co-Chair  Wilken addressed  Senator Hoffman  and Senator Olson,  and                                                            
asked  them when  they  would be  prepared to  take  action on  this                                                            
Senator Olson  replied they would be prepared to take  action by the                                                            
next  regularly scheduled  Committee  meeting in  approximately  two                                                            
Co-Chair Wilken ordered the bill HELD in Committee.                                                                             
     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 second  hearing for  this bill in  the Senate  Finance                                                            
Co-Chair  Wilken stated  this bill  "makes an  appropriation to  the                                                            
Department of  Revenue for the analysis and design  of a natural gas                                                            
JOE BALASH, Staff  to Senator Gene Therriault, recalled  discussions                                                            
at the  previous hearing  about the  language of  Section 1  of this                                                            
bill. Senator  Therriault had asked that the language  be relatively                                                            
broad to allow the Department  of Revenue the flexibility to work on                                                            
gas line issues extending  beyond the Alaska Natural Gas Development                                                            
Authority  (ANGDA).   In  a  previous  hearing  the  Committee   had                                                            
questioned the appropriation  lapse date of 2009. Senator Therriault                                                            
is willing  to adjusting the lapse  date to 2005, as it is  expected                                                            
that the Department of  Revenue would complete the analysis provided                                                            
for in this bill by FY 05.                                                                                                      
Mr. Balash stated  for the record that the ANGDA Board  of Directors                                                            
endorsed the  appropriation this bill  would provide the  Department                                                            
of Revenue and passed a resolution, which reads the following.                                                                  
     The  Board of  the  Alaska Natural  Gas  Development  Authority                                                            
     supports  the appropriation  of  three million  dollars in  the                                                            
     remainder  of  FY 04  to the  Department  of Revenue  for  work                                                            
     related to bringing North Slope gas to market.                                                                             
STEVEN   PORTER,  Deputy   Commissioner,   Department  of   Revenue,                                                            
testified  via  teleconference   from  Anchorage  and  referenced  a                                                            
spreadsheet  titled, "Projected Gas  Budget for FY 04 and  05" [copy                                                            
on  file]. He  reviewed  the  spreadsheet.  He explained  that  even                                                            
though  the  spreadsheet  outlines   total  project  costs  of  $3.7                                                            
million, the Department  of Revenue is only requesting three million                                                            
dollars because  certain contracts may not occur,  and reimbursement                                                            
agreements  may  be  obtained  for  the  remaining   contracts.  The                                                            
Stranded  Gas Act  contemplates  the  possibility of  negotiating  a                                                            
reimbursement  agreement  with  a  party,  but does  not  require  a                                                            
reimbursement.  In addition, certain aspects of the  contracts, such                                                            
as in-state gas use, certain  State research, and social impacts may                                                            
be standard  in all three contracts.  ANGDA would benefit  from much                                                            
of the study work completed on the applications.                                                                                
Senator Hoffman  asked why  the lapse date  for this legislation  is                                                            
2009  instead   of  2005  considering   the  appropriation   to  the                                                            
Department of Revenue would be expended in FY 05.                                                                               
Mr. Porter  expressed willingness  to shorten the lapse date  to the                                                            
year 2005, although the  speed in which the negotiations would occur                                                            
could not be  predicted. The intent  is to complete negotiations  by                                                            
the end of fiscal year 2005.                                                                                                    
HAROLD  HEINZE,   Chief  Executive   Officer,  Alaska  Natural   Gas                                                            
Development Authority,  testified via teleconference  from Anchorage                                                            
that this legislation  has evolved  to combine funds to address  all                                                            
natural gas  projects and issues.  The funds requested through  this                                                            
legislation  would be utilized  to accomplish  all the goals  of the                                                            
Authority; the work to  be completed by ANGDA would focus on ANGDA's                                                            
business structure, financial  structure and tax status. This effort                                                            
is important  because ANGDA  might play a  roll in working  with the                                                            
projects detailed in this  legislation, and become an aggregator for                                                            
local utilities  in the State. ANGDA  must have an understanding  of                                                            
its business  standing and  structure because  it could be  handling                                                            
large financial transactions in the future.                                                                                     
Mr.  Heinze added  that  ANGDA  has requested  funds  in  the FY  05                                                            
operating  budget for the  ANGDA staff, the  Board of Directors  and                                                            
other administrative  functions totaling  approximately $200,000  to                                                            
$250,000. The  majority of the projects  ANGDA has contemplated  are                                                            
included  in   the  comparative  analysis   provided  for   in  this                                                            
legislation. The State  has a series of important issues to consider                                                            
in  negotiating  a gas  pipeline  project  such as  cost  estimates,                                                            
tariff  calculations,  benefits  and markets.  This  analysis  would                                                            
provide   ANGDA   with  information   vital   to   the  feasibility                                                             
determination,  and would  determine  what interaction  ANGDA  might                                                            
have with  the other applicants.  Lastly,  this analysis would  aide                                                            
ANGDA in documenting  the benefits North Slope gas  would provide to                                                            
the State.                                                                                                                      
Mr. Heinze indicated  that the ANGDA Board was aware  ANGDA would be                                                            
considered  with  three  other  applicants   in  the  analysis  this                                                            
legislation  would provide.  Though  this analysis  would not  grant                                                            
ANGDA  an ideal  level of  funding;  by participating,  ANGDA  would                                                            
obtain  information  necessary  to  fulfill  the  role  intended  by                                                            
Senator B. Stevens  asked if the port authority contract  is a valid                                                            
Mr.  Porter   replied   that  the   State  is   still  making   that                                                            
Senator B.  Stevens referenced the  "Projected Gas Budget  for FY 04                                                            
and 05" spreadsheet  and asked why  no expenses are planned  for the                                                            
negotiation  of a  contract  with the  MidAmerican  Energy  Holdings                                                            
Company  in   FY  05.  He  asked   if  the  Department  anticipates                                                             
reimbursement for expenses incurred in this effort.                                                                             
Mr. Porter  responded  that MidAmerican's  intent  is to complete  a                                                            
contract before the end of FY 04.                                                                                               
Senator  B. Stevens  suggested that  the funds requested  for  FY 04                                                            
expenditures  be included  in a supplemental  appropriation  and the                                                            
funds requested  for FY  05 expenditures  be included  in the  FY 05                                                            
operating budget.                                                                                                               
Amendment #1: This amendment  reduces the general fund appropriation                                                            
from $3 million to $2 million  to the Department of Revenue for work                                                            
related to bringing  natural gas from the North Slope  to market, on                                                            
page 1, line 4 of the committee substitute.                                                                                     
Senator B. Stevens moved for adoption.                                                                                          
Co-Chair Wilken objected for an explanation.                                                                                    
Senator B. Stevens  affirmed that there is an immediate  need for an                                                            
appropriation  of one million dollars to the Department  of Revenue,                                                            
but there  is not  an immediate  need for the  FY 05 appropriation.                                                             
Including  the FY  05 expenditures  in  the FY 05  operating  budget                                                            
would allow the  State time to determine whether the  port authority                                                            
contract  is valid and provide  a more complete  explanation  of the                                                            
expenditures outlined  in the "Comparative Analysis/Energy  Bill and                                                            
Other Proposals/Issues"  spreadsheet.  Ample time exists  to address                                                            
these appropriations,  and include  them in the standard  government                                                            
budget process.                                                                                                                 
Senator  Hoffman  asked if  Senator  B. Stevens  would  also  change                                                            
Section 2 of the committee substitute.                                                                                          
Senator  B. Stevens  stated that  if Amendment  #1  were adopted  he                                                            
would consider  offering an  amendment to change  the lapse  date of                                                            
the appropriation from 2009 to 2005.                                                                                            
Co-Chair Wilken  clarified that if  Amendment #1 passes one  million                                                            
dollars would  be offered as a supplemental  amendment to  the FY 04                                                            
operating budget.                                                                                                               
Senator B.  Stevens replied that if  this legislation is  adopted it                                                            
would take  affect immediately.  Sufficient  time exists to  include                                                            
the FY 04 expenditures  in the supplemental  amendment to  the FY 04                                                            
operating  budget and make  that funding  available upon passage  of                                                            
this bill. Additionally,  if this amendment passes the lapse date of                                                            
this appropriation  would need to be adjusted to 2005  to coordinate                                                            
with the second and last appropriation in FY 05.                                                                                
Co-Chair  Wilken asked  how  the additional  $2.7  million would  be                                                            
appropriated if it were considered necessary.                                                                                   
Senator B.  Stevens responded that  an allocation would be  included                                                            
in the FY 05 operating budget.                                                                                                  
Co-Chair  Wilken  clarified  that  these  funds  would  need  to  be                                                            
included in the calculations  of the existing FY 05 operating budget                                                            
Senator B. Stevens remarked  that the Department of Revenue would be                                                            
required  to justify  the need  for the  expenditure  and the  funds                                                            
would then  be appropriated through  the FY 05 operating  budget. In                                                            
using  the  traditional  budget process  to  appropriate  funds  the                                                            
legislature would  be following the directives of  the Office of the                                                            
Senator Bunde  spoke in favor of the amendment. He  acknowledged the                                                            
legitimacy  of ANGDA, but  noted that for  twelve years people  have                                                            
complained  of "too much  government, too  much bureaucracy  and too                                                            
much spending". The State  has put significant amounts of money into                                                            
the promotion  of private enterprise without receiving  any positive                                                            
return.  The amount  of funds  expended  for this  effort should  be                                                            
minimized because a positive  return is unlikely. An FY 05 operating                                                            
budget allocation should not be granted.                                                                                        
Senator Hoffman also supported  the amendment because it would allow                                                            
time   for   additional   scrutiny   of   the   appropriation.   The                                                            
documentation  is  minimal, and  a discrepancy  exists  between  the                                                            
costs  projected by  the Department  of  Revenue  and the  requested                                                            
appropriation.  One  million  dollars  should  be adequate  to  meet                                                            
ANGDA's need for immediate funding.                                                                                             
A roll call was taken on the motion.                                                                                            
IN FAVOR: Senator Olson,  Senator B. Stevens, Senator Bunde, Senator                                                            
Hoffman, and Co-Chair Green                                                                                                     
OPPOSED: Co-Chair Wilken                                                                                                        
ABSENT: Senator Dyson                                                                                                           
The motion PASSED (5-1-1)                                                                                                       
The amendment was ADOPTED.                                                                                                      
Amendment  #2:  This  amendment   changes  the  lapse  date  of  the                                                            
appropriation  made in this legislation  from June 30, 2009  to June                                                            
30,  2005,  in  Section  2  on page  1,  line  7  of  the  committee                                                            
Senator B. Stevens moved for adoption.                                                                                          
Co-Chair Wilken objected for an explanation.                                                                                    
Senator  B. Stevens asserted  that 16  to 18 months  is an  adequate                                                            
amount of time to complete  negotiations. Furthermore, the Authority                                                            
would have an opportunity  to request additional funds if necessary.                                                            
SFC 04 # 36, Side A 10:46 AM                                                                                                    
Senator B.  Stevens continued  that this  project might be  ongoing.                                                            
Rather  than making  a fund  source available  for  five years,  the                                                            
legislature  should review  and appropriate  funds  as needed  on an                                                            
annual basis.                                                                                                                   
Co-Chair Wilken withdrew his objection.                                                                                         
The amendment was ADOPTED without objection.                                                                                    
PAUL  FUHS, Backbone2,  explained  the organization  he represents.                                                             
Backbone2  is the continuation  of Backbone1,  which was a  group of                                                            
Alaskan  citizens  that spoke  against  BP's  efforts  to take  over                                                            
ARCO's assets in Alaska,  and of the concerns over the monopoly that                                                            
that takeover would create.  Backbone2 is a nonpartisan organization                                                            
whose  membership includes  former  governors,  former legislators,                                                             
current legislators, and  Alaskan citizens who are in support of the                                                            
"expeditious  development"   of a  gas  pipeline.  Backbone2  is  in                                                            
support  of SB  241. Mr.  Fuhs thanked  Senator  Therriault for  his                                                            
political leadership and  for respecting the gas pipeline issues the                                                            
voters supported in the last statewide election.                                                                                
Mr. Fuhs asserted  that decisions  made on gas pipeline development                                                             
are very  important to the  economy of the  State. He referred  to a                                                            
document   prepared  by   Backbone2  titled,   "Alaska's   Strategic                                                            
Interests  in  North Slope  Gas  Development"  [copy on  file],  and                                                            
defined  it as  a fair, and  complex  statement of  the State's  gas                                                            
pipeline  issues. He stated  that much  economic misinformation  has                                                            
been intentionally  disseminated regarding the gas  pipeline project                                                            
proposals.  In  conducting   the  proposed  gas  pipeline   contract                                                            
analysis  ANGDA and  the Department  of  Revenue  would confirm  the                                                            
actual economic  impacts of the various gas pipeline  contracts. The                                                            
gas pipeline  would be "the long term  fiscal plan for Alaska."  The                                                            
State revenues  Governor Murkowski envisioned as result  of resource                                                            
development can  only be achieved through the construction  of a gas                                                            
pipeline;  there are  no resource  development  projects that  could                                                            
produce greater  State revenue. Two  independent investment-banking                                                             
firms  have  determined  that ANGDA's  gas  pipeline  project  could                                                            
produce annual  revenues of up to one billion dollars  for the State                                                            
of Alaska. ANGDA's gas  pipeline proposal takes the best interest of                                                            
the  State  and  its citizens   into consideration,   whereas  other                                                            
project applicants  are asking for more concessions  from the State.                                                            
Mr. Fuhs asserted  that the "government  should only do things  when                                                            
the private  sector cannot."  The State has  waited for the  private                                                            
sector to  build a  gas pipeline for  thirty years,  and it  is time                                                            
that   the   government   takes   action,   especially   given   the                                                            
"dysfunctional"  relationships   that  have  developed  between  the                                                            
companies operating  on the North  Slope. MidAmerican has  offered a                                                            
serious gas pipeline  project proposal; a partnership  between ANGDA                                                            
and MidAmerican could prove successful.                                                                                         
Mr. Fuhs emphasized  the organization's support of  this legislation                                                            
and Amendment #1.                                                                                                               
Mr.  Porter  informed that  the  Department  of  Revenue  frequently                                                            
authorizes projects  one year before the necessary  funding would be                                                            
available.  However,  these  gas pipeline  contracts  could  not  be                                                            
authorized until  funding is received. Amendment #1  would delay the                                                            
Department  in  granting contracts.  He  requested  that  additional                                                            
funds be made available to the Department of Revenue in FY 04.                                                                  
Co-Chair  Wilken  pointed out  that  further consideration  of  this                                                            
matter could be  undertaken when this bill is heard  in the House of                                                            
Representatives.  He clarified  that Senator  B. Stevens' intent  in                                                            
proposing  Amendment  #1 was  to isolate  FY 04  expenditures,  both                                                            
expenses and encumbrances.                                                                                                      
Mr. Porter  replied he  would provide the  necessary information  to                                                            
Senator B. Stevens.                                                                                                             
Co-Chair Green  offered a motion to  report the bill from  Committee                                                            
as amended with individual recommendations.                                                                                     
There was no objection and CS SB 241 (FIN) MOVED from Committee.                                                                
Co-Chair Gary Wilken adjourned the meeting at 10:57 AM                                                                          

Document Name Date/Time Subjects