Legislature(2003 - 2004)

05/06/2004 08:05 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                              MINUTES                                                                                         
                     SENATE FINANCE COMMITTEE                                                                                 
                           May 06, 2004                                                                                       
                              8:05 AM                                                                                         
                                                                                                                                
                                                                                                                                
TAPES                                                                                                                       
                                                                                                                                
SFC-04 # 109, Side A                                                                                                            
SFC 04 # 109, Side B                                                                                                            
                                                                                                                                
CALL TO ORDER                                                                                                               
                                                                                                                                
Co-Chair Gary Wilken convened  the meeting at approximately 8:05 AM.                                                            
                                                                                                                                
PRESENT                                                                                                                     
                                                                                                                                
Senator Lyda Green, Co-Chair                                                                                                    
Senator Gary Wilken, Co-Chair                                                                                                   
Senator Con Bunde, Vice Chair                                                                                                   
Senator Fred Dyson                                                                                                              
Senator Ben Stevens                                                                                                             
Senator Lyman Hoffman                                                                                                           
Senator Donny Olson                                                                                                             
                                                                                                                                
Also Attending:  REPRESENTATIVE NORM  ROKEBERG; REPRESENTATIVE  MIKE                                                          
CHENAULT; JANET  SEITZ, Staff to Representative Norm  Rokeberg; RUTH                                                            
BLACKWELL,  Realtor   and  Representative,  Alaska  Association   of                                                            
Realtors; PAT  DAVIDSON, Director,  Legislative Budget &  Audit; BOB                                                            
BARTHOLOMEW,   Chief  Operating  Officer,   Alaska  Permanent   Fund                                                            
Corporation,   Department   of  Revenue;   STEVER   PORTER,   Deputy                                                            
Commissioner, Office of the Commissioner, Department of Revenue                                                                 
                                                                                                                                
Attending  via Teleconference:  From  Anchorage:  CHARLES  SANDBERG,                                                          
Realtor, and Representative,  Alaska Association of Realtors; HAROLD                                                            
HEINZE,  CEO, Alaska  Natural  Gas Development  Authority;  From  an                                                            
Offnet  Site: DAVE  OWENS, Owner,  Owens Inspection  Services;  From                                                            
Kenai:  BILL POPP,  Oil  and Gas  Liaison  for the  Kenai  Peninsula                                                            
Borough                                                                                                                         
                                                                                                                                
                                                                                                                                
SUMMARY INFORMATION                                                                                                         
                                                                                                                                
HB 418-REAL ESTATE COM'N/LICENSEE/HOME INSPECT                                                                                  
                                                                                                                                
The committee  heard from the sponsor  and the real estate  and home                                                            
inspector  industry.  Four  amendments  were  adopted and  the  bill                                                            
reported from Committee.                                                                                                        
                                                                                                                                
HB 417-AK NATURAL GAS DEV. AUTHORITY INITIATIVE                                                                                 
                                                                                                                                
The Committee heard from the sponsor, the Department of Natural                                                                 
Resources, and the industry. The bill was reported from Committee.                                                              
                                                                                                                                
HJR 26-CONST. AM: PF APPROPS/INFLATION-PROOFING                                                                                 
                                                                                                                                
The Committee heard from the Department of Revenue and reported the                                                             
bill from Committee.                                                                                                            
                                                                                                                                
HB 15-SOLICITATIONS/CONSUMER PROTECTION                                                                                         
                                                                                                                                
This bill was scheduled but not heard.                                                                                          
                                                                                                                                
HB 422-BUDGET RESERVE FUND INVESTMENT                                                                                           
                                                                                                                                
This bill was scheduled but not heard.                                                                                          
                                                                                                                                
HB 494-ELECTRONIC PAYMENT FOR STATE BUSINESS                                                                                    
                                                                                                                                
This bill was scheduled but not heard.                                                                                          
                                                                                                                                
HB 514-CHILD SUPPORT ENFORCEMENT/ CRIMES                                                                                        
                                                                                                                                
This bill was scheduled but not heard.                                                                                          
                                                                                                                                
HB 545-STATE REAL PROPERTY LEASE EXTENSIONS                                                                                     
                                                                                                                                
This bill was scheduled but not heard.                                                                                          
                                                                                                                                
HB 559-STEP PROGRAM CONTINUANCE                                                                                                 
                                                                                                                                
This bill was scheduled but not heard.                                                                                          
                                                                                                                                
                                                                                                                                
     SENATE CS FOR CS FOR HOUSE BILL NO. 418(L&C)                                                                               
     "An  Act extending  the  termination  date of  the Real  Estate                                                            
     Commission;   relating  to  real   estate;  relating   to  home                                                            
     inspectors;  relating to real  estate licensees; and  providing                                                            
     for an effective date."                                                                                                    
                                                                                                                                
                                                                                                                                
This was the first hearing for this bill in the Senate Finance                                                                  
Committee.                                                                                                                      
                                                                                                                                
Co-Chair Wilken stated  that this bill, SCS CS HB 418 (L&C), Version                                                            
23-LS1548\Q,  is sponsored by the  House Labor & Commerce  Committee                                                            
and Representative  Norm Rokeberg  and would extend the Real  Estate                                                            
Commission until June 30,  2008. In addition, he noted that the bill                                                            
would further  clarify the State's Home Inspector  law. He specified                                                            
that a Department of Community  and Economic Development fiscal note                                                            
accompanies the bill.                                                                                                           
                                                                                                                                
JANET  SEITZ, Staff  to  Representative  Norm Rokeberg,  the  bill's                                                            
sponsor, informed  the Committee that  in addition to extending  the                                                            
life of  the Real  Estate Commission  until  2008, this legislation                                                             
would clarify  existing  procedures regarding  real estate  licenses                                                            
and  notice procedures  as  recommended in  the Alaska  Division  of                                                            
Legislative  Audit, Audit  Digest #08-20023-03  [copy on file].  She                                                            
explained  that this  bill  would also  change language  to  address                                                            
issues  arising  from  the enactment  of  the  2003  Home  Inspector                                                            
legislation,  HB  9,  as  recommended  by  the  Regulation   Writing                                                            
Procedure and the Home Inspector industry.                                                                                      
                                                                                                                                
RUTH BLACKWELL,  Realtor and Representative,  Alaska Association  of                                                            
Realtors,  informed the  Committee  that the  Alaska Association  of                                                            
Realtors  (AAR)  supports  extending the  life  of the  Real  Estate                                                            
Commission. On another  matter, she pointed out that AAR is in favor                                                            
of a forthcoming amendment  that would reduce the real estate surety                                                            
fund award  to a claimant  from the $20,000  level specified  in the                                                            
Senate Labor  & Commerce  (L&C) version of  the bill to its  current                                                            
level of $10,000.                                                                                                               
                                                                                                                                
Co-Chair Wilken asked which  amendment would address the surety bond                                                            
issue.                                                                                                                          
                                                                                                                                
Ms.  Seitz responded  that  it  would be  addressed  in forthcoming                                                             
Amendment #3.                                                                                                                   
                                                                                                                                
Ms. Blackwell  explained that  with the exception  of the year  2003                                                            
when the number  of surety claims amounted to fourteen,  the average                                                            
number of claims  has been three or  five claims a year.  She stated                                                            
that during  her most recent  tenure as a  Board member of  the Real                                                            
Estate Commission, it was  noted that few surety claim hearings were                                                            
heard due to the fact that  the Commission has limited access to the                                                            
lone  surety  fund  hearing  officer, who  is  shared  with  another                                                            
entity. She stated  that AAR recommends that the Committee  continue                                                            
the $10,000  surety bond level  and allow time  for a process  to be                                                            
developed  to "fix the  system so  that the public  is served."  She                                                            
argued that  increasing the surety  bond to $20,000 would  result in                                                            
an increase in  the number of claims filed which would  escalate the                                                            
problem regarding the scheduling of hearings.                                                                                   
                                                                                                                                
Ms. Blackwell informed  the Committee that AAR has, in place for its                                                            
members,  a  mediation,  arbitration,  and  professional   standards                                                            
hearing system that has  conducted 60 hearings within the last year.                                                            
She  voiced optimism  that  some manner  of processing  hearings  to                                                            
better serve  the public  could be developed  through a cooperative                                                             
effort  between the  Commission,  the  Department of  Community  and                                                            
Economic Development, and the AAR.                                                                                              
                                                                                                                                
Co-Chair Wilken  stated that when  Amendment #3 is discussed,  AAR's                                                            
support of it would be noted.                                                                                                   
                                                                                                                                
Senator  Dyson asked  whether  AAR supports  the  licensing of  home                                                            
inspectors.                                                                                                                     
                                                                                                                                
Ms. Blackwell affirmed that it does.                                                                                            
                                                                                                                                
Senator  Dyson asked  the  methodology  used by  AAR  to reach  this                                                            
conclusion.                                                                                                                     
                                                                                                                                
Ms. Blackwell  explained that  AAR conducted  a poll of its  various                                                            
boards  and that information  was  provided to  the AAR Legislative                                                             
Committee,  which consists of a minimum  of one member from  each of                                                            
the other AAR  boards. She noted that AAR has monitored,  discussed,                                                            
and  provided   input  regarding   the  Home   Inspector  bill   for                                                            
approximately four years.                                                                                                       
                                                                                                                                
Senator Dyson  asked whether  99 percent or  60 percent of  realtors                                                            
support the licensing of Home Inspectors.                                                                                       
                                                                                                                                
Ms. Blackwell  responded that  the answer would  depend on  the area                                                            
being polled as,  she disclosed, the City and Borough  of Juneau and                                                            
several other  communities in the State do not have  either licensed                                                            
or  unlicensed home  inspectors.  She  commented that,  Juneau,  for                                                            
instance, instead  utilizes licensed engineers as,  she noted, it is                                                            
felt  that  "their  license  was better  than  ours."  However,  she                                                            
disclosed that access to  licensed inspectors would be acceptable as                                                            
their  service would  be  less expensive  than  that  of a  licensed                                                            
engineer.  In summary,  she  surmised  that a  minimum of  75 to  80                                                            
percent  of  the  Association's   members  support  licensing   Home                                                            
Inspectors.                                                                                                                     
                                                                                                                                
CHARLES SANDBERG, Realtor  and Representative, Alaska Association of                                                            
Realtors, testified via  teleconference from Anchorage, and informed                                                            
the Committee  that he,  a realtor  for 17 years,  was formerly  the                                                            
National  Director of the  National Association  of Realtors  and is                                                            
currently a  member of the Professional  Standards Committee  on the                                                            
national, State,  and local Anchorage  Board and Association  level.                                                            
He  also disclosed  that  he is  an arbitrator  on  the AAR  Hearing                                                            
Panel.  This panel,  he  shared, is  a  very effective  system  that                                                            
resolves disputes  between both consumers and consumers  and between                                                            
consumers and realtor members.  He stated that the AAR Hearing Panel                                                            
is less expensive  to operate and is more efficient  system than the                                                            
system  utilized  by the  Commission  and, in  addition,  has a  95-                                                            
percent resolution  history. In contrast, he avowed  that the Surety                                                            
Fund claim process is slow  and resolves less than 10 percent of the                                                            
claims that  are filed. He stated  that none of the fourteen  Surety                                                            
Fund claims that  were filed in 2003 were heard, as  compared to the                                                            
AAR  process   in  which  60  claims   were  filed  and   processed.                                                            
Furthermore,  he noted  that the  AAR system  usually addresses  and                                                            
resolves disputes  in two to four months; whereas,  the Commission's                                                            
hearing  system process  might require  several  years. Echoing  Ms.                                                            
Blackwell's comments,  he urged that the Surety Fund  claim limit be                                                            
rolled back,  via Amendment #3, from  $20,000 to $10,000,  and allow                                                            
the appropriate  parties to  review and determine  a more  effective                                                            
manner through which to deal with the issues.                                                                                   
                                                                                                                                
Amendment  #1: This  amendment inserts  new bill  sections into  the                                                            
bill  on page two,  following  line 20.  The new  language reads  as                                                            
follows.                                                                                                                        
                                                                                                                                
     Sec. 3. AS 08.18.071(a) is amended to read:                                                                                
          (a) Except as provided in (d) and (e) of this section,                                                                
     each  [EACH] applicant  shall, at  the time  of applying  for a                                                            
     certificate  of  registration,  file  with the  commissioner  a                                                            
     surety   bond  running   to  a  state   conditioned  upon   the                                                            
     applicant's promise to pay all                                                                                             
                (1) taxes and contributions due the state and                                                                   
     political subdivisions;                                                                                                    
                (2) persons furnishing labor or material or renting                                                             
     or supplying equipment to the applicant; and                                                                               
                (3) amounts that may be adjudged against the                                                                    
     applicant by reason  of negligent or improper work or breach of                                                            
     contract  in the conduct  of the contracting  business  or home                                                            
     inspection  activity, as applicable, or by reason  of damage to                                                            
     public  facilities occurring  in the  course of a construction                                                             
     project.                                                                                                                   
     Sec. 4. AS  08.18.071 is amended by adding a  new subsection to                                                            
     read:                                                                                                                      
          (d) A general contractor or specialty contractor who is                                                               
     in compliance  with the surety bond or deposit  requirements of                                                            
     (a)  and (b) of this  section is not  required to file  another                                                            
     surety  bond or increase a deposit  with the commissioner  when                                                            
     the general contractor  or specialty contractor applies to be a                                                            
     registered  home inspector. However, if the general  contractor                                                            
     or  specialty  contractor  subsequently  is neither  a  general                                                            
     contractor  nor  a  specialty  contractor  and becomes  only  a                                                            
     registered  home inspector, the home inspector  shall provide a                                                            
     surety  bond or deposit in lieu  of the bond in the  manner and                                                            
     amount  required  for  registered home  inspectors  under  this                                                            
     section.                                                                                                                   
          (e) An applicant for, or holder of, a certificate of                                                                  
     registration  as a home inspector  may, in lieu of filing  with                                                            
     the  commissioner  a  surety bond  or  deposit that  meets  the                                                            
     requirements  of this  section, file  evidence satisfactory  to                                                            
     the  commissioner   that  the   applicant  is  employed   by  a                                                            
     registered home inspector  who is in compliance with the surety                                                            
     bond or deposit requirements of this section.                                                                              
                                                                                                                                
Co-Chair Green moved to adopt Amendment #1.                                                                                     
                                                                                                                                
Co-Chair Wilken objected for explanation.                                                                                       
                                                                                                                                
Co-Chair Green  noted that one issue not resolved  by the passage of                                                            
HB 9, was how to deal with  home inspectors who are not employees of                                                            
a  city  or borough   and who  conduct  the  majority  of  the  home                                                            
inspections.                                                                                                                    
                                                                                                                                
Co-Chair Green informed  the Committee that by restoring some of the                                                            
original  language pertaining  to home inspections,  the  amendments                                                            
she  would  be  offering  today  would  assist  in  alleviating  the                                                            
unintended consequences resulting from the passage of HB 9.                                                                     
                                                                                                                                
Co-Chair Green  stated that Amendment #1 "would correct"  provisions                                                            
established  by   HB9  that  require  each  home  inspector   to  be                                                            
individually  licensed,  to provide  a surety  bond, and  to have  a                                                            
general  liability   insurance  policy.   These  requirements,   she                                                            
continued,  require an individual  to acquire "multiple bonding  and                                                            
insurance requirements"  in such situations as when a home inspector                                                            
business owner  employs one or more persons who are  also registered                                                            
home inspectors,  or  when a general  or specialty  contractor  also                                                            
wishes  to   be  a  registered  home   inspector.  She  voiced   the                                                            
understanding  that  the current  requirements  result  in  multiple                                                            
layers of requirements  that are unnecessary in that  they would not                                                            
provide  any additional  protection.  She stated  that Amendment  #1                                                            
would  change  the provisions  so  that  an owner/home  inspector's                                                             
coverage would not be duplicated.                                                                                               
                                                                                                                                
Ms.  Seitz  informed  the Committee   that Representative   Rokeberg                                                            
supports  Amendment  #1, as  it  would address  the  "dual  bonding"                                                            
concern.  She exampled  that currently  a specialty  contractor  who                                                            
also desires  to be licensed home  inspector is required  to acquire                                                            
two bonds,  and she continued,  this dual  bonding requirement  also                                                            
applies to  a owner/employee  situation in  which both the  employee                                                            
and the owner are currently be required to have a bond.                                                                         
                                                                                                                                
Senator  Dyson asked  whether  there is  a national  home  inspector                                                            
association.                                                                                                                    
                                                                                                                                
Co-Chair Green  understood that there  is; however, she would  defer                                                            
to the industry to provide further information.                                                                                 
                                                                                                                                
Senator  Dyson specified  that  he "did  not agree"  with the  State                                                            
being  involved in  the licensing  of home inspectors  and,  voicing                                                            
support  for "eliminating  that  entirely."  He asked  whether  this                                                            
amendment would  eliminate the licensing requirement  and replace it                                                            
with a registration requirement.                                                                                                
                                                                                                                                
Ms. Seitz  responded  that the  amendment retains  the requirements                                                             
established by  HB 9 that specify that a home inspector  be required                                                            
to register in  a manner "similar to a license, but  it's not called                                                            
a license, it's called a registration."                                                                                         
                                                                                                                                
Senator Dyson  asked whether meeting  the standards of the  national                                                            
organization   would  serve  to  quality   someone  as  a   licensed                                                            
inspector.                                                                                                                      
                                                                                                                                
Ms. Seitz stated  that once the transitional licensing  period, that                                                            
allows  someone  to be  qualified  in the  profession  based upon  a                                                            
certain number  of years' experience, has expired  a person would be                                                            
required to pass certain examinations.                                                                                          
                                                                                                                                
Senator Dyson  asked whether the examinations would  be administered                                                            
by the State or by a professional organization.                                                                                 
                                                                                                                                
Ms.  Seitz  responded  that  the  tests  would  be  administered  by                                                            
professional testing agencies.                                                                                                  
                                                                                                                                
Co-Chair  Green referred to  language in  Section 2, subsection  (a)                                                            
(1) (A)  on page one,  line 13 through  page two,  line two,  of the                                                            
bill that reads as follows.                                                                                                     
                                                                                                                                
     (A) existing home is the examination offered by the American                                                               
     Society of Home Inspectors, [AMERICAN HOME INSPECTORS TRAINING                                                             
      INSTITUTE,] or National Association of Home Inspectors;                                                                   
                                                                                                                                
Co-Chair  Green  noted  that  this  legislation   would  require  an                                                            
applicant to  provide additional information  as denoted  in Section                                                            
2, subsection (a)(3)(B),  located on page two, line nine, that reads                                                            
as follows.                                                                                                                     
                                                                                                                                
     (B) accompanied by documentation that the applicant has                                                                    
     completed continuing education requirements established by the                                                             
     department;                                                                                                                
                                                                                                                                
Co-Chair Green  clarified that this  amendment does not address  the                                                            
registration  requirements as  they are addressed  elsewhere  in the                                                            
legislation.                                                                                                                    
                                                                                                                                
Co-Chair Green  stated that forthcoming  Amendment #2 would  address                                                            
other issues that have resulted from the enactment of HB 9.                                                                     
                                                                                                                                
DAVE  OWENS,  Owner,   Owens  Inspection  Services,   testified  via                                                            
teleconference  from an offnet site and explained  that his business                                                            
conducts both  residential and commercial inspections.  He discussed                                                            
the "stumbling blocks"  that he and his business have experienced as                                                            
a result of HB  9's licensing requirements, in that,  in addition to                                                            
the  "problematic"  dual  bonding  requirement,  he,  who  has  been                                                            
accredited in  the home inspection business for numerous  years, was                                                            
denied his license because  he had not been tested in all applicable                                                            
categories within a year prior to his licensing application.                                                                    
                                                                                                                                
Mr. Owens  also requested  that  the AS 18.56.300(c)  provision,  as                                                            
would  be addressed  in a forthcoming  amendment,  remain in  Alaska                                                            
Housing Finance Corporation (AHFC) statutes.                                                                                    
                                                                                                                                
Mr. Owens asked  the Committee to address the dual  bonding issue as                                                            
well  as to  determine  a method  through  which the  Department  of                                                            
Community  and  Economic  Development  could  recognize   qualifying                                                            
certifications in lieu of when a test was undertaken.                                                                           
                                                                                                                                
Senator Dyson  asked for clarification that while  Mr. Owens remarks                                                            
referenced licensing  requirements in his remarks,  he was, in fact,                                                            
speaking to the registering requirements.                                                                                       
                                                                                                                                
Mr.  Owens  concurred  that  he  was  speaking  in  regards  to  the                                                            
registration requirements.                                                                                                      
                                                                                                                                
Senator Dyson  commented that although he would not  require further                                                            
discussion  at this time, he would  be interested, at some  time, in                                                            
further  clarification  between  the  difference   in registration,                                                             
certification, and licensing.                                                                                                   
                                                                                                                                
Co-Chair Wilken removed his objection.                                                                                          
                                                                                                                                
There being no further objection, Amendment #1 was ADOPTED.                                                                     
                                                                                                                                
Amendment #2:  This amendment deletes  "Section 44(e), ch.  134, SLA                                                            
2003, is" and replaces  it with "Sections 41, 42, 44(e), and 47, ch.                                                            
134, SLA 2003, are" in Section 11, page five, line two.                                                                         
                                                                                                                                
Co-Chair Green moved to adopt Amendment #2.                                                                                     
                                                                                                                                
Co-Chair Wilken objected for explanation.                                                                                       
                                                                                                                                
Co-Chair Green  explained that this amendment would  reestablish the                                                            
AS 18.56.300 (c) provision,  as earlier mentioned by Mr. Owens, that                                                            
was repealed by  HB 9. She noted that a home inspection  is required                                                            
for  either   the  purchase  of  home   through  AHFC  or   for  the                                                            
implementation   of   a  housing   loan  for   residential   housing                                                            
constructed  after June  30,  1992 with  AHFC. She  noted that  AHFC                                                            
ascertains that  this would apply to approximately  "thirty to forty                                                            
percent of  the market share of mortgage  lending for single  family                                                            
residential dwellings."  Furthermore, she noted that  subsection (c)                                                            
limited   the  liability   of  a  home   inspector  performing   the                                                            
requirements of  subsection (b) to gross negligence  and intentional                                                            
misconduct. Therefore,  she stated, removal of subsection (c) served                                                            
to "expose home inspectors  to greater risk of legal actions against                                                            
them for which  a prudent business owner would require  professional                                                            
liability  or  errors and  omissions  insurance."  Furthermore,  she                                                            
informed that this insurance  is unavailable in Alaska, as confirmed                                                            
by the Division  of Insurance. Therefore, she stated,  HB 9 required                                                            
home inspectors  to seek  an unobtainable  product. She stated  that                                                            
the bill's sponsor concurs with this amendment.                                                                                 
                                                                                                                                
Co-Chair Wilken removed his objection.                                                                                          
                                                                                                                                
There being no further objection, Amendment #2 was ADOPTED.                                                                     
                                                                                                                                
Amendment  #3: This  amendment deletes  "one year"  and replaces  it                                                            
with "three  years" in Section  2, subsection  (3)(A), on page  two,                                                            
line seven of the bill.  The amended language would read as follows.                                                            
                                                                                                                                
     (A) within three years after passing the examination required                                                              
     under (1) of this subsection; or                                                                                           
                                                                                                                                
In addition,  the amendment would  delete Section 6, on page  three,                                                            
lines  12 through  22, which  proposes  changes to  the claim  level                                                            
associated with the Surety Fund.                                                                                                
                                                                                                                                
Co-Chair  Green moved  to adopt Amendment  #3. She  stated that  the                                                            
first  portion of  the amendment  would address  Mr. Owens'  concern                                                            
regarding testing  and registration time limitation  requirements by                                                            
increasing the one-year time window to a three-year window.                                                                     
                                                                                                                                
Co-Chair Green  noted that the second  portion of the amendment  has                                                            
been suggested by various  individuals and would serve to delete the                                                            
Senate Labor  & Commerce  bill's language  pertaining to the  Surety                                                            
Fund.                                                                                                                           
                                                                                                                                
Co-Chair Wilken objected for clarification.                                                                                     
                                                                                                                                
Co-Chair  Wilken  requested   that  Amendment  #3  be  divided  into                                                            
Amendment 3A and 3B.                                                                                                            
                                                                                                                                
There being no objection, Amendment #3 was divided.                                                                             
                                                                                                                                
Amendment  #3A: This amendment  deletes "one  year" and replaces  it                                                            
with "three  years" in Section  2, subsection  (3)(A), on page  two,                                                            
line seven of the bill.  The amended language would read as follows.                                                            
                                                                                                                                
     (A) within  three years after passing the examination  required                                                            
     under (1) of this subsection; or                                                                                           
                                                                                                                                
Co-Chair Green moved to adopt Amendment #3A.                                                                                    
                                                                                                                                
REPRESENTATIVE  NORM ROKEBERG,  the bill's  sponsor, concurred  with                                                            
the proposed language.                                                                                                          
                                                                                                                                
Co-Chair Wilken removed his objection.                                                                                          
                                                                                                                                
There being no further objection, Amendment 3A was ADOPTED.                                                                     
                                                                                                                                
Amendment #3B: This amendment  deletes Section 6 which is located on                                                            
page three,  lines 12  through 22  of the bill.  The language  being                                                            
deleted reads as follows.                                                                                                       
                                                                                                                                
     Sec. 6. AS 08.88.470 is amended to read:                                                                                   
          Sec. 08.88.470. Findings and payment. At the conclusion                                                               
     of  the commission's  consideration  of a claim  made under  AS                                                            
     08.88.460,  it shall make written  findings and conclusions  on                                                            
     the  evidence. If the  commission finds  that the claimant  has                                                            
     suffered  a loss in  a real estate transaction  as a result  of                                                            
     fraud,  misrepresentation, deceit,  or the conversion  of trust                                                            
     funds  or  the conversion  of  community  association  accounts                                                            
     under  the control of  a community association  manager  on the                                                            
     part  of a real  estate licensee,  the commission  may award  a                                                            
     claimant  reimbursement  from the real  estate surety  fund for                                                            
     the  claimant's loss  up to  $20,000 [$10,000].  Not more  than                                                          
     $20,000 [$10,000]  may be paid for each transaction  regardless                                                          
     of the  number of persons injured  or the number of  parcels of                                                            
     real estate involved in the transaction.                                                                                   
                                                                                                                                
Co-Chair Green moved to adopt Amendment #3B.                                                                                    
                                                                                                                                
Co-Chair Wilken objected.                                                                                                       
                                                                                                                                
Co-Chair  Green stated that  the Senate Labor  & Commerce  committee                                                            
adopted  this  language,   and  that  there  has  been  support  for                                                            
continuing the $10,000 surety fund level.                                                                                       
                                                                                                                                
Senator Bunde, Chair of  the Senate & Labor Committee, asked whether                                                            
the removal  of  the entire  section would  serve  to eliminate  the                                                            
Surety Fund in its entirety.                                                                                                    
                                                                                                                                
Ms. Seitz  responded  that removal  of this section  would serve  to                                                            
retain  the  current language  of  the  section;  specifically,  she                                                            
stated,  its removal  would assure  the continuance  of the  $10,000                                                            
Surety Fund claim level.                                                                                                        
                                                                                                                                
Representative  Rokeberg commented that he supports  this amendment,                                                            
as  it would  address the  concerns  raised  by AAR.  He echoed  the                                                            
comments regarding the  limited availability of the hearing officer,                                                            
and characterized  the situation  as not  being "very workable."  He                                                            
stated  that  currently  the  Surety   Fund  could  be  utilized  to                                                            
reimburse  injured parties  for cases  involving misrepresentation,                                                             
fraud,  or deceit.  He stated  that were  the limit  to increase  to                                                            
$20,000,  the cases would  be "more appropriately  addressed  by the                                                            
judiciary system" due to  the high cost involved. He also noted that                                                            
claims  at that  level should  be adjudicated  in  the Court  System                                                            
rather than via  the hearing office system. Furthermore,  he opined,                                                            
increasing the  level to $20,000 might result in an  increase in the                                                            
number  of claims.  He  noted  that separate  legislation  is  being                                                            
considered that would increase  the current damages amount allowable                                                            
in Small Claims Courts.                                                                                                         
                                                                                                                                
Representative  Rokeberg stated that the Surety Fund  was originally                                                            
developed to "simplify  the process to the consumer,  but he opined,                                                            
the system is  currently "more complicated and more  expensive," and                                                            
that,  in  the  case  of  a "frivolous   claims,"  the  licensee  is                                                            
"required to expend a large  amount of money for legal fees in order                                                            
to  defend himself  and  achieve  a dismissal."  He  concluded  that                                                            
increasing the amount of  the Surety Fund would be wrong in that, in                                                            
reality,  the  entire "system  needs  to  be reformed"  rather  than                                                            
"making it  more attractive  to go the wrong  way." He acknowledged                                                             
the AAR hearing  process that allowed  60 cases to be addressed  and                                                            
rectified in a short amount of time.                                                                                            
                                                                                                                                
Senator Bunde stated that  he respectfully disagreed and objected to                                                            
the amendment.  He provided Members  with a handout on Surety  Bonds                                                            
titled "A  Selection of  Other States with  State Administered  Real                                                            
Estate  Recovery Funds"  [copy  on file],  that compares  Alaska  to                                                            
other  states. He  noted  that Alaska  with  a $10,000  Surety  Bond                                                            
requirement  is one  of approximately  four states  with the  lowest                                                            
level. Furthermore,  he declared that  the majority of other  states                                                            
have an established  level of $20,000  or more, which, he  attested,                                                            
has not "destroyed" their real estate industry.                                                                                 
                                                                                                                                
Senator Bunde declared  that the Committee should pay more attention                                                            
to the recommendations  of the Legislative Budget  & Audit division.                                                            
He pointed out  that as specified in the aforementioned  Legislative                                                            
Audit report  in Recommendation  #1, on page  11, the $10,000  claim                                                            
limit was established  in 1974 statute.  Furthermore, he  noted that                                                            
the Surety  Fund statute  language  was amended  in 1998 to  specify                                                            
that  licensees would  not  be required  to  pay a  Surety Fund  fee                                                            
greater than  $125 to support the  Fund. He also noted that  Statute                                                            
requires  a minimum Surety  Fund balance of  $250,000 and a  maximum                                                            
fund balance of  $500,000, and that the Commission  determines a fee                                                            
level to support  these amounts. In  addition, he noted that  during                                                            
the auditing  period, the Fund balance  maintained a level  close to                                                            
$500,000.  He stated  that  the current  $30  fee is  sufficient  to                                                            
support the  statute requirements.  He declared that increasing  the                                                            
claim level  to $20,000 would have  minimal impact on the  licensee,                                                            
and that consideration  should be equally given to the impact on the                                                            
consumer,  as he continued,  while the last  five successful  Surety                                                            
Fund claim payments were  at the $10,000 level, all of those alleged                                                            
losses exceeded  that amount.  Therefore,  he supported the  Audit's                                                            
recommendation  to increase  the level from  $10,000 to $20,000.  He                                                            
reiterated his objection to the amendment.                                                                                      
                                                                                                                                
Representative  Rokeberg  informed  the  Committee  that  while  the                                                            
primary  purpose  of  the  Surety  Fund  is  to  support  awards  to                                                            
consumers,  it's secondary use is  to provide funds for educational                                                             
purposes  such  as  those  associated  with  a  restructuring  of  a                                                            
licensing  law. He stated  that the Fund balance  is healthy  due to                                                            
the manner in which the fund's fees are managed.                                                                                
                                                                                                                                
Senator Olson  asked whether the amendment  would result  in costing                                                            
the consumer  more or  might serve  to make the  claim process  more                                                            
complicated.                                                                                                                    
                                                                                                                                
Representative  Rokeberg replied that the amendment  would result in                                                            
neither of these  concerns, as it specially pertains  to the ceiling                                                            
on the level of a Surety Fund award that might be determined.                                                                   
                                                                                                                                
Representative Rokeberg  declared that the Surety Fund would also be                                                            
available to  support any claim awarded  by the Superior  Court that                                                            
fits the  Fund's established  criteria. He  stated that the  fund is                                                            
there to  protect the  consumer against  such things  as "a  fly-by-                                                            
night builder."  He reminded the Committee  that testimony  has been                                                            
provided  attesting  to the fact  that  a higher  award level  might                                                            
attract people as it might be viewed as "a pot of money."                                                                       
                                                                                                                                
Senator Bunde  respectfully disagreed. He contended  that passage of                                                            
this amendment  would cost the consumer, as he noted  that the legal                                                            
cost associated with pursuing  a claim via the Superior System would                                                            
be expensive,  and that increasing the limit to $20,000  would allow                                                            
the claims to be addressed  via the hearing process. Furthermore, he                                                            
noted that  $10,000 is a small percentage  of the cost of  a home in                                                            
today's market.                                                                                                                 
                                                                                                                                
Senator Olson asked whether  the sponsor agrees with Senator Bunde's                                                            
comments.                                                                                                                       
                                                                                                                                
Representative  Rokeberg stated  that while  he does not agree  with                                                            
Senator  Bunde's comments,  he would  agree that  the level has  not                                                            
been adjusted for some time.                                                                                                    
                                                                                                                                
PAT  DAVIDSON,  Director,  Legislative  Budget  &  Audit,  spoke  to                                                            
Recommendation  #1 which recommends increasing the  claim limit from                                                            
$10,000 to  $20,000. She stated that  this recommendation  was based                                                            
on a review of  claims submitted through the hearing  process during                                                            
the  four-year  audit  period.  All of  those  claims,  she  stated,                                                            
exceeded $10,000  and all but one was less than $20,000.  She stated                                                            
that the  recommendation is  also based on  the fact that the  limit                                                            
had  not been  raised  since its  inception  in 1974.  These  facts,                                                            
combined  with the health  of the Surety Fund  and the fee  limit of                                                            
$125,  which assure  that no  excessive costs  would  be borne  by a                                                            
licensee, support  increasing the claim limit increased  to $20,000.                                                            
                                                                                                                                
Ms. Davidson  shared  that, in  addition to  the $10,000  individual                                                            
transaction limit,  the Audit's recommends that the  overall maximum                                                            
limit be increased  from $50,000 to $100,000 due to  the fact that a                                                            
licensee could  be involved in multiple  transactions. However,  she                                                            
noted that, unlike  the supporting history regarding  the individual                                                            
claim levels,  there was  no history regarding  the overall  maximum                                                            
limit.                                                                                                                          
                                                                                                                                
Representative  Rokeberg  suggested  that in  order  to address  the                                                            
inflation factor  concern and the  Audit's concerns, the  individual                                                            
claim limit could be adjusted to $15,000.                                                                                       
                                                                                                                                
Amendment  to Amendment #3B:  This amendment  retains Section  6 and                                                            
reduces the  maximum amount of a Surety  Fund claim from  $20,000 to                                                            
$15,000,  as  specified on  page  three,  lines 20  and  21 of  that                                                            
section.                                                                                                                        
                                                                                                                                
Co-Chair Green moved to adopt Amendment #3B, as amended.                                                                        
                                                                                                                                
There being  no objection, Amendment  #3B, as amended, was  ADOPTED.                                                            
                                                                                                                                
Representative   Rokeberg  noted  that  this  legislation   and  its                                                            
amendments were  necessitated in order to address  regulatory making                                                            
process requirements.  He stated  that while  he did not agree  with                                                            
many of those interpretations, they required addressing.                                                                        
                                                                                                                                
Co-Chair Green thanked  the sponsor for his assistance in developing                                                            
this legislation  as it has addressed numerous constituent  concerns                                                            
                                                                                                                                
Co-Chair Green moved to  report the bill, as amended, from Committee                                                            
with individual recommendations and accompanying fiscal notes.                                                                  
                                                                                                                                
There  being no  objection, SCS  CS HB  418(FIN)  was REPORTED  from                                                            
Committee with  zero fiscal note #2, dated March 25,  2004, from the                                                            
Department of Community and Economic Development.                                                                               
                                                                                                                                
                                                                                                                                
     CS FOR HOUSE JOINT RESOLUTION NO. 26(FIN)                                                                                  
     Proposing  amendments  to  the  Constitution  of the  State  of                                                            
     Alaska relating to  and limiting appropriations from the Alaska                                                            
     permanent fund based  on an averaged percent of the fund market                                                            
     value.                                                                                                                     
                                                                                                                                
                                                                                                                                
This was  the second  hearing for  this bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
Co-Chair  Wilken stated  that this  Percent of  Market Value  (POMV)                                                            
legislation would  propose an amendment to the Alaska  "Constitution                                                            
that would  limit  appropriations from  the Permanent  Fund to  five                                                            
percent of the  average of the market value of the  Fund." He stated                                                            
that  CS HJR 26  (FIN),  Version 23-LS1006\Z,  is  accompanied  by a                                                            
Division of Elections' fiscal note.                                                                                             
                                                                                                                                
BOB BARTHOLOMEW,  Chief  Operating  Officer, Alaska  Permanent  Fund                                                            
Corporation,  Department of Revenue,  noted that this resolution  is                                                            
the result of  approximately six years of effort on  the part of the                                                            
Permanent  Fund Board of  Trustees to provide  a simpler method  "to                                                            
determine  how  much   is  available  for  appropriation   from  the                                                            
Permanent Fund."                                                                                                                
                                                                                                                                
                                                                                                                                
SFC 04 # 109, Side B 08:52 AM                                                                                                   
                                                                                                                                
                                                                                                                                
Mr. Bartholomew  informed  the Committee that  The Alaska  Permanent                                                            
Fund  Board   of  Trustees  supports   the  Version  "Z"   committee                                                            
substitute.                                                                                                                     
                                                                                                                                
AT EASE 8:53 AM / 8:54 AM                                                                                                       
                                                                                                                                
The bill was HELD in Committee.                                                                                                 
                                                                                                                                
[Note: HJR 26 was re-addressed later in the meeting.}                                                                           
                                                                                                                                
                                                                                                                                
     HOUSE BILL NO. 417                                                                                                         
     "An Act amending the definition of 'project' in the Act                                                                    
     establishing the Alaska Natural Gas Development Authority; and                                                             
     providing for an effective date."                                                                                          
                                                                                                                                
                                                                                                                                
AT EASE 8:54 AM / 9:14 AM                                                                                                       
                                                                                                                                
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
Co-Chair Wilken  stated that this  legislation, HB 417, Version  23-                                                            
LS1494\A, would  change the responsibilities  of the Alaska  Natural                                                            
Gas  Development  Authority  (ANGDA) "to  include  a review  of  the                                                            
economic viability of a  gas line to tidewater at a point at or near                                                            
Cook Inlet."                                                                                                                    
                                                                                                                                
REPRESENTATIVE  MIKE CHENAULT, the bill's sponsor,  stated that this                                                            
bill would allow ANGDA  to investigate the possibility of a gas line                                                            
route to tidewater  at a point at or near Cook Inlet.  He noted that                                                            
the citizens of  the State voted in support of providing  ANGDA with                                                            
the  authority to  investigate  the viability  of  developing a  gas                                                            
pipeline  from Prudhoe  Bay  south to  tidewater  on Prince  William                                                            
Sound. He stated that enlarging  that authority to encompass a route                                                            
to the Cook  Inlet area is important,  and he noted that  increasing                                                            
the scope of  the project would not  negatively affect the  original                                                            
routing evaluation, and would in fact, "enhance it."                                                                            
                                                                                                                                
HAROLD  HEINZE,  CEO,  Alaska  Natural  Gas Development   Authority,                                                            
testified via teleconference  from Anchorage in support of the bill.                                                            
He  attested that  this  legislation  would expand  the Authority's                                                             
authority  to analyze a direct  route to Cook  Inlet in addition  to                                                            
its original  charge of getting gas  to Cook Inlet via some  method.                                                            
Furthermore,    he   stated   that   the   Authority's    analytical                                                            
"feasibility"  study method  would allow this  study to be  added to                                                            
the  Authority's  mission  in  an  economically   sound  manner.  He                                                            
informed  the Committee that,  "regardless  of what happened  here,"                                                            
the Authority  would be  considering this  alternative, as  it would                                                            
fall within  the scope of its work  to consider direct and  indirect                                                            
routings.                                                                                                                       
                                                                                                                                
BILL POPP,  Kenai Peninsula Borough  Oil and Gas Liaison,  testified                                                            
via teleconference from  Kenai, and stated that the Borough supports                                                            
passage of this legislation  as it is believed that it would enhance                                                            
the responsibilities of  ANGDA as an entity of the State by allowing                                                            
ANGDA  "to perform  with due diligence"  by  investigating a  direct                                                            
route to  Cook Inlet in addition  of the line  to a point  on Prince                                                            
William Sound  and the Spur Line from  Glennallen to a Southcentral                                                             
Distribution   Grid.  He   declared  that   a  clear  and   detailed                                                            
explanation of routing  economics is important to the success of the                                                            
project. He stated that  the project is faced with numerous economic                                                            
obstacles  and that  expanding the  project would  be beneficial  in                                                            
finding the most viable  route to make this project "a realty if the                                                            
economics support it.                                                                                                           
                                                                                                                                
Senator Bunde  understood  that the project  "would fall within  the                                                            
parameters"  of ANGDA's  mission as  currently  established, and  as                                                            
such, no additional funding would not be required.                                                                              
                                                                                                                                
STEVER PORTER,  Deputy Commissioner,  Department of Revenue,  agreed                                                            
with Senator Bunde's comment.                                                                                                   
                                                                                                                                
Co-Chair  Green  moved  to  report  the  bill  from  Committee  with                                                            
individual recommendations and accompanying fiscal note.                                                                        
                                                                                                                                
There being  no objection, HB 417  was REPORTED from Committee  with                                                            
zero fiscal  note # 1, dated February  15, 2004 from the  Department                                                            
of Revenue.                                                                                                                     
                                                                                                                                
AT EASE 9:21 AM / 9:56 AM                                                                                                       
                                                                                                                                
                                                                                                                                
     CS FOR HOUSE JOINT RESOLUTION NO. 26(FIN)                                                                                  
     Proposing  amendments  to  the  Constitution  of the  State  of                                                            
     Alaska relating to  and limiting appropriations from the Alaska                                                            
     permanent fund based  on an averaged percent of the fund market                                                            
     value.                                                                                                                     
                                                                                                                                
                                                                                                                                
[Note: This bill was heard earlier in the meeting.]                                                                             
                                                                                                                                
Co-Chair Wilken  noted that this bill,  which is referred  to as the                                                            
Percent of Market Value  (POMV) bill, is again before the Committee.                                                            
He  stated that  the bill  proposes  to place  an  amendment to  the                                                            
Constitution  on a Statewide  ballot that  would, were it  approved,                                                            
limit the appropriation  from the Permanent Fund to  five percent of                                                            
the average  of the market  value of the Fund.  He reminded  that CS                                                            
HJR 26(FIN), Version 23-LS1006\Z is before the Committee.                                                                       
                                                                                                                                
BOB BARTHOLOMEW,  Chief  Operating  Officer, Alaska  Permanent  Fund                                                            
Corporation,  Department  of  Revenue,  shared  that  the  Permanent                                                            
Fund's  Board of  Trustees  worked for  approximately  six years  to                                                            
develop this proposal  in order to prepare the Fund  for the future,                                                            
both from an investment  management perspective as well as "from the                                                            
perspective of how to make  a stable and predictable amount of money                                                            
available to the  Legislature if they desire to appropriate  it." He                                                            
stated   that  this  House   of  Representatives'   legislation   is                                                            
representative  of the language proposed  by the Board of  Trustees.                                                            
He stated that  the bill would establish  "a spending limit  of five                                                            
percent of the  value of the Permanent Fund on an  annual basis." He                                                            
exampled that  were this methodology  in effect for the next  fiscal                                                            
year   approximately   $1.3   billion   would   be   available   for                                                            
appropriation from the Fund.                                                                                                    
                                                                                                                                
Mr.   Bartholomew  shared   that   were  the   current  calculation                                                             
methodology  in   affect,  and  were  the  Legislature   to  require                                                            
additional  resources, in  excess of $4 billion  could be  available                                                            
for appropriation.                                                                                                              
                                                                                                                                
Mr. Bartholomew stated  that this legislation would assure that "the                                                            
Permanent  Fund is  invested  in long-term  assets" with  a goal  of                                                            
trying to provide  a stable and predictable  payout. He pointed  out                                                            
that  one  of the  Board's  concerns  was  to  assure,  were  fiscal                                                            
concerns to  be experienced in the  future, that one of the  State's                                                            
largest assets could be  as productive as possible to assist in that                                                            
effort. He stated that  inflation proofing has been conducted for 22                                                            
years. He  stated that this  would be inherent  to the system,  were                                                            
the spending  limit in place. He stated  that the goals of  limiting                                                            
spending; protecting  the fund against  inflation; and granting  the                                                            
Legislature and the public  have a predictable payout in the future,                                                            
would be achieved by this legislation.                                                                                          
                                                                                                                                
Senator Bunde stated for  the record, that passing this legislation,                                                            
"while it might  be a pre-cursor to some future activity  that would                                                            
use  some  of the  earnings  for  supporting  State  services,  just                                                            
passing this does nothing to determine how the funds are spent."                                                                
                                                                                                                                
Mr. Bartholomew confirmed  Senator Bunde's comment to be correct. He                                                            
stated that, "there's  two major public policy issues  regarding the                                                            
Permanent Fund  that … are being discussed  in the Legislature  this                                                            
year."  The  first,  he noted,  is  the  legislation  regarding  the                                                            
Constitutional  amendment   regarding  the  Board  of  Trust's  POMV                                                            
proposal.  This proposal,  he opined,  would serve  to identify  the                                                            
method through  which to determine what is available  and to protect                                                            
the Fund for the  future. He clarified that the POMV  proposal would                                                            
not change  how the funds  would be used,  but would rather  specify                                                            
the amount that  could be used. He advised that a  separate bill, HB                                                            
298, would  address how the Permanent  Fund's money would  be spent.                                                            
He stressed that these are two separate issues.                                                                                 
                                                                                                                                
Senator Bunde  responded that the  POMV proposal, were it  approved,                                                            
would allow future Legislators  to either designate all the earnings                                                            
calculated  by the  five-percent methodology,  "as  dividends  or to                                                            
take all the  earnings and put them  into funding State services  or                                                            
some combination thereof."                                                                                                      
                                                                                                                                
Mr. Bartholomew  agreed that, "this  Constitutional amendment  would                                                            
limit the annual amount available, subject to the Legislature."                                                                 
                                                                                                                                
Senator Hoffman  asked regarding the intent of a Board  of Trustee's                                                            
POMV  advertisement  that had  recently  appeared in  the  Anchorage                                                            
Daily  News newspaper.  He  also  asked how  the  advertisement  was                                                            
financed.                                                                                                                       
                                                                                                                                
Mr. Bartholomew  responded that the  advertisement was paid  for via                                                            
the Permanent  Fund Corporation's  operating budget. He stated  that                                                            
the intent  of  the advertisement  was  to assist  in educating  the                                                            
public  regarding the  POMV proposal  as, he noted,  such things  as                                                            
surveys indicate  that, "there's still a high level  of confusion in                                                            
the public  as to what is the proposal."  He stated that  due to the                                                            
fact that  "there's a lot  of awareness and  interest right  now" in                                                            
regards  to  the  Permanent  Fund,  the Board  viewed  this  "as  an                                                            
opportunity to  provide education in as neutral a  fashion" as could                                                            
be done. Therefore,  he concluded that the intent  was, "in a simple                                                            
way,"  to explain  the difference  between the  current process  and                                                            
"the Percent of Market Value (POMV) or endowment approach."                                                                     
                                                                                                                                
Senator  Hoffman recalled  a previous Finance  Committee  discussion                                                            
regarding  the Board  of  Trustees'  request for  in  excess of  one                                                            
million dollars to inform  the public about POMV. He stated that the                                                            
response  from the Committee  was unfavorable  and that the  request                                                            
had been denied.  Therefore, he asked  why the Board was  furthering                                                            
this endeavor.                                                                                                                  
                                                                                                                                
Mr. Bartholomew  responded that "the request for both  the authority                                                            
to do advocacy and for  the funding to do the education and outreach                                                            
on POMV was  because of the rule changes  that take place"  were the                                                            
legislation  passed  by  the  Legislature.  He stated  that  it  was                                                            
understood   that,  were   the  POMV   proposal   approved  by   the                                                            
Legislature,  the Board's ability  to advocate for a Constitutional                                                             
amendment would  be restricted. He  stated that, in his discussions                                                             
with the  Board, it was  not "linked" that  advertisements  prior to                                                            
the Legislative approval of the proposal would be prohibited.                                                                   
                                                                                                                                
Senator Hoffman  asked for confirmation  that it was not  the intent                                                            
of the Board to get the  public to apply pressure on the Legislature                                                            
to support POMV, by running the advertisement.                                                                                  
                                                                                                                                
Mr. Bartholomew  assured that the advertisement was  not intended to                                                            
be  a tool  through which  to  lobby or  influence  passage of  this                                                            
legislation.  He assured that the  Board understands that  the issue                                                            
must be presented  in a balanced fashion. He stated  that aside from                                                            
working  directly  with  the  Legislature  on issues,  it  would  be                                                            
"inappropriate"  for the Board to indirectly lobby  the Legislature.                                                            
Therefore,  he continued, the Board  viewed the advertisement  as an                                                            
educational tool.                                                                                                               
                                                                                                                                
Co-Chair Wilken complimented  Mr. Bartholomew as being "good soldier                                                            
and he was glad he worked for the people of Alaska."                                                                            
                                                                                                                                
Senator  Olson  characterized  the  response  to  the advertisement                                                             
questions as  "somewhat confusing,  at best, if not "questionable."                                                             
                                                                                                                                
Senator  Dyson referenced  the  Permanent Fund  Corporation's  April                                                            
2004,  "Percent of  Market Value  talking points"  handout [copy  on                                                            
file]  and stated  that  in the  subsection  titled  "how does  POMV                                                            
provide the solution?"  it is stated that, "The Fund is invested for                                                            
a 5-percent real  rate of return after inflation."  He noted that he                                                            
had previously asked regarding  whether the language in Section 2(b)                                                            
of the bill on page two,  line two, meant that it was "indeed" going                                                            
to be after inflation.                                                                                                          
                                                                                                                                
     (b) Appropriations  from the  permanent fund for a fiscal  year                                                            
     may  not exceed  five  percent  of the  average  of the  market                                                            
     values  of the fund on  June 30 for the  first five of  the six                                                            
     fiscal years immediately preceding that fiscal year.                                                                       
                                                                                                                                
Senator Dyson  stated that is subsequent conversations,  he had been                                                            
"reminded that the whole  thing is a smoothing operation" in that it                                                            
was a five-year  average. He recalled that he had  asked whether any                                                            
language  had been considered  "that  would make  it clear that  the                                                            
five  percent that  we are  making  available for  appropriation  is                                                            
protected against  the year that we  might have high inflation,  and                                                            
actually, in  a given year might be  appropriating part of  the real                                                            
value of the corpus."  He noted that the response  was to the affect                                                            
"that anything that we  did along that line must be carefully worded                                                            
so that it was  over a board period because it would  vary from year                                                            
to year." Therefore, he  re-asked whether language could be included                                                            
to clarify that  in any given year, the amount being  proposed would                                                            
"not dip  into the  principal," as  he stated  that, in addition  to                                                            
preserving  "the value of  the principal,"  the people of the  State                                                            
must be assured that the principal would "be intact."                                                                           
                                                                                                                                
Mr. Bartholomew  replied that the  issue regarding whether  the POMV                                                            
would allow  for the expenditure of  the principal or corpus  of the                                                            
Fund,  has had  a lot  of discussion.  He  stated that  it has  been                                                            
determined  that there  are  two methods  through  which to  protect                                                            
against eroding  the Fund.  First, he communicated,  the concept  of                                                            
the word principal  is included in Constitution through  the "number                                                            
that is  the sum  of all the  oil contributions,  all the  inflation                                                            
proofing  appropriations  the  Legislature  has  done,  and  special                                                            
appropriations."  This number,  he specified,  currently amounts  to                                                            
$23.5  billion,  and  "only  goes up."  He  communicated  that  "the                                                            
Legislature  would  not be  allowed to  appropriate  any money  that                                                            
would reduce the Permanent Fund below that level."                                                                              
                                                                                                                                
Mr. Bartholomew  shared that an issue  raised by the Board,  regards                                                            
those times when there  might be short-term extreme downturns in the                                                            
stock market  that might reduce the  value of the Fund down  towards                                                            
the principal  level. He  stated that the  Board determined  that in                                                            
those  times, "it  would  not be  prudent for  the  economy" not  to                                                            
distribute a Permanent  Fund Dividend to the citizens. Therefore, he                                                            
continued,  the Board proposed an  endowment method of not  just the                                                            
principal of the fund,  but of the entire fund. Therefore, he stated                                                            
that  in order  to respond  to the  question  of how  to assure  the                                                            
public that the corpus  of the Fund would not be attached, the House                                                            
of Representatives'  legislation before the Committee  has adopted a                                                            
statutory limitation  through which  the Constitution would  allow a                                                            
five-percent of the total  market value to be spent in any one year.                                                            
                                                                                                                                
Senator Dyson  understood that the  language specifies market  value                                                            
as opposed to principal.                                                                                                        
                                                                                                                                
Mr. Bartholomew  confirmed, and stated  that this would include  the                                                            
entire  fund including  the principal  and the  excess earnings.  He                                                            
stated  that this  currently amounts  to $27.5  billion dollars.  He                                                            
stated that  it is expected that the  total rate of return  would be                                                            
eight-percent,   including   a  three  percent   inflation   factor.                                                            
Therefore,  he  stated  the real  earnings  of  five-percent,  after                                                            
inflation, would be utilized over time.                                                                                         
                                                                                                                                
Mr.  Bartholomew  stated that  in  question is  how  to assure  that                                                            
public that the  principal would not be spent. He  stated that there                                                            
is a provision  in HB 298-DISTRIBUTIONS  OF APPROPS FROM  PERM FUND,                                                            
that, states  that every  ten-year period would  be reviewed  by the                                                            
Corporation  to assure that the fund  has earned five-percent  above                                                            
inflation. Were this not  to occur, he continued, the spending limit                                                            
would  be  lowered  to  the  real  rate  of  return.  Therefore,  he                                                            
recommended  that the expenditure  not be viewed  on a year  to year                                                            
basis "as  there have definitely  be years  that the Permanent  Fund                                                            
has not make  money;" however, he  attested, there has never  been a                                                            
ten year period  in which the five-percent  level was not  exceeded.                                                            
Continuing,  he stated that  over the 25-year  period that  the Fund                                                            
has existed, it  has earned six-percent over inflation.  He referred                                                            
the Committee  to a PFC graph titled "Rolling 10-year  real return -                                                            
Fiscal year"  [copy on file].  He stated  that "the Legislature  has                                                            
not spent anywhere near the available funds."                                                                                   
                                                                                                                                
Mr.  Bartholomew  stated that  the  statutory  limitation  addresses                                                            
Senator  Dyson's  concern. He  stated  that were  a  higher rate  of                                                            
protection desired, a Constitutional  amendment would be required as                                                            
opposed to the statutory limitation.                                                                                            
                                                                                                                                
Senator Dyson  understood that while appropriate inflation  proofing                                                            
could  not   occur  in   a  year  of  double-digit   inflation;   an                                                            
appropriation  of  up to  five percent  of  the market  value  could                                                            
continue to be  made. Doing so, he contended, might  result in a net                                                            
loss of three to five percent  of the Funds' market value that year.                                                            
                                                                                                                                
Mr. Bartholomew replied  that while this is correct, what makes this                                                            
"allowable  and prudent"  is the fact  that the  rate of return  for                                                            
fiscal  year 2004,  for instance,  is going  to exceed  the rate  of                                                            
inflation by ten percent.  He stated that adoption of the POMV would                                                            
limit the expenditures  to five percent  of the market value,  which                                                            
in this  case would have  grown in excess  of ten percent.  This, he                                                            
attested "would  serve to carry that  money forward and over  time,"                                                            
he stated,  it is "believed that the  good years would outweigh  the                                                            
bad" years. He  stated that limiting the spending  in the good years                                                            
to  five  percent  by  retaining  those   excess  earnings  via  the                                                            
implementation  of  a spending  limit, would  serve  to protect  the                                                            
Permanent Fund.                                                                                                                 
                                                                                                                                
Senator B.  Stevens pointed  out that on the  effective date  of the                                                            
amendment that  sweeps the Earnings  Reserve Account (ERA)  into the                                                            
Principal,  as specified  in Section  3 of the  bill, the ERA  would                                                            
crease to exist.  He stated that HB 298 would allow  the Legislature                                                            
to change the distribution  of the five percent by a simple majority                                                            
vote. Therefore,  he declared that  the concept of the distribution                                                             
of  the  earnings  "would  be  at  the  full  discretion  of  future                                                            
Legislatures,  just as it  is now," with  the only difference  being                                                            
that the ERA is swept into the principal.                                                                                       
                                                                                                                                
Co-Chair Wilken  asked whether this  legislation would allow  for an                                                            
FY 05 CBR draw.                                                                                                                 
                                                                                                                                
Mr. Bartholomew  replied that,  as drafted,  the POMV program  would                                                            
not allow for  an appropriation until  July 1, 2005, which  would be                                                            
the beginning  of FY 06.  Therefore, he concluded  the October  2004                                                            
Permanent Fund  Dividend, which would  occur in FY 05, is  accounted                                                            
for in the FY  04 operating budget. He noted, that  unless there was                                                            
a need  for other  appropriations  "as  written," that  would be  no                                                            
other appropriations from  the Permanent Fund until July 1, 2005. At                                                            
that time, he continued,  the appropriation would be limited to five                                                            
percent, were POMV enacted.                                                                                                     
                                                                                                                                
Senator Bunde  reiterated that there are Alaskans  who are concerned                                                            
that with the adoption  of POMR, the Permanent Fund "would go away."                                                            
He referred  to the  aforementioned  Ten-year look  back chart,  and                                                            
stated that while  the past few years' stock market  performance was                                                            
dismal,  the  Fund still  made  five-percent  including  the  recent                                                            
years' worst-case  scenario.  Therefore, he  observed that  were the                                                            
POMV in  affect for the past  ten years, the  corpus would  not have                                                            
been used  and any  appropriation  would have been  limited to  five                                                            
percent.                                                                                                                        
                                                                                                                                
Mr. Bartholomew  responded that this  is correct, and were  the POMV                                                            
five-percent  spending limitation  in place for the entirety  of the                                                            
Fund's history,  the expenditures  would not have exceeded  what the                                                            
Fund  had earned  above the  rate of  inflation.  He reiterated  the                                                            
importance  of viewing  the Fund  over  a ten-year  period verses  a                                                            
year-to-year basis. He  noted that HB 298 would provide "guidance to                                                            
the Legislature" to reduce  the five-percent Constitutional spending                                                            
limit  appropriation  down  to  the real  earnings  level  were  the                                                            
average earnings of the  Fund to fall below that five-percent level.                                                            
                                                                                                                                
Senator  Bunde stated that  the Legislature  currently appropriates                                                             
between three  and five million  dollars of  earnings, on an  annual                                                            
basis, from the Permanent Fund to inflation proof the account.                                                                  
                                                                                                                                
Mr. Bartholomew  agreed that  the Legislature,  on an annual  basis,                                                            
appropriates  money  from  the  Fund's  earnings  account  into  the                                                            
protected principal.  He stated that under POMV, the  earnings would                                                            
be protected by  the five percent limit, but would  not subject to a                                                            
future appropriation.                                                                                                           
                                                                                                                                
Senator  Bunde  stated  therefore,  that  were  the  Constitutional                                                             
amendment  approved, the  State would  crease to  appropriate  up to                                                            
five million dollars of Fund earnings each year.                                                                                
                                                                                                                                
Mr. Bartholomew  stated that is correct.  He stated that  POMV would                                                            
eliminate the Board's current  concerns regarding inflation proofing                                                            
the Fund when  there are other fiscal pressures such  as the need to                                                            
find  additional  funds to  support  such  things as  education  and                                                            
transportation.                                                                                                                 
                                                                                                                                
Senator  Bunde pointed  out  that while  "many people  say,  'don't'                                                            
spend  the  Permanent  Fund,"   they  do  not  understand  that  the                                                            
Legislature  already spends  money to inflation  proof the  Fund and                                                            
provide "for  the Permanent  Fund Dividend  itself." He stated  that                                                            
using the  POMV method  to provide  funding for  State programs  and                                                            
Dividend  checks,  "would  not  change  significantly   the  amount"                                                            
currently  being  utilized from  the  Fund were  inflation  proofing                                                            
factored into that amount.                                                                                                      
                                                                                                                                
Senator  Hoffman  stated  that  the  Legislature  could  assess  the                                                            
earnings  from  the ERA  and  "spend  those dollars  with  a  simple                                                            
majority today,  but we haven't."  He attested that the Legislature                                                             
has  not  done  this,  but has  rather  chosen  to  take  "the  more                                                            
difficult road" of balancing  the budget by accessing the CBR, which                                                            
requires a three-quarter  vote of the Legislature,  because they are                                                            
aware that  spending the  Fund would be perceived  by the people  as                                                            
"tapping into… and threatening the Fund."                                                                                       
                                                                                                                                
Senator Hoffman  continued that were  the POMV program adopted,  the                                                            
Legislature  could  interpret  it  to state  that  the  people  have                                                            
granted them the  authority to spend the five-percent  as needed. He                                                            
stated that  the POMV would provide  no protection to the  Permanent                                                            
Fund  Dividend. He  stated  the participants  of  the Conference  of                                                            
Alaskans stated  they went one-step above and beyond  what they were                                                            
charged to do by stating  that the Permanent Fun should be protected                                                            
in the Constitution.  Therefore, he  stressed that consideration  of                                                            
protecting the Permanent  Fund be provided were the POMV "management                                                            
tool" to be adopted.                                                                                                            
                                                                                                                                
Senator  Bunde  stated  that  people  could  protect  their  PFD  by                                                            
supporting a person to represent them in the Legislature.                                                                       
                                                                                                                                
Co-Chair Wilken asked for  clarification regarding whether the five-                                                            
percent  value of the  fund is the  value of the  fund at a  certain                                                            
point of time over the  last five-years, as specified in the bill in                                                            
Section 2(b).                                                                                                                   
                                                                                                                                
Mr. Bartholomew  responded that the applicable rules  in this regard                                                            
as included  in statute. He stated  that the value of the  Permanent                                                            
Fund would  be determined on June  30th of each year as that  is the                                                            
end of each fiscal year.  He stated that in order to accommodate the                                                            
"ups and  downs of the  financial markets,  it's prudent to  take an                                                            
average of the previous  five years." Therefore, he stated that this                                                            
proposal  would  mandate  that, on  June  30th,  an average  of  the                                                            
previous five-years'  market value of the Fund, would  be determined                                                            
based upon Generally Accepted  Accounting Principals. That value, he                                                            
continued,  would then  be multiplied  by five-percent  in order  to                                                            
determine the amount that would be available.                                                                                   
                                                                                                                                
Co-Chair  Wilken  understood therefore  that  this  would equate  to                                                            
"five June 30's divided by five."                                                                                               
                                                                                                                                
Senator  Bunde  moved  to  report  the  bill   from  Committee  with                                                            
individual recommendations and accompanying fiscal notes.                                                                       
                                                                                                                                
Senator Hoffman  stated that  his not objecting  to the motion  does                                                            
not mean that he supports the proposal.                                                                                         
                                                                                                                                
There  being  no  objection,  CS  HJR  26(FIN)   was  REPORTED  from                                                            
Committee with  $1,500 fiscal note  #3, dated January 16,  2004 from                                                            
the Division of  Elections and new zero fiscal note  #4, dated April                                                            
13, 2004 from the Department of Revenue.                                                                                        
                                                                                                                                
RECESS TO THE CALL OF THE CHAIR 10:33 AM / 5:06 PM                                                                              
                                                                                                                                
[NOTE: Due to an audio  malfunction, the adjournment of this meeting                                                            
was not recorded]                                                                                                               
                                                                                                                                
ADJOURNMENT                                                                                                                 
                                                                                                                                
Co-Chair Lyda Green adjourned the meeting at 05:07 PM.                                                                          

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