Legislature(2003 - 2004)

05/07/2004 08:44 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                              MINUTES                                                                                         
                     SENATE FINANCE COMMITTEE                                                                                 
                           May 07, 2004                                                                                       
                              8:44 AM                                                                                         
                                                                                                                                
                                                                                                                                
TAPES                                                                                                                       
                                                                                                                                
SFC-04 # 110, Side A                                                                                                            
SFC 04 # 110, Side B                                                                                                            
                                                                                                                              
CALL TO ORDER                                                                                                               
                                                                                                                                
Co-Chair Gary Wilken convened  the meeting at approximately 8:44 AM.                                                            
                                                                                                                                
PRESENT                                                                                                                     
                                                                                                                                
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 BUD FATE; JAMES ARMSTRONG,  Staff to                                                          
Representative  Bill Williams;  TOMAS BOUTIN,  Deputy Commissioner,                                                             
Department  of Revenue; GREG O'CLARAY,  Commissioner, Department  of                                                            
Labor and Workforce Development;  JIM POUND, Staff to Representative                                                            
Bud Fate; SUSAN BURKE,  Attorney representing Magazine Publishers of                                                            
America; SUE  STANCLIFF, Staff to  Representative Pete Kott;  DEBBIE                                                            
BUMP, Division of Finance,  Department of Administration; JOHN MAIN,                                                            
Staff to Representative  Pete Kott; PHELAN STRAUBE, Staff to Senator                                                            
Ben Stevens;  VERN JONES, Chief Procurement  Officer, Department  of                                                            
Administration                                                                                                                  
                                                                                                                                
Attending via Teleconference:  From Offnet Sites: PAT LADNER, Alaska                                                          
Aerospace Development  Corporation;  LINDA WILSON, Deputy  Director,                                                            
Public Defender Agency,  Department of Administration; LINDA WILSON,                                                            
Deputy  Director,  Alaska  Public  Defender  Agency,  Department  of                                                            
Administration                                                                                                                  
                                                                                                                                
SUMMARY INFORMATION                                                                                                         
                                                                                                                                
HB 422-BUDGET RESERVE FUND INVESTMENT                                                                                           
                                                                                                                                
The Committee heard from  the sponsor, the Department of Revenue and                                                            
the bill was held for further consideration.                                                                                    
                                                                                                                                
HB 559-STEP PROGRAM CONTINUANCE                                                                                                 
                                                                                                                                
The  Committee heard  from  the Department  of Labor  and  Workforce                                                            
Development and the bill was reported from Committee.                                                                           
                                                                                                                                
HB 15-SOLICITATIONS/CONSUMER PROTECTION                                                                                         
                                                                                                                                
The Committee  heard from  the Sponsor, adopted  one amendment,  and                                                            
reported the committee substitute from Committee.                                                                               
                                                                                                                                
HB 494-ELECTRONIC PAYMENT FOR STATE BUSINESS                                                                                    
                                                                                                                                
The  Committee  heard   from  the  bill's  sponsor,  adopted   three                                                            
amendments, and reported the bill from Committee.                                                                               
                                                                                                                                
HB 514-CHILD SUPPORT ENFORCEMENT/ CRIMES                                                                                        
                                                                                                                                
The  Committee  heard  from  the sponsor  and  the  Public  Defender                                                            
Agency.  A  committee  substitute  was  adopted  and  reported  from                                                            
Committee.                                                                                                                      
                                                                                                                                
SB 366-STATE SALES TAX                                                                                                          
                                                                                                                                
The  Committee   heard  from  the   sponsor,  adopted  a   committee                                                            
substitute, and reported that bill from Committee.                                                                              
                                                                                                                                
HB 545-STATE REAL PROPERTY LEASE EXTENSIONS                                                                                     
                                                                                                                                
The  Committee  heard from  the  Department  of  Administration  and                                                            
reported the bill from Committee.                                                                                               
                                                                                                                                
SB 308-DOMESTIC VIOLENCE PROTECTIVE ORDERS                                                                                      
                                                                                                                                
This bill was scheduled but not heard.                                                                                          
                                                                                                                                
HB 56-UNFAIR TRADE PRACTICES ATTY FEES/COSTS                                                                                    
                                                                                                                                
This bill was scheduled but not heard.                                                                                          
                                                                                                                                
HB 341-DIVE FISHERY MANAGEMENT ASSESSMENT                                                                                       
                                                                                                                                
This bill was scheduled but not heard.                                                                                          
                                                                                                                                
HB 342-DRIVING UNDER INFLUENCE/ALCOHOL OFFENSES                                                                                 
                                                                                                                                
This bill was scheduled but not heard.                                                                                          
                                                                                                                                
HB 425-SCHOOL FUNDS RELATED TO BOARDING SCHOOLS                                                                                 
                                                                                                                                
This bill was scheduled but not heard.                                                                                          
                                                                                                                                
HCR 32-AK INFO INFRASTRUCTURE POLICY TASK FORCE                                                                                 
                                                                                                                                
This bill was scheduled but not heard.                                                                                          
                                                                                                                                
                                                                                                                                
     CS FOR HOUSE BILL NO. 422(STA)                                                                                             
     "An Act repealing the special subaccount established in the                                                                
     constitutional budget reserve fund; and providing for an                                                                   
     effective date."                                                                                                           
                                                                                                                                
                                                                                                                                
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
Co-Chair   Wilken   stated  that   this   bill  would   repeal   the                                                            
Constitutional  Budget Reserve  (CBR) subaccount  and thereby  allow                                                            
the Constitutional  Budget  Reserve  (CBR) account  balance, in  its                                                            
entirety,  "to be invested  in fixed income  securities." He  stated                                                            
that  CS HB  422(STA),  Version 23-LS1527\S,  and  its accompanying                                                             
fiscal  note  #1 from  the  Department  of Revenue,  is  before  the                                                            
Committee.                                                                                                                      
                                                                                                                                
JAMES ARMSTRONG,  Staff to Representative Bill Williams,  the bill's                                                            
sponsor,  specified that this  bill would repeal  an act enacted  in                                                            
the year 2000 that created  a $400 million subaccount within the CBR                                                            
Fund. This  action, he continued would  "collapse" those  funds back                                                            
into the primary  CBR account. He  stated that this subaccount  "was                                                            
targeted  to obtain  a higher yield  for the  investment  strategy."                                                            
Furthermore,  he noted, that the Commissioner  of the Department  of                                                            
Revenue was  instructed to assume  that the subaccount would  not be                                                            
accessed  for  five  years.  He  stated  that  this  legislation  is                                                            
requested by the Department of Revenue.                                                                                         
                                                                                                                                
Senator Dyson asked regarding  the rate of return experienced by the                                                            
subaccount.                                                                                                                     
                                                                                                                                
TOMAS BOUTIN, Deputy Commissioner,  Department of Revenue, responded                                                            
that during  the last three  years, the subaccount  achieved  a 4.70                                                            
percent  rate of return  as compared  to the  primary CBR  account's                                                            
5.44 percent rate of return.                                                                                                    
                                                                                                                                
Senator Dyson asked whether these are gross or net return rates.                                                                
                                                                                                                                
Mr.  Boutin  expressed  that  these returns  "are  gross  of  fees."                                                            
However,  he  noted   that  the  subaccount  has  an   annual  fixed                                                            
management  fee amounting  to  $125,000. He  stated  that the  CBR's                                                            
fixed income accounts are  managed internally, at an annual "rule of                                                            
thumb cost" of approximately three basis points.                                                                                
                                                                                                                                
Senator Dyson  declared that  contrary to the  goal of generating  a                                                            
higher yield,  the subaccount actually  returned a lesser  rate than                                                            
the primary CBR account.                                                                                                        
                                                                                                                                
Mr.  Boutin opined  that  the  timing of  establishing  the  account                                                            
"couldn't  have been poorer"  in that it  ventured into equities  in                                                            
the spring of the year 2000.                                                                                                    
                                                                                                                                
Senator Bunde  communicated that the  reason that CBR Funds  are not                                                            
positioned  in "more aggressive  management"  is that access  to the                                                            
funds must be available  on "a short-term basis" in order to be used                                                            
to balance the State's  budget. This, he asserted, was and continues                                                            
to be a concern  regarding the establishment of this  subaccount. He                                                            
communicated  that because  a higher  rate of  risk accompanies  the                                                            
decision  to achieve a higher  rate of return,  the investment  must                                                            
remain invested  in the financial  market over a long-term  in order                                                            
to amortize the risk. He  stated that this is contrary to being able                                                            
to access CBR funds as budgeting factors might require.                                                                         
                                                                                                                                
Mr.  Boutin  responded  that  that   is "exactly   the  reason"  the                                                            
Department   of  Revenue   has   requested  this   legislation.   He                                                            
distributed  two handouts  titled " Constitutional  Budget  Reserve"                                                            
and "Constitutional Budget Reserve Subaccount" [copies on file].                                                                
                                                                                                                                
Senator  B. Stevens  reviewed  the  "Constitutional  Budget  Reserve                                                            
Subaccount" handout and  asked whether eliminating the subaccount at                                                            
this  time  would  result  in  selling  at  a  loss  as  opposed  to                                                            
continuing the account until the loss could be "recaptured."                                                                    
                                                                                                                                
Mr. Boutin qualified that  neither the Department of Revenue nor the                                                            
Legislature are  "market timers," and therefore, he  reiterated that                                                            
this is the  reason the Department  of Revenue believes that  "fixed                                                            
income  is appropriate."   He noted  that  the Commissioner  of  the                                                            
Department  of  Revenue, as  the  fiduciary  for this  money,  could                                                            
invest it,  limited by the  prudent investor  rule, for the  highest                                                            
rate of return. He disclosed  that the Department conducts quarterly                                                            
evaluations  of the Fund's  "targets" to  determine the appropriate                                                             
investment strategy.  He declared that because the  CBR is currently                                                            
utilized  as the  State's  "checking  account," the  Department  has                                                            
determined  that long-term investments  are not the proper  strategy                                                            
at this time.                                                                                                                   
                                                                                                                                
Senator  B.  Stevens voiced  that,  "at  this  point," he  does  not                                                            
support this legislation,  as he calculated, that there would not be                                                            
"a  significant  draw"  on  the  CBR,  which  currently  amounts  to                                                            
approximately  $1.5 billion,  until  June 30, 2005.  He opined  that                                                            
that  a three-year  and five-year  "time  horizon  on an  investment                                                            
cycle is short-term."  He stated that  were the Legislature  "forced                                                            
to liquidate  the $420 million  that was  originally invested  for a                                                            
long-term horizon,  prematurely, we are destined to  lose money." He                                                            
spoke against  the legislation  as he reiterated  that the  money is                                                            
not required  at this time  and should continue  to be invested,  as                                                            
established,  in  the  long-term  equity  market  investment  for  a                                                            
minimum of five years.                                                                                                          
                                                                                                                                
Co-Chair  Wilken ordered  the  bill HELD  in Committee  for  further                                                            
consideration.                                                                                                                  
                                                                                                                                
                                                                                                                                
     HOUSE BILL NO. 559 am                                                                                                      
     "An Act extending the termination of the state training and                                                                
     employment program; and providing for an effective date."                                                                  
                                                                                                                                
                                                                                                                                
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
Co-Chair Wilken  noted that HB 559 am, Version 23-LS1954\A.A,  would                                                            
extend the State's employment  training program until the year 2008.                                                            
He noted that  a Department of Labor and Workforce  Development zero                                                            
fiscal note accompanies the legislation.                                                                                        
                                                                                                                                
GREG  O'CLARAY,  Commissioner,  Department  of Labor  and  Workforce                                                            
Development,  informed   that this  legislation   would  extend  the                                                            
State's  "successfully implemented"  State  Training and  Employment                                                            
Program (STEP)  for unemployed workers. He noted that  approximately                                                            
18,000 unemployed  workers "who were unable to be  served by federal                                                            
or  other programs,"  have  received  training through  the  program                                                            
since its inception.  He urged the Committee members  to support the                                                            
bill.                                                                                                                           
                                                                                                                                
Senator  Dyson commented  that the  ultimate success  of a  training                                                            
program is not  determined by the number of individuals  who receive                                                            
training,  but   is  rather  determined  by  the  number   of  those                                                            
individuals who obtain employment.                                                                                              
                                                                                                                                
Commissioner O'Claray communicated  that more than 90-percent of the                                                            
individuals who completed  the training obtained jobs as outlined in                                                            
a Workforce  Investment System report  [copy not provided]  that was                                                            
distributed  to Legislators earlier  in the year. He noted  that the                                                            
success of this  program supports Governor Frank Murkowski's  Alaska                                                            
Hire program. The specifics  of that program, he continued, are that                                                            
the person  must desire to  work; the person  must be a resident  of                                                            
the State with  the intention to remain in the State;  and must have                                                            
been previously  employed in a job that was covered  by unemployment                                                            
insurance. Continuing,  he shared that the intent of this program is                                                            
to reduce the number of people who are collecting unemployment.                                                                 
                                                                                                                                
Senator  Bunde asked  regarding  the  job market  opportunities  for                                                            
persons who complete the training.                                                                                              
                                                                                                                                
Commissioner  O'Claray  responded  that one  component  of the  STEP                                                            
program was  to evaluate the job market  in order to determine  what                                                            
jobs exist and  to attempt to establish "a pre-committed  job" prior                                                            
to training  being conducted. He attested  that this pre-commitment                                                             
is a factor  of the "most successful"  training programs.  He shared                                                            
that 4,500  new jobs were  created by the  State's economy  in 2003,                                                            
and that  the continued  development  of such things  as the  mining                                                            
industry  would  provide  sustainable   employment,  "which  is  the                                                            
ultimate goal."                                                                                                                 
                                                                                                                                
Senator Bunde  voiced comfort in knowing that the  training provided                                                            
was appropriate to the job market.                                                                                              
                                                                                                                                
Senator  Dyson  moved  to  report  the  bill   from  Committee  with                                                            
individual recommendations and accompanying zero fiscal note.                                                                   
                                                                                                                                
There being no objection,  HB 559am was REPORTED from Committee with                                                            
zero fiscal  note #1, dated  April 22, 2004  from the Department  of                                                            
Labor and Workforce Development.                                                                                                
                                                                                                                                
                                                                                                                                
     SENATE CS FOR CS FOR HOUSE BILL NO. 15(JUD)                                                                                
     "An Act relating to fair trade practices and consumer                                                                      
     protection, to telephone solicitations, to charitable                                                                      
     solicitations; 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   legislation,  sponsored   by                                                            
Representative  Bud Fate, "would establish  specific guidelines  for                                                            
telemarketers  operating  in  the State."  He noted  that  CS HB  15                                                            
(JUD), Version  23-LS0058\X  and its accompanying  fiscal notes,  is                                                            
before the Committee.                                                                                                           
                                                                                                                                
REPRESENTATIVE  BUD FATE, the bill's sponsor, stated  that his staff                                                            
would present testimony on the bill.                                                                                            
                                                                                                                                
JIM POUND,  Staff  to Representative  Bud Fate,  explained that  the                                                            
intent of this bill is  to address the number of telemarketing phone                                                            
calls that people receive  during the evening dinner hour. He stated                                                            
that similarly  fashioned  federal legislation,  referred to  as the                                                            
National No-Call  List, has been developed,  and that this  bill has                                                            
been modified to align  with those federal regulations. One of those                                                            
modifications,  he continued, would "allow the [State's]  Department                                                            
of Law  to enforce  the federal  statutes" and  additionally  "would                                                            
allow Alaskans  to be  able to have  a local  or in-State  contact,"                                                            
rather than a federal contact through which to file a complaint.                                                                
                                                                                                                                
Technical Amendment  #1: This amendment deletes "exemption  provided                                                            
by (a)(11)" and inserts  "written disclosure required by (a)(11)(B)"                                                            
in Section 22,  subsection (b) on page ten, line seven.  The amended                                                            
language would read as follows.                                                                                                 
                                                                                                                                
     (b)  The written  disclosure  required  by (a)(11)(B)  of  this                                                            
     section does not apply  to a sale of a magazine subscription by                                                            
     a publisher  or a publisher's  agent operating under  a written                                                            
     agreement between a publisher and the agent                                                                                
                                                                                                                                
Co-Chair  Wilken  moved  to  adopt Amendment  #1  and  objected  for                                                            
discussion.                                                                                                                     
                                                                                                                                
Mr.  Pound stated  that  this  technical  amendment is  required  to                                                            
correct a drafting error  that occurred when an amendment pertaining                                                            
to publishers  of  magazine and  periodical sales  was incorporated                                                             
into the Senate  Judiciary Committee committee substitute.  He noted                                                            
that the intent  of the amendment was to address the  bill's written                                                            
notice of  cancellation  requirements regarding  a transaction  that                                                            
occurs  with an  existing customer  or  were the  billing, which  is                                                            
routinely conducted with  a credit card, to be accompanied by an 800                                                            
number reflected on the  credit card charge on one's statement. This                                                            
toll-free  number,  he  continued,  would enable  an  individual  to                                                            
contract  the vendor to  discuss the charge.  Therefore, he  stated,                                                            
the  adoption  of   this  amendment  would  address  these   written                                                            
disclosure  requirements and correct  the drafting error  that might                                                            
serve to classify  the sale of these  items as a felony under  other                                                            
existing statutes.                                                                                                              
                                                                                                                                
SUSAN BURKE, Attorney  representing Magazine Publishers  of America,                                                            
noted  that  collaborative  efforts  with  the  Consumer  Protection                                                            
Division  of the  Department  of  Law have  resulted  in  acceptable                                                            
compromises.  She  agreed  that  this  amendment   would  correct  a                                                            
drafting error and that her client supports the amendment.                                                                      
                                                                                                                                
Co-Chair Wilken withdrew his objection to Amendment #1.                                                                         
                                                                                                                                
There being no further objection, Amendment #1 was ADOPTED.                                                                     
                                                                                                                                
Co-Chair Wilken asked for  further information regarding the effects                                                            
of the bill.                                                                                                                    
                                                                                                                                
Mr. Pound  explained  that this  legislation  would "localize"  this                                                            
issue  and  provide  the State's  Department  of  Law  more  control                                                            
regarding  telemarketer  issues.  He  stated  that this  bill  would                                                            
require telemarketers  operating in  the State to register  with the                                                            
Department of  Law, would allow consumer complaints  to be addressed                                                            
at the State rather than  federal level "which should be quicker and                                                            
a little  more personal,"  and would allow  Alaskans to register  on                                                            
the National  Do-Not-Call List. He  noted that the establishment  of                                                            
the National  Do-Not-Call List eliminated  the need to establish  an                                                            
Alaskan Do-Not-Call registry.                                                                                                   
                                                                                                                                
Senator  Dyson  asked  whether  non-profit   agencies  such  as  the                                                            
Salvation  Army or  political campaigns  would be  affected by  this                                                            
legislation.                                                                                                                    
                                                                                                                                
Mr. Pound  responded  that this  legislation would  not affect  non-                                                            
profits or political entities.                                                                                                  
                                                                                                                                
Senator   Dyson  asked   whether  "significant   issue"   non-profit                                                            
organizations would be affected.                                                                                                
                                                                                                                                
Mr. Pound understood  that those organizations  would be  recognized                                                            
as a political entity.                                                                                                          
                                                                                                                                
Senator Dyson  questioned whether non-profit fund-raising  endeavors                                                            
would be allowed.                                                                                                               
                                                                                                                                
Mr. Pound responded  that all non-profits would be  exempt from this                                                            
legislation.                                                                                                                    
                                                                                                                                
Senator  Dyson  asked  for  confirmation  that  this  would  include                                                            
political organizations.                                                                                                        
                                                                                                                                
Mr. Pound concurred.                                                                                                            
                                                                                                                                
Senator  Dyson  asked regarding  "the  common  denominator  for  the                                                            
exemption list"  as referred to in  Section 21 on page seven  of the                                                            
bill.                                                                                                                           
                                                                                                                                
Mr.  Pound  explained  that  the  exemption   language  pertains  to                                                            
registration  and  registration  fees. He  noted that  the  entities                                                            
specified   in  that  section   would  be   required  to  meet   the                                                            
requirements of the national Do-Not-Call list.                                                                                  
                                                                                                                                
Senator Dyson characterized  the list of exempted entities as "quite                                                            
extensive."                                                                                                                     
                                                                                                                                
Mr.  Pound  noted  that  the  section,  which   occurs  in  existing                                                            
regulation, was  originally included in the bill as  the result of a                                                            
minor Department  of Law drafting change request.  However, he noted                                                            
that  this "exemption  section"  has evolved  into one  of the  most                                                            
contentious sections of the bill.                                                                                               
                                                                                                                                
Senator Bunde  moved to report the bill, as amended,  from Committee                                                            
with individual recommendations and accompanying fiscal notes.                                                                  
                                                                                                                                
There  being no  objections,  SCS CS HB  15(FIN)  was REPORTED  from                                                            
Committee  with zero fiscal  note #4, dated  February 13, 2004  from                                                            
the  Department  of Community  and  Economic  Development  and  zero                                                            
fiscal note #5, dated February  23, 2004 from the Department of Law.                                                            
                                                                                                                                
                                                                                                                                
     CS FOR HOUSE BILL NO. 494(FIN) am                                                                                          
     "An  Act relating to  the methods of  disbursement of  money by                                                            
     the  state,  including employment  compensation,  unemployment                                                             
     payments,   and   permanent  fund   dividends,   and  to   bank                                                            
     investments  and deposits  by the state;  and providing  for an                                                            
     effective date."                                                                                                           
                                                                                                                                
                                                                                                                                
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
Co-Chair Wilken  noted that this bill,  CS HB 494 (FIN) am,  Version                                                            
23-LS1754\U.A, sponsored  by Representative Pete Kott, would mandate                                                            
"that monetary disbursements  can only be made through an electronic                                                            
funds transfer  or through an electronic  payment card unless  doing                                                            
so would  cause hardship  to the recipient."  He noted that  several                                                            
amendments would be forthcoming.                                                                                                
                                                                                                                                
SUE STANCLIFF,  Staff to Representative  Pete Kott, noted  that this                                                            
bill would alter the method  through which the State disburses funds                                                            
in  order to  reduce  associated  costs  to State  agencies  and  to                                                            
"improve  service delivery  to the  public." She  informed that  the                                                            
proposed electronic payment  delivery that would utilize such things                                                            
as direct deposits would  benefits the State, as it would reduce the                                                            
high cost of issuing paper  checks. She informed, however, that such                                                            
electronic  payment delivery  would not be  a viable payment  method                                                            
for "so-called cash customers"  who are those who do not have a bank                                                            
account or those  who might live in Bush areas of  the State and not                                                            
have access to a bank or choose not to receive direct deposits.                                                                 
                                                                                                                                
Ms. Stancliff  stated  that,  in addition  to reducing  the cost  of                                                            
issuing paper checks, "considerable"  savings would result from: not                                                            
having  to deal with  check fraud;  not having  to re-issue  lost or                                                            
stolen checks  or address  stale dated checks;  reduced postage  and                                                            
bank service fees; and  reduced labor costs. Furthermore, she stated                                                            
that  the   proposed  process  would   benefit  those  who   receive                                                            
electronic payments  because it would eliminate check-cashing  fees,                                                            
the payment  would be  made in a  timely, reliable  manner,  and the                                                            
check fraud liability would be reduced.                                                                                         
                                                                                                                                
Ms.  Stancliff pointed  out  that while  89-percent  of the  State's                                                            
payroll is direct deposited,  only 1.5 percent of the 50,000 vendors                                                            
the  State  does business  with  currently  utilize  the  electronic                                                            
payment transfer  method. She pointed  out that this is the  area to                                                            
which  the maximum  focus  would be  directed.  She  noted that  the                                                            
State's   child  support   and   public  assistance   programs   are                                                            
increasingly using electronic disbursements.                                                                                    
                                                                                                                                
Co-Chair  Wilken understood  that  the legislation  would allow  the                                                            
State to utilize electronic  funds transfers. He asked whether there                                                            
is a "compliant" component associated with the legislation.                                                                     
                                                                                                                                
Ms.  Stancliff  stated  that  rather  than  "compliant"   being  the                                                            
appropriate   word,  the   hope  is  that   incorporation   of  this                                                            
legislation  would  encourage its  use. She  stated  that the  State                                                            
would not require someone  to choose this method of payment, as that                                                            
would impede  on their right  not to choose  it. However, she  noted                                                            
that an  agreement within  the Western States  Alliance does  have a                                                            
compliant component in regards to electronic benefit transfers.                                                                 
                                                                                                                                
Co-Chair Wilken voiced  being "shocked" that the State issues 96,000                                                            
checks a month.  He asked how this  legislation would alter  current                                                            
payment regulations.                                                                                                            
                                                                                                                                
Ms. Stancliff  responded  that it  would insert  a new section  into                                                            
State's  statutes that identify  the methods  of disbursements  that                                                            
the State shall  use. She noted that, included in  the new language,                                                            
is  language specifying  that  a person  would  not  be required  to                                                            
utilize electronic  payment. Therefore, she concluded,  that while a                                                            
person could opt  out of this payment method, the  legislation would                                                            
specify  that  this  be  the  "primary  method"  utilized  by  State                                                            
departments.                                                                                                                    
                                                                                                                                
Co-Chair  Wilken  surmised  therefore  that  the  legislation  would                                                            
establish the  method for disbursement,  which is currently  "quiet"                                                            
in statute.                                                                                                                     
                                                                                                                                
Ms.  Stancliff  concurred.  She  noted  that  the  legislation  also                                                            
updates the  statute to "the electronic  age" by replacing  the word                                                            
"warrant" with "disbursement" throughout.                                                                                       
                                                                                                                                
DEBBIE  BUMP, Division  of Finance,  Department  of Administration,                                                             
noted that she was available to answer questions.                                                                               
                                                                                                                                
Senator  Olson  asked for  further  information  regarding  how  the                                                            
legislation would apply to people without a bank account.                                                                       
                                                                                                                                
Ms. Stancliff  responded that this  legislation would not  require a                                                            
person living in a remote  community with limited banking options or                                                            
who elect not  to receive electronic  payments to do so.  She stated                                                            
however,  that the  State could  alternately save  money were  these                                                            
people to receive  payment via an electronic or cash  card, which is                                                            
similar to a debit or credit  card that could be used at their local                                                            
grocery store or post office.                                                                                                   
                                                                                                                                
Senator Olson  asked for  clarification regarding  the fact  that no                                                            
more warrants would be issued.                                                                                                  
                                                                                                                                
Ms. Stancliff  clarified that the  legislation would allow  warrants                                                            
to be issued  to people "if  they have no  other means available  to                                                            
them."                                                                                                                          
                                                                                                                                
Senator   Olson  asked   for  further  information   regarding   the                                                            
electronic card.                                                                                                                
                                                                                                                                
Ms. Stancliff  explained that  in lieu of  receiving a check  in the                                                            
mail,  funds  in the  form  of cash  cards  could be  utilized  were                                                            
electronic technology available  at an area's post office or grocery                                                            
store.                                                                                                                          
                                                                                                                                
Amendment #1: This amendment  inserts a new section into the bill on                                                            
page two, line 23, after Section 3, as follows.                                                                                 
                                                                                                                                
Sec. 4. AS 14.40.841 is amended to read:                                                                                        
                                                                                                                                
     Sec.   14.40.841  Alaska  Aerospace   Development  Corporation                                                             
     [REVOLVING]   fund.  (a)  the   Alaska  Aerospace  Development                                                             
     Corporation    {REVOLVING}   fund   is   established   in   the                                                            
     corporation.  The [REVOLVING]  fund consists of appropriations                                                             
     made  to the [REVOLVING]  fund by the  legislature, and  rents,                                                            
     fees, or  other money or assets transferred to  the [REVOLVING]                                                            
     fund by the  corporation. Amounts deposited in  the [REVOLVING]                                                            
     fund may be pledged  to the payment of bonds of the corporation                                                            
     or  expended  for  the  purpose of  the  corporation  under  AS                                                            
     14.40.821 - 14.40.990.                                                                                                     
          (b) The corporation shall have custody of the fund, and                                                               
     shall  be responsible  for its management.  The corporation  is                                                          
     the  fiduciary of the  fund under AS  37.10.071 and may  invest                                                          
     amounts  in the fund  in accordance  with an investment  policy                                                            
     adopted  by the  corporation.  Notwithstanding  AS 37.10.010  -                                                          
     37.10.050,  the  corporation may  make disbursements  from  the                                                          
     fund  in  accordance  with  AS 37.25.050.   Notwithstanding  AS                                                          
     37.05.130   -   37.05.140,   the   corporation   shall   report                                                          
     disbursements  from  the fund  annually in  accordance with  AS                                                          
     14.40.866(b)(1).  An  appropriation  made  to the  fund by  the                                                          
     legislature  shall be  transferred from  the state treasury  to                                                            
     the corporation for deposit in the fund.                                                                                   
                                                                                                                                
In addition,  Sec.  31 on  page 11,  line  12 is  replaced with  the                                                            
following language.                                                                                                             
                                                                                                                                
     Sec.  32. Section  4 of  this Act  takes effect  July 1,  2004.                                                            
     Sections 1-3 and 5-31  of this Act take effect January 1, 2006.                                                            
                                                                                                                                
Co-Chair Wilken  offered Amendment #1 and objected  for explanation.                                                            
                                                                                                                                
Co-Chair  Wilken  shared  that  the  Alaska  Aerospace  Development                                                             
Corporation  (AADC), of which he is  a Board member, has  "struggled                                                            
with how to bring  their accounting system which is  somewhat unique                                                            
because  of  its  launch  customers"  into  the  State's  accounting                                                            
system.                                                                                                                         
                                                                                                                                
PAT  LADNER,  Executive   Director,  Alaska  Aerospace  Development                                                             
Corporation,  testified via teleconference  from an offnet  site and                                                            
explained  that the twelve  year-old corporation,  after  struggling                                                            
"in the beginning  against long odds,"  has recently signed  a five-                                                            
year  missile  defense  contract.  He  noted  that  in  FY  03,  the                                                            
Corporation:  earned  $3.7   million  in  revenue;  is  expected  to                                                            
generate  $11  million  in  FY  04;  and,  "provided  all  scheduled                                                            
launches occur,"  would be expected to generate $22.1  million in FY                                                            
05. He stressed  that this "is money  brought into the State."  This                                                            
amendment,  he  explained,   would  allow  the  Corporation   to  be                                                            
responsive   to  its  customer  the   federal  government,   and  be                                                            
competitive  with Vandenberg Air Force  Base. He recounted  that the                                                            
missile  defense  contract requires  an  accounting  system that  is                                                            
approved  by the federal  Defense Audit Agency  (DAA), and  he noted                                                            
that the  Corporation's  Axis Accounting  System  does not meet  the                                                            
established  criteria as  it was initially  designed  to be a  funds                                                            
tracking system for the  Legislature. Furthermore, he explained that                                                            
the current  system segregates disbursements  into five categories:                                                             
labor; travel;  contractual;  supplies; and  equipment. However,  he                                                            
continued, the  national missile contracts require  a work breakdown                                                            
structure  that consists  of approximately  15 categories with  sub-                                                            
category requirements.  He disclosed that because the current system                                                            
does not  provide that  ability, a "shadow  mode accounting  system"                                                            
has been developed, which  as subsequently been approved by the DAA.                                                            
The continuation  of  the Axis  System  and the  development of  the                                                            
shadow system,  he disclosed,  has resulted  in a double  accounting                                                            
system, which  has increased labor costs that could  not be recouped                                                            
under  the  contracts.   Therefore,  he  stated  that   because  the                                                            
Corporation  receives no funding  from the  State, this scenario  is                                                            
placing  the Corporation  in a  non-competitive  situation as  these                                                            
overhead rates escalate.                                                                                                        
                                                                                                                                
Mr.  Ladner stated  that  this amendment  would  serve  to make  the                                                            
Corporation   more  efficient  and   competitive  by  allowing   the                                                            
incorporation  of the separate accounting  system. He attested  that                                                            
no  other component  of  the operation  such  as annual  audits  and                                                            
reports would  be affected.  He further assured  the Committee  that                                                            
each  contract would  continue  to require  an annual  DAA audit,  a                                                            
legislative  audit,  and a  separate  federal  audit.  He urged  the                                                            
Committee to support the amendment.                                                                                             
                                                                                                                                
Co-Chair Wilken  noted that further  information is attached  to the                                                            
amendment.                                                                                                                      
                                                                                                                                
Ms.  Stancliff stated  that  the sponsor  has  no objection  to  the                                                            
amendment.                                                                                                                      
                                                                                                                                
Co-Chair Wilken removed his objection.                                                                                          
                                                                                                                                
Senator  Bunde  asked  whether  this  amendment  would  exclude  the                                                            
Corporation from a Legislative Budget & Audit review.                                                                           
                                                                                                                                
Mr. Ladner responded that it would not.                                                                                         
                                                                                                                                
There being no further objection, Amendment #1 was ADOPTED.                                                                     
                                                                                                                                
Conceptual Amendment  #2: This amendment replaces  the word "person"                                                            
with the words "vendor  or grantee" in Section 18, subsection (b)(4)                                                            
on page six, line 18. The new language would read as follows.                                                                   
                                                                                                                                
     (4) a vendor or grantee elects not to be paid by the                                                                       
     disbursement methods;                                                                                                      
                                                                                                                                
Co-Chair Wilken moved to adopt Conceptual Amendment #2.                                                                         
                                                                                                                                
Ms. Stancliff  explained  that this  language is  being proposed  as                                                            
most accounts  are established  with  a vendor or  a grantee  rather                                                            
than with a person.                                                                                                             
                                                                                                                                
There being no objection, Amendment #2 was ADOPTED.                                                                             
                                                                                                                                
Conceptual Amendment  #3: This amendment deletes Sections  25 and 26                                                            
of the bill beginning  on page nine, line 20 through  line 31, which                                                            
read as follows.                                                                                                                
                                                                                                                                
     Sec. 25. AS 44.99.205(a) is amended to read:                                                                               
          (a) A state agency may not place a picture of an elected                                                              
     state  official  on an application  form  [, A  WARRANT,]  or a                                                            
     direct deposit notice provided by the agency.                                                                              
     Sec. 26. AS 44.99.205(b) is amended to read:                                                                               
          (b) A state agency may not place a message on or with an                                                              
     application  form  [, A WARRANT,]  or a  direct deposit  notice                                                            
     provided by the agency unless the message is                                                                               
                (1) from a state agency employee who is not an                                                                  
     elected state official; and                                                                                                
                (2) required by law, necessary for the operation of                                                             
     the  document, related  to seasonal health  issues included  in                                                            
     flu shot reminders,  or related to a program or activity of the                                                            
     state agency.                                                                                                              
                                                                                                                                
Co-Chair Wilken moved to adopt Conceptual Amendment #3.                                                                         
                                                                                                                                
Ms. Stancliff  explained that because this legislation  incorporates                                                            
the disbursement requirement  into State statutes and because people                                                            
could  opt out  of the  electronic payment  method  and continue  to                                                            
receive  a  paper check  or  warrant,  this language  is  no  longer                                                            
required.                                                                                                                       
                                                                                                                                
There being no objection, Conceptual Amendment #3 was ADOPTED.                                                                  
                                                                                                                                
Senator Dyson  moved to report the bill, as amended,  from Committee                                                            
with individual recommendations and accompanying fiscal note.                                                                   
                                                                                                                                
There  being no  objection, SCS  CS HB  494(FIN)  was REPORTED  from                                                            
Committee with  seven zero fiscal notes as follows:  fiscal note #1,                                                            
dated  March 19, 2004  from the  Public Assistance  Field  Services,                                                            
Department  of Health  and Social  Services; fiscal  note #2,  dated                                                            
March 19, 2004 from the  Information Technology Services, Department                                                            
of Health and Social Services;  fiscal note #3, dated March 19, 2004                                                            
from the Administrative  Supports  Services Division, Department  of                                                            
Health and  Social Services; fiscal  note #4, dated March  16, 2004,                                                            
from the Unemployment  Insurance Division,  Department of  Labor and                                                            
Workforce Development;  fiscal note  #5, dated March 16,  2004, from                                                            
the  Employment   Services,  Department   of  Labor  and   Workforce                                                            
Development;  fiscal  note  #6,  dated  March  19,  2004,  from  the                                                            
Department  of Revenue; and  fiscal note #7,  dated March 16,  2004,                                                            
from the Department of Administration.                                                                                          
                                                                                                                                
                                                                                                                                
     SENATE CS FOR CS FOR HOUSE BILL NO. 514(JUD)                                                                               
     "An   Act   relating   to  child   support   modification   and                                                            
     enforcement,  to the  establishment of  paternity by the  child                                                            
     support  enforcement  agency,  and to  the crimes  of  criminal                                                            
     nonsupport   and  aiding  the  nonpayment  of  child   support;                                                            
     amending  Rule  90.3,  Alaska  Rules of  Civil  Procedure;  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 "omnibus" legislation is sponsored                                                            
by Representative  Pete Kott and would result in six  changes to the                                                            
Child Support Enforcement Division statutes.                                                                                    
                                                                                                                                
Senator Bunde  moved to adopt SCS CS HB 514, Version  23-LS1639\N as                                                            
the working document.                                                                                                           
                                                                                                                                
There being  no objection,  Version "N" was  ADOPTED as the  working                                                            
document.                                                                                                                       
                                                                                                                                
JOHN MAIN, Staff  to Representative Pete Kott, stated  that the bill                                                            
would correct  six items  in the  child support  statutes, with  the                                                            
first being  that it would  change "criminal  nonsupport,"  which is                                                            
currently  a misdemeanor,  to  a felony.  He shared  that there  are                                                            
approximately 14,000 cases  that exceed $20,000 in arrears or are in                                                            
excess of 24-months  in arrears on their child support  payments. He                                                            
shared that  these cases  amount to approximately  $580 million.  He                                                            
stated that that  fact that a person might be in arrears  on a large                                                            
amount  of child support  does not  necessarily  make that person  a                                                            
criminal; however,  he continued, this change would  align the State                                                            
with  33  other states  who  categorize  criminal  nonsupport  as  a                                                            
felony,  primarily   because  a  felony  charge   as  opposed  to  a                                                            
misdemeanor  charge mandates that  a person be on probation  for ten                                                            
years  with up  to a five-year  suspended  sentence  rather than  an                                                            
informal probation  of up to ten years with a suspended  sentence of                                                            
up  to  one year.  In  addition,  he  stated  that  the  statute  of                                                            
limitations on a felony  is ten years as opposed to five years for a                                                            
misdemeanor.                                                                                                                    
                                                                                                                                
                                                                                                                                
SFC 04 # 110, Side B 09:31 AM                                                                                                   
                                                                                                                                
                                                                                                                                
Mr. Main noted  that the Child Support Investigator  Unit oversees a                                                            
misdemeanor probationer,  and that were this offense reclassified as                                                            
a felony,  the  probation would  be overseen  by  the Department  of                                                            
Corrections Probation  Office. He stressed that changing  the charge                                                            
from a  misdemeanor to  a felony in  cases where  a large amount  of                                                            
child support is owed would  provide the Child Support Division with                                                            
"another tool to have to be able to collect higher amounts."                                                                    
                                                                                                                                
Senator Dyson  asked whether  a person who  might be convicted  as a                                                            
felon for being  in arrears on their child support  would lose their                                                            
right to vote and to bear arms.                                                                                                 
                                                                                                                                
Mr. Main affirmed that  would be the case, were they convicted under                                                            
a Class C felony.                                                                                                               
                                                                                                                                
Senator Dyson asked whether  those rights would be restored upon the                                                            
completion of the sentence.                                                                                                     
                                                                                                                                
Mr. Main could not provide the answer to that question.                                                                         
                                                                                                                                
Mr. Main exampled  that: were someone  to steal oil valued  at or in                                                            
excess of $500  from an oil company "through deception,"  they could                                                            
be convicted of  a Class C felony; were a person to  conceal $500 of                                                            
merchandise from, for instance,  JC Penney's, it would be considered                                                            
a Class C felony;  were an individual to defraud a  creditor of $500                                                            
or more  that is a Class  C felony; or were  an individual  to steal                                                            
$500 or more from  a non-profit organization, that  would be a Class                                                            
C felony. He  attested that withholding  child support from  a child                                                            
"is like stealing money  from their piggy bank" and yet, he noted, a                                                            
person withholding  child support payments must be  at least $20,000                                                            
in arrears  before they could be charged  with a Class C  felony. He                                                            
noted that the State's  Child Support Agency is currently monitoring                                                            
twenty-four cases at this level.                                                                                                
                                                                                                                                
Mr. Main stated that the  second change proposed by this legislation                                                            
would be to  incorporate a Conspiracy  Law through which  people who                                                            
assist people  with avoiding  child support  payments could  also be                                                            
charged with Class  C felony. He noted that the current  misdemeanor                                                            
charge for non-payment  of child support does not have a "conspiracy                                                            
law as companion to the actual crime."                                                                                          
                                                                                                                                
Mr.  Main  further   noted  that  this  legislation  would   address                                                            
differing jurisdictional  court issues in order to  clarify, through                                                            
State statute, that the  Courts have the statutory authority "across                                                            
the board" through which  approved payment plans could be developed;                                                            
through which  a person could be required to seek  work; and through                                                            
which a person could be  required to complete and submit a Permanent                                                            
Fund Dividend application, if qualified.                                                                                        
                                                                                                                                
Mr. Main voiced that another  important component of the legislation                                                            
would be to  provide the ability "to  compromise State debt  through                                                            
settlement."  He exampled that this  would allow individuals  with a                                                            
large amount  of child  support in  arrears to  establish a  payment                                                            
plan through which payments  would be paid over a period of time. He                                                            
noted that were  this to occur, some of the debt could  be forgiven.                                                            
This program,  he declared, would be limited to those  situations in                                                            
which it  was determined to  be in "the best  interest of the  State                                                            
and the children."                                                                                                              
                                                                                                                                
Mr.  Main  explained  that the  legislation  would  also  address  a                                                            
situation in which there  is "a victim of rape and incest" who, as a                                                            
result,  bears  a  child. He  noted  that  State  statute  currently                                                            
prohibits the  State Child Support Enforcement Division  (CSED) from                                                            
assisting someone in establishing  paternity. However, he explained,                                                            
this legislation  would allow the victim to request  CSED assistance                                                            
in  establishing   paternity   and  subsequently,   were   paternity                                                            
established, to  assist them in "seeking a child support  order." He                                                            
explained therefore,  that while CSED  "would not seek to  establish                                                            
paternity  on their own,"  they could do  so, were this legislation                                                             
adopted, if asked to do so by a victim of rape or incest.                                                                       
                                                                                                                                
Mr. Main noted  that the final change  proposed in this legislation                                                             
would be  to change Alaska  Statutes in order  for State laws  to be                                                            
consistent and compliant with federal funding requirements.                                                                     
                                                                                                                                
Senator  Dyson voiced  appreciation  and support  for  the bill.  He                                                            
asked whether  the legislation should address the  "timely change in                                                            
enforcement orders" issue.                                                                                                      
                                                                                                                                
Mr. Main  understood  the question  to pertain  "to adjustments  and                                                            
modifications  of orders,"  and he  noted that while  the issue  was                                                            
raised, it is not addressed in this bill.                                                                                       
                                                                                                                                
Senator Dyson  asked whether  this issue  was not addressed  because                                                            
"the solution  does not require a  Statute change, or because  there                                                            
is  no problem,  or  is  it a  big  enough issue"  to  be  addressed                                                            
separately  after  the  issues  included  in  this  legislation  are                                                            
resolved.                                                                                                                       
                                                                                                                                
Mr. Main responded  that in working with CSED in the  development of                                                            
this legislation,  that issue  was not identified  as needing  to be                                                            
addressed. However, he  stated that it might be an issue that should                                                            
be further discussed.                                                                                                           
                                                                                                                                
LINDA  WILSON,  Deputy  Director,  Alaska  Public  Defender  Agency,                                                            
Department of  Administration, testified via teleconference  from an                                                            
offnet site  and raised concern in  regards "to the large  number of                                                            
people  who would be  exposed to  a felony  prosecution," were  this                                                            
legislation  enacted.  She  reminded that  there  are  in excess  of                                                            
14,000 "who owe more than  $20,000 in child support or have not made                                                            
a payment in 24-months."  She declared that prosecuting  this number                                                            
of people under  a felony would have an impact on  the operations of                                                            
the Public Defender Agency (PDA).                                                                                               
                                                                                                                                
Ms. Wilson pointed  out that language "narrowing the  qualifications                                                            
of a Class  C felony" were  incorporated into  Section 3(d)  on page                                                            
two, line  two of the SCS  CS HB 514(JUD),  Version 23-LS1639\E,  by                                                            
the inclusion  of the word "intentionally,"  in that a person  could                                                            
be prosecuted  with  a Class C  felony were  they to "intentionally                                                             
fail to provide the support."                                                                                                   
                                                                                                                                
Ms. Wilson  noted that the recent  version of the bill incorporates                                                             
the  word "knowingly"  rather  than  the word  "intentionally."  She                                                            
stressed  that  use of  the  word "'intentionally'  would  serve  to                                                            
narrow the  exposure to a  felony prosecution  to really get  at the                                                            
people that  are being targeted."  She declared  that, "it  does not                                                            
take much to  get behind in child  support" and were the  intent "to                                                            
get at the worst  offenders, the ones who intentionally  withhold or                                                            
have  the  ability   to  pay  and  don't,"  then  using   "the  word                                                            
'intentionally'  would hopefully narrow  the field from 14,000  to a                                                            
smaller number of people."                                                                                                      
                                                                                                                                
Ms. Wilson stated  that other than the concern regarding  "the large                                                            
number  of  people  who could  be  prosecuted  for  a  felony,"  the                                                            
Department  is comfortable  with  the  remainder of  the  provisions                                                            
being proposed.                                                                                                                 
                                                                                                                                
Co-Chair Wilken asked whether  the committee substitute, Version "N"                                                            
addresses the Department's concern.                                                                                             
                                                                                                                                
Mr.  Main noted  that,  to the  contrary,  the word  "knowingly"  is                                                            
incorporated into Version  "N" at the recommendation of the Criminal                                                            
Section of the  Department of Law, as, he continued,  the use of the                                                            
word "intentionally"  was  determined "to  be almost impossible  for                                                            
the Department  to try  these people  and convict  them." He  stated                                                            
that in order  to prosecute a person,  the individual would  have to                                                            
have been legally  charged with the support of the  child or ordered                                                            
to  pay support  through  such things  as a  Court  order; that  the                                                            
person failed to provide  the child support and that "the State must                                                            
prove without a reasonable  doubt" that the person was aware that he                                                            
or she must  pay child support and  aware that they were  not paying                                                            
it; and that the lack of payment was without lawful excuse.                                                                     
                                                                                                                                
Senator Bunde recalled  that several years earlier, Legislators were                                                            
provided   a  list  [copy   not  provided]   of  approximately   100                                                            
individuals who owned more  $100,000 in back child support. He noted                                                            
that the majority of those  individuals resided in Rural Alaska, and                                                            
who,  he opined,  would be  likely to  require assistance  from  the                                                            
Public   Defender  Agency.   He   asked  therefore,   whether   this                                                            
legislation would have a "substantial impact" on the PDA.                                                                       
                                                                                                                                
Mr. Main  replied  that the  procedure  that must  be undertaken  in                                                            
order to charge  these people is such that only "the  most egregious                                                            
individuals"  are investigated.  He  noted  that in  the last  three                                                            
years, only 24  cases have been presented as the CSEA  only has four                                                            
investigators,  and only two of those address criminal  non-support.                                                            
He concurred  with the information  that some people owe  upwards of                                                            
$50,000 in back  child support, but noted that the  biggest issue is                                                            
"ability  to pay." Therefore,  he concluded,  the CSEA only  pursues                                                            
those who have the ability  to pay and who "have refused to pay." He                                                            
noted  that the  Department  works  with people  who  live in  Rural                                                            
Alaska and  people who have  "very larges  arrearages to be  able to                                                            
get those reduced."                                                                                                             
                                                                                                                                
Senator Dyson moved to  report the Finance committee substitute from                                                            
Committee with  individual recommendations  and accompanying  fiscal                                                            
notes.                                                                                                                          
                                                                                                                                
There  being no  objection, SCS  CS HB  514(FIN)  was REPORTED  from                                                            
Committee  with indeterminate  fiscal  note #2,  dated February  23,                                                            
2004 from  the Court  System; indeterminate  fiscal  note #3,  dated                                                            
February 22, 2004  from the Department of Law; zero  fiscal note #4,                                                            
dated March 12,  2004 from the Division of Retirement  and Benefits,                                                            
Department  of Administration; zero  fiscal note #5, dated  March 9,                                                            
2004  from   the  Division   of  Risk   Management,  Department   of                                                            
Administration;  zero fiscal note #6, dated March  12, 2004 from the                                                            
Department  of Public Safety;  indeterminate  fiscal note #9,  dated                                                            
April 6, 2004 from the  Department of Administration; and a new zero                                                            
fiscal note, dated May 6, 2004 from the Department of Revenue.                                                                  
                                                                                                                                
                                                                                                                                
     SENATE BILL NO. 366                                                                                                        
     "An Act  relating to the levy  and collection of sales  and use                                                            
     taxes,  to the levy and collection  of municipal sales  and use                                                            
     taxes,  and  to municipal  sales  and  use taxes  on  alcoholic                                                            
     beverages; and providing for an effective date."                                                                           
                                                                                                                                
                                                                                                                                
This  was the fifth  hearing  for this  bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
Co-Chair  Wilken informed  that this legislation  addresses  a State                                                            
sales tax.                                                                                                                      
                                                                                                                                
Senator B. Stevens moved  to adopt CS SB 366, Version 23-LS1051\Z as                                                            
the working document.                                                                                                           
                                                                                                                                
There being no  objection, the Version "Z" committee  substitute was                                                            
ADOPTED as the working document.                                                                                                
                                                                                                                                
Senator  B.   Stevens  explained   that  the  committee   substitute                                                            
incorporates  the following  changes:  in Section  17, on page  six,                                                            
lines 17-21, language  is inserted that would allow  communities "to                                                            
levy and collect  specific sales or  excise taxes" on categories  to                                                            
include single  events such  as a car rentals  and fish taxes.  This                                                            
language reads as follows.                                                                                                      
                                                                                                                                
     Sec. 17.  AS 29.45 is amended by adding a new  section to read:                                                            
          Sec. 29.45.655. Specific taxes on property and services.                                                              
     Unless  otherwise prohibited  by law,  a municipality  may levy                                                            
     and  collect   specific  sales   or  excise  taxes   on  single                                                            
     categories  of tangible  and intangible  property or  services,                                                            
     such as bed taxes, car rental taxes, and fish taxes.                                                                       
                                                                                                                                
Senator B. Stevens  pointed out that another change  is incorporated                                                            
into the  bill in Section  29 (c) on page  ten, lines 14 and  15, as                                                            
follows.                                                                                                                        
                                                                                                                                
     (c)  The rate of the  sales tax is three  percent of the  sales                                                            
     price.  The  rate  of the  use  tax  is three  percent  of  the                                                            
     purchase price.                                                                                                            
                                                                                                                                
Senator  B.   Stevens  also  noted   that  new  language   exempting                                                            
communities  with a population  of less  than 500  "from any  of the                                                            
provisions  included  in  this  bill" is  inserted  in  Section  29,                                                            
subsection  43.44.020 Exemptions.  on page 12,  lines 15 and  16, as                                                            
follows.                                                                                                                        
                                                                                                                                
     (16)  sales,  leases,  or rentals  made  in a  municipality  or                                                            
     unincorporated  community with  a population of less  than 500.                                                            
                                                                                                                                
Senator  B. Stevens  also noted  that a  new provision  in added  in                                                            
Section 29, Article 3.  Administration of Tax., subsection 43.44.310                                                            
Relationship  to municipal  levies.  on page 20,  lines 10-13,  that                                                            
would allow  the Department  of Revenue to  contract with the  local                                                            
municipality  that  currently  have  an existing  tax  office.  This                                                            
language reads as follows.                                                                                                      
                                                                                                                                
     (d)  The   department  shall   have  sole  responsibility   and                                                            
     authority  for the administration  of  taxes levied under  this                                                            
     chapter,  AS  29.45.650,  and  29.45.700.  The  department  may                                                            
     contract  with a  municipality  to provide a  field office  for                                                            
     that municipality 's geographic area of the state.                                                                         
                                                                                                                                
Senator B. Stevens communicated  that the committee substitute would                                                            
establish a termination  date for the legislation to be effective as                                                            
of July 1, 2013, as denoted  in Sec. 37 on page 26, lines 12 and 13.                                                            
                                                                                                                                
Senator  B. Stevens  opined, "that  this is a  fiscal proposal  that                                                            
would  generate revenue."  He  noted that  while  the Department  of                                                            
Revenue  has not yet  provided a  fiscal note  specific to this  new                                                            
committee  substitute, it  is estimated that  a three percent  State                                                            
sales  tax would  generate  approximately  $250 million,  with  $166                                                            
million  of   that  to  be  designated   for  the  State   and  with                                                            
approximately  a $85 million  return to  communities. He  identified                                                            
the exemption  of communities with  less than 500 residents  as "the                                                            
largest exemption  provided to date."  He noted that this  exemption                                                            
would exempt 87  of the 164 incorporated communities  that currently                                                            
levy taxes.                                                                                                                     
                                                                                                                                
Senator Bunde  asked the rationale of exempting communities  of less                                                            
than 500,  as, he attested,  many of those  communities rely  on the                                                            
State for a number of services including education support.                                                                     
                                                                                                                                
Senator B.  Stevens responded that  the reason for the exemption  is                                                            
that these communities  "are the most vulnerable." He noted that the                                                            
tax that might  be collected in those communities  "is not worth the                                                            
fight."                                                                                                                         
                                                                                                                                
PHELAN STRAUBE,  Staff to  Senator Ben Stevens,  further noted  that                                                            
most of the  communities consisting  of 500 residents or  less "have                                                            
high prices for goods"  as previously pointed out by Senator Hoffman                                                            
and Senator  Olson;  however, he continued,  most  of the goods  and                                                            
services purchased  by those communities' residents  are from larger                                                            
communities   such  as   Bethel,  Fairbanks,   and  Anchorage,   and                                                            
therefore,  he attested, "the sales  tax would still be collected."                                                             
                                                                                                                                
Senator Bunde voiced concern  for "a counter-intuitive incentive" in                                                            
that communities  might not  grow in order  to avoid the tax  in the                                                            
future.                                                                                                                         
                                                                                                                                
Senator  B.  Stevens disclosed  that  there  have  been interesting                                                             
discussions  in this regard.  He stated that  the original  argument                                                            
was  that requiring  small  communities to  pay a  five-percent  tax                                                            
would force  commerce  outside of  the State. He  declared that  now                                                            
that  it  is  being  proposed  to  exempt  those  communities,  "the                                                            
discussion  has transformed  into  saying  "oh, that's  a good  idea                                                            
because you still capture  those people because they spend all their                                                            
money  in Anchorageā€¦or  the local  hubs in their  regions  anyway.'"                                                            
This  argument, he  contended,  indicates,  "that they  don't  spend                                                            
money outside of the State in the first place."                                                                                 
                                                                                                                                
Senator  Bunde  shared  that  some  small  communities   with  1,000                                                            
citizens  are decrying  that placing  a sales  tax on  top of  their                                                            
local sales  tax would encourage citizens  to conduct business  with                                                            
communities of less than 500 residents.                                                                                         
                                                                                                                                
Senator Olson asked the  cost incurred to the State to generate that                                                            
$250 million in gross sales tax revenue.                                                                                        
                                                                                                                                
Senator  B.  Stevens stated  that  page  two  of the  Department  of                                                            
Revenue indeterminate  fiscal note,  dated March 31, 2004  indicates                                                            
that  an on-going  operational  expense  of  $5.9 million  would  be                                                            
required to provide for  79 full-time positions. He stated that this                                                            
is an  estimate  and does  not account  for the  new provision  that                                                            
would  allow the  State to  contract  with local  municipalities  to                                                            
provide the service.  He concluded that while the  effort would cost                                                            
money, it would generate money.                                                                                                 
                                                                                                                                
Senator Bunde  agreed "that whatever the cost, there  would be a net                                                            
gain to the State."                                                                                                             
                                                                                                                                
Senator Olson  asked for  verification that  the proposed tax  would                                                            
now be three percent rather than four percent.                                                                                  
                                                                                                                                
Senator B.  Stevens confirmed that  this committee substitute  would                                                            
reduce the tax rate from  four percent to three percent as indicated                                                            
in  Sec.  29,  subsection  (c)   on  page  ten,  lines  14  and  15.                                                            
Continuing,  he noted that the amount  contributed to the  community                                                            
or the Rate that  "would be returned to the community"  would remain                                                            
the same, as specified  in Section 29, Article 3.  Administration of                                                            
Tax. Subsection  (b) (1), (b) (2), (b) (3), and (b)  (4) on page 19,                                                            
beginning on line  23 through page 20, line 4 which  read as follow.                                                            
                                                                                                                                
     (1) less than three percent, the department shall remit the                                                                
     amount of the tax levied by the municipality;                                                                              
     (2)  at least three  percent  but less than  four percent,  the                                                            
     department   shall  remit  the  amount  that  would  have  been                                                            
     collected  in the  municipality if  the sales  and use tax  had                                                            
     been four percent;                                                                                                         
     (3)  at least  four percent  but less  than  five percent,  the                                                            
     department   shall  remit  the  amount  that  would  have  been                                                            
     collected  in the municipality  if the  sales and use  levy tax                                                            
     had been five percent.                                                                                                     
     (4) five percent of  more, the department shall round up to the                                                            
     next  whole number and  remit the amount  that would have  been                                                            
     collected  in the municipality  if the  sales and use  tax levy                                                            
     had  been that  whole number;  for example,  if a municipality                                                             
     levied  a sales and use  tax at the rate  of five percent,  the                                                            
     department   shall  remit  the  amount  that  would  have  been                                                            
     collected under a six percent levy.                                                                                        
                                                                                                                                
Senator  B. Stevens  stated  that,  "in reality,  one-third  of  the                                                            
revenue  collected  by  the State  would  be  returned back  to  the                                                            
community."  He noted that those communities  that do not  collect a                                                            
sales tax would not receive a percentage.                                                                                       
                                                                                                                                
Senator Olson  asked whether  exemptions might  apply to the  rental                                                            
and  sale of  real estate  as  related to  language  in Section  29,                                                            
subsection (d) on page ten, line 16 that reads as follows.                                                                      
                                                                                                                                
     (d) The maximum tax  on a single sale, lease, or rental is $60.                                                            
                                                                                                                                
Senator  B. Stevens  responded  that  the  sale, rental,  lease,  or                                                            
construction  of real  property  are exempt  from the  sales tax  in                                                            
communities of less than 500 residents.                                                                                         
                                                                                                                                
Senator Hoffman  asked for further  clarification of this  matter by                                                            
asking in regards to the  taxes on a five-year home lease agreement.                                                            
                                                                                                                                
Senator B.  Stevens declared that  it would be exempt from  the tax.                                                            
                                                                                                                                
Senator  Bunde  moved  to  report  the  committee   substitute  from                                                            
Committee   with   individual   recommendations   and  accompanying                                                             
"pending" fiscal note.                                                                                                          
                                                                                                                                
There  being  no  objection,  CS SB  366  (FIN)  was  REPORTED  from                                                            
Committee  with an  indeterminate fiscal  note, dated  May 7,  2004,                                                            
from the Department of Revenue.                                                                                                 
                                                                                                                                
                                                                                                                                
     CS FOR HOUSE BILL NO. 545(L&C)                                                                                             
     "An   Act  relating   to  time  extensions   under  the   State                                                            
     Procurement  Code for real property  leases; 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, CS HB 545(L&C),  Version 23-                                                            
GH2150\H, is  sponsored by the House  Rules Committee by  Request of                                                            
the Governor,  and would allow a State  agency to negotiate  a lease                                                            
agreement  for ten  years  provided  that there  be  a minimum  cost                                                            
savings of ten percent below the market rental value.                                                                           
                                                                                                                                
VERN   JONES,    Chief    Procurement   Officer,    Department    of                                                            
Administration,  stated  that  the current  State  procurement  code                                                            
allows the State to negotiate  extensions for real estate leases for                                                            
up to ten years in exchange  for rent reductions. He noted that this                                                            
bill  "would  increase  the  State's  ability   to  negotiate  lease                                                            
extensions  by  changing  the  requiring  threshold  from a  ten  to                                                            
fifteen percent  reduction  off of the existing  lease rate,  as the                                                            
current law  requires, to a ten percent  reduction from the  current                                                            
market rate." He stated  that the current statutory regulations have                                                            
negatively  impacted  the Department's  ability  to negotiate  lease                                                            
extensions with landlords,  as, he attested, the State's real estate                                                            
market  combined  with the  way  the State's  lease  agreements  are                                                            
structured,  often makes the 15 percent  reduction from the  current                                                            
lease rates "unobtainable."                                                                                                     
                                                                                                                                
Mr. Jones stated  "that tying the lease rate to a  percentage of the                                                            
current market rate would  be a more reasonable approach" that would                                                            
allow  the State "to  negotiate  reduced rates  more frequently  and                                                            
avoid  the lengthy  and  expensive re-procurement   process, not  to                                                            
mention  the cost  and  disruption"  of moving  States  offices  and                                                            
employees.                                                                                                                      
                                                                                                                                
Mr. Jones detailed the  current lease process, including improvement                                                            
options,  and concluded  that  this bill  would allow  the State  to                                                            
reduce its overall leasing expenses.                                                                                            
                                                                                                                                
Co-Chair Wilken asked whether  this legislation is a new approach or                                                            
is modeled after that of other states.                                                                                          
                                                                                                                                
Mr. Jones responded  that this legislation  "is just making  a small                                                            
adjustment to a tool" that  is already in place. He noted that other                                                            
states often exempt  real estate leases from their  procurement code                                                            
similar to  a business or brokerage  model. He estimated  that while                                                            
approximately  half of the states  have similar lease procedures  to                                                            
the State, the proposed provision is unique.                                                                                    
                                                                                                                                
Senator  Dyson  moved  to  report  the  bill   from  Committee  with                                                            
individual recommendations and accompanying fiscal notes.                                                                       
                                                                                                                                
There being no objection, CS HB 545(L&C) was REPORTED from                                                                      
Committee with zero fiscal note #1, dated February 25, 2004 from                                                                
the Department of Administration.                                                                                               
                                                                                                                                
RECESS TO THE CALL OF THE CHAIR 10:05 AM / 5:11 PM                                                                              
                                                                                                                                
ADJOURNMENT                                                                                                                 
                                                                                                                                
Co-Chair Gary Wilken adjourned the meeting at 05:11 PM.                                                                         

Document Name Date/Time Subjects