Legislature(2005 - 2006)SENATE FINANCE 532

04/04/2005 09:00 AM FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Scheduled But Not Heard
Moved CSSB 93(FIN) Out of Committee
Heard & Held
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
                     SENATE FINANCE COMMITTEE                                                                                 
                           April 4, 2005                                                                                      
                             9:10 a.m.                                                                                        
CALL TO ORDER                                                                                                               
Co-Chair Green convened the meeting at approximately 9:10:16 AM.                                                              
Senator Lyda Green, Co-Chair                                                                                                    
Senator Gary Wilken, Co-Chair                                                                                                   
Senator Con Bunde, Vice Chair                                                                                                   
Senator Bert Stedman                                                                                                            
Senator Lyman Hoffman                                                                                                           
Senator Donny Olson                                                                                                             
Senator Fred Dyson                                                                                                              
Also  Attending:    SENATOR  BEN  STEVENS;  SENATOR   TOM  WAGONGER;                                                          
REPRESENTATIVE ERIC CROFT;  REPRESENTATIVE MIKE HAWKER; FRANK HOMAN,                                                            
Commercial   Fisheries  Entry  Commission;   JERRY  MCCUNE,   United                                                            
Fishermen  of Alaska;  CHUCK HARLAMERT,  Juneau  Section Chief,  Tax                                                            
Division,  Department  of  Revenue;   LAUREN  WICKERSHAM,  Staff  to                                                            
Senator Bunde; KATHY WASSERMAN, Alaska Municipal League;                                                                        
Attending  via  Teleconference:    From Mat-Su:  KIM  FLOYD,  Public                                                          
Information Specialist,  Mat-Su School District; KRIS MOORE, Wasilla                                                            
resident;  From an offnet  location: LESTER  LUNCEFORD, resident  of                                                            
SUMMARY INFORMATION                                                                                                         
SB  93-FISHING PERMIT AND VESSEL LICENSE FEES                                                                                   
The  Committee heard  from  the sponsor,  the  Commercial  Fisheries                                                            
Entry  Commission   and  an  industry   organization.  A   committee                                                            
substitute was adopted and the bill was reported from Committee.                                                                
SB 155-APPROP: SCHOOLS/UNIV/VIROLOGY LAB/MUSEUM                                                                                 
The Committee heard from  the sponsor and members of the public. The                                                            
bill was held in Committee.                                                                                                     
SB 112-TAX ON REAA RESIDENTS                                                                                                    
The Committee  heard from  the sponsor, the  Department of  Revenue,                                                            
the Alaska Municipal  League and members of the public.  A committee                                                            
substitute was adopted and the bill was held in Committee.                                                                      
     SENATE BILL NO. 93                                                                                                         
     "An Act relating to commercial fishing permit and vessel                                                                   
     license fees; and providing for an effective date."                                                                        
This was  the second  hearing for  this bill in  the Senate  Finance                                                            
Co-Chair   Green  noted   a  proposed   committee   substitute   was                                                            
Co-Chair Wilken  moved for adoption  of CS SB 93, 24-LS0504\F,  as a                                                            
working document.                                                                                                               
Co-Chair Green objected for an explanation.                                                                                     
SENATOR  BEN STEVENS,  sponsor  of the  bill, outlined  two  changes                                                            
proposed in the  committee substitute: the first would  impose a cap                                                            
on the amount of the permit  fee and the second change would provide                                                            
for a 20 percent license  fee increase to vessel class. The original                                                            
language  of this  legislation  contains  no  limitation  and a  fee                                                            
structure  that imposes  a proportionately  higher  fee for  smaller                                                            
9:12:41 AM                                                                                                                    
Senator B.  Stevens referenced a table  titled, "DRAFT, CFEC  Vessel                                                            
Fees,  Current  and Proposed"  [copy  on  file] which  contains  the                                                            
following data.                                                                                                                 
     Vessel Length: 0-25'                                                                                                       
          Number: 3,484                                                                                                         
          Current Fee: $20                                                                                                      
          Current Revenue: $69,680                                                                                              
          Proposed 20% Fee: $24                                                                                                 
          Proposed 20% Revenue: $83,616                                                                                         
     Vessel Length: 25-50'                                                                                                      
          Number: 5,600                                                                                                         
          Current Fee: $50                                                                                                      
          Current Revenue: $280,000                                                                                             
          Proposed 20% Fee: $60                                                                                                 
          Proposed 20% Revenue: $336,000                                                                                        
     Vessel Length: 50-75'                                                                                                      
          Number: 764                                                                                                           
          Current Fee: $76,400                                                                                                  
          Proposed 20% Fee: $120                                                                                                
          Proposed 20% Revenue: $91,680                                                                                         
     Vessel Length: 75-150'                                                                                                     
          Number: 447                                                                                                           
          Current Fee: $250                                                                                                     
          Current Revenue: $111,750                                                                                             
          Proposed 20% Fee: $300                                                                                                
          Proposed 20% Revenue: $134,100                                                                                        
     Vessel Length: 150-250'                                                                                                    
          Number: 92                                                                                                            
          Current Fee: $500                                                                                                     
          Current Revenue: $46,000                                                                                              
          Proposed 20% Fee: $600                                                                                                
          Proposed 20% Revenue: $55,200                                                                                         
     Vessel Length: 250'                                                                                                        
          Number: 26                                                                                                            
          Current Fee: $750                                                                                                     
          Current Revenue: $19,500                                                                                              
          Proposed 20% Fee: $900                                                                                                
          Proposed 20% Revenue: $23,400                                                                                         
          Number of Vessels: 10,413                                                                                             
          Current Revenue: $603,330                                                                                             
          Proposed 20% Revenue: $723,996                                                                                        
     Note:  A  20%  across  the  board  vessel  fee  increase  would                                                            
     generate  $120,666  in fees over  the current  vessel fees.  In                                                            
     comparison   the  vessel  fee  proposal  currently   in  SB  93                                                            
     generates  approximately $291,000. The current  fiscal note for                                                            
      SB 93 would be reduced by $170,334 under this proposal.                                                                   
     Source: CFEC 3/23/2005                                                                                                     
9:13:42 AM                                                                                                                    
Senator  B.  Stevens  next referenced   a chart  titled,  "State  of                                                            
Alaska, Commercial Fisheries  Entry Commission, Comparison of Permit                                                            
Renewal Fees for 2005 Licensing  Year Under Current Fee Schedule and                                                            
Under CFEC's  Proposed Methodology  for Implementing  SB 93,  Permit                                                            
Counts and Estimated  Revenue by Base Fee with $3000  Cap, March 23,                                                            
2005,  Draft"  [copy  on file.]  This  demonstrates  the  impact  to                                                            
individual  permit holders  of the  proposed fee  increases with  no                                                            
change to the  current formula for deriving those  fees. He detailed                                                            
the  calculation  of  how  the fees  would  be  assessed  under  the                                                            
provisions  of the committee substitute.  The majority of  the large                                                            
vessels impacted are the offshore deep sea fishing fleet.                                                                       
FRANK HOMAN,  Commercial Fisheries  Entry Commission, testified  the                                                            
increased fees  would be assessed  at four tenths of one  percent of                                                            
the permit value.                                                                                                               
9:17:14 AM                                                                                                                    
Co-Chair Green understood  that the intent is to expand the existing                                                            
fee structure.                                                                                                                  
Senator  B. Stevens  affirmed  the fee  amounts have  been  limited,                                                            
although  the original language  of this  bill would eliminate  this                                                            
maximum  cap. The proposed  committee substitute  instead  increases                                                            
the cap. The  cap is justified because  the fisheries at  the higher                                                            
end are multi-million  dollar industries and fluctuate  according to                                                            
worldwide factors.                                                                                                              
9:18:16 AM                                                                                                                    
Senator Hoffman  noted fees have not  exceeded $300 in the  past and                                                            
asked the number of residents  and nonresidents who would be subject                                                            
to the higher amounts.                                                                                                          
Senator B.  Stevens indicated  he could calculate  this and  provide                                                            
information at a later date.                                                                                                    
Senator Hoffman  surmised the majority of the new  revenue generated                                                            
by  this legislation  would  be  derived  from fees  collected  from                                                            
Mr.  Homan  had not  differentiated  the  residency  source  of  the                                                            
increased revenues.  The value of a permit is not  correlated to the                                                            
residency of the permit  holder, with the exception of a nonresident                                                            
differential assessed to each nonresident-owned vessel.                                                                         
9:19:42 AM                                                                                                                    
Co-Chair  Green   asked  the  position   of  user  groups   on  this                                                            
Senator B.  Stevens replied that the  fee limit was reintroduced  to                                                            
be less  onerous  on smaller  vessel owners.  The  limit would  also                                                            
assure  those larger  vessel owners  participating  in the  offshore                                                            
fleet  that  the fees  would  not  increase as  the  fishery  values                                                            
increased.  The majority  of the  fishing industry  does not  oppose                                                            
this  legislation. He  noted  a letter  of support  from the  United                                                            
Fishermen  of  Alaska organization  dated  March  7, 2005  [copy  on                                                            
9:21:17 AM                                                                                                                    
Co-Chair  Green  requested  an  explanation  of  how  the  money  is                                                            
expended and the function of the Commission.                                                                                    
9:21:33 AM                                                                                                                    
Senator B. Stevens deferred to Mr. Homan.                                                                                       
9:21:38 AM                                                                                                                    
Mr. Homan replied  that authorization to spend money  collected from                                                            
the fees is legislative.  The Commercial Fisheries  Entry Commission                                                            
is a receipt-supported  entity without general fund support. In many                                                            
years and as  recently as 1998, the  Commission had a surplus  of $2                                                            
million that was  transferred to the State general  fund. A practice                                                            
was  started  in the  year  2000 to  appropriate  a portion  of  the                                                            
surplus  to  the  Division  of  Commercial  Fisheries  for  industry                                                            
related programs.                                                                                                               
9:23:21 AM                                                                                                                    
Senator Stedman clarified  that only the permit renewal fee would be                                                            
changed under the provisions of the committee substitute. Be                                                                    
Senator B.  Stevens stated  the fee increase  is unchanged  from the                                                            
original  version  of the  bill with  the  exception  that a  $3,000                                                            
maximum  fee would  be established;  the original  language did  not                                                            
include a cap.                                                                                                                  
9:24:20 AM                                                                                                                    
Senator  B. Stevens  noted a companion  bill was  introduced  in the                                                            
House of Representatives.                                                                                                       
JERRY MCCUNE,  United Fishermen of  Alaska, testified in  support of                                                            
the committee  substitute. Members  had complained about  the higher                                                            
end fees proposed in the  original version of the bill. He indicated                                                            
that the organization  had received  a letter from the commissioner                                                             
of the  Department of Fish  and Game, assuring  that these  concerns                                                            
would  be  considered.  The  organization  was  satisfied  that  the                                                            
regulation and  public hearing process would be adequate  to address                                                            
the matter.                                                                                                                     
9:25:51 AM                                                                                                                    
Co-Chair Green noted letters  from other industry organizations were                                                            
received as well.                                                                                                               
9:26:04 AM                                                                                                                    
Co-Chair  Green  removed  her  objection  to  the  adoption  of  the                                                            
committee substitute  and the committee substitute,  Version "F" was                                                            
Co-Chair  Wilken offered a  motion to report  CS SB 93, 24-LS0504\F                                                             
from Committee with individual  recommendations and new fiscal note.                                                            
There was no objection  and CS SB 93 (FIN) MOVED from Committee with                                                            
a zero  fiscal note  dated 4/1/05  from the Department  of Fish  and                                                            
9:27:02 AM                                                                                                                    
     SENATE BILL NO. 155                                                                                                        
     "An  Act  making  appropriations   from  the  earnings  reserve                                                            
     account  for construction of  an integrated science  complex at                                                            
     the University  of Alaska in Anchorage, for replacement  of the                                                            
     virology   laboratory  in  Fairbanks,  for  expansion   of  the                                                            
     Anchorage Museum of  History and Art, for the major maintenance                                                            
     grant  fund,   and  for  other  capital  projects   related  to                                                            
     education; and providing for an effective date."                                                                           
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
SENATOR  BEN STEVENS,  sponsor  of  the bill,  testified  this  bill                                                            
specifically funds  construction $142 million to address  the entire                                                            
list of  statewide  deferred maintenance  projects  compiled by  the                                                            
Department  of  Education  and  Early  Development.  Secondly,  this                                                            
legislation  appropriates money for  new construction of  elementary                                                            
schools statewide.  These projects  were selected based on  location                                                            
in school districts that  have experienced population growth as well                                                            
as  student  population  growth. Consideration   was also  given  to                                                            
projects located in areas  in which rapid growth is anticipated as a                                                            
result of  construction of  a natural gas  pipeline and exploration                                                             
and development of the Arctic National Wildlife Refuge.                                                                         
Senator  B.  Stevens continued  that  this  legislation  would  also                                                            
provide funding  for University of Alaska projects  and appropriates                                                            
$5 for the Anchorage Museum of History and Art.                                                                                 
Senator   B.  Stevens   informed   that   the  funding   for   these                                                            
appropriations is entirely  from the earnings reserve account of the                                                            
Alaska Permanent Fund.                                                                                                          
Senator  B. Stevens referenced  charts provided  showing  population                                                            
growth  in areas  of  the state,  including  the  Matanuska  Susitna                                                            
valleys [copies on file.]                                                                                                       
9:30:40 AM                                                                                                                    
Co-Chair Green  clarified this legislation would fund  every project                                                            
included  on  the Department  of  Education  and  Early Development                                                             
deferred maintenance list.                                                                                                      
Senator B. Stevens affirmed all 78 projects are included.                                                                       
Co-Chair  Green  asked  if  funding  for  all deferred  maintenance                                                             
projects has ever been provided in one appropriation.                                                                           
Senator B. Stevens was unaware of a previous instance.                                                                          
Co-Chair  Green  noted  Senator  Hoffman  affirmed  this  has  never                                                            
9:31:26 AM                                                                                                                    
Senator  Stedman asked  the length  of  time to  "build up"  another                                                            
deferred  maintenance project  list. He asked  if consideration  has                                                            
been  given to  a scheduled  maintenance  plan to  eliminate  future                                                            
deferred maintenance  needs. This  would avoid another onerous  list                                                            
with schools in disrepair.                                                                                                      
9:32:26 AM                                                                                                                    
Senator  B. Stevens  deferred  to the  Department  of Education  and                                                            
Early Development.                                                                                                              
9:32:39 AM                                                                                                                    
Senator B.  Stevens noted  that each year  a certain portion  of the                                                            
maintenance  list  is funded.  School  districts  identify  deferred                                                            
maintenance projects  and apply to the Department  for consideration                                                            
and priority ranking.  He did not know how rapidly  the project list                                                            
would be regenerated.                                                                                                           
9:33:11 AM                                                                                                                    
Co-Chair Wilken  recalled in 1997 or 1998 the legislature  adopted a                                                            
provision  requiring  school  districts  to develop  a preventative                                                             
maintenance  plan  in order  for deferred  maintenance  projects  to                                                            
qualify for State funding.                                                                                                      
9:34:51 AM                                                                                                                    
Co-Chair  Green asked  if the  State has  the ability  to  determine                                                            
whether  appropriated funding  has been expended  for the  specified                                                            
9:35:04 AM                                                                                                                    
Co-Chair Wilken  understood the Department  has this oversight,  but                                                            
was unsure of the details.                                                                                                      
9:35:14 AM                                                                                                                    
Co-Chair Green  expressed interest in including such  a provision in                                                            
this legislation for monitoring  projects. Some school officials are                                                            
express interest in securing  State funding for projects but have no                                                            
interest in reporting back to the Department.                                                                                   
9:36:03 AM                                                                                                                    
Senator  Hoffman applauded  Senator B. Stevens  for presenting  this                                                            
bill.  This proposal  would  save  the State  "several  millions  of                                                            
dollars" in the  future. Maintaining and improving  facilities would                                                            
extend their live expectancy.                                                                                                   
9:36:51 AM                                                                                                                    
Senator  Stedman  spoke  to his  past  experience  with maintenance                                                             
issues. Due to budget constrains,  the Sitka School District did not                                                            
maintain its  facilities. As a result  the Borough assembly  removed                                                            
that function from the Board's authority.                                                                                       
9:38:04 AM                                                                                                                    
Co-Chair  Green noted  that several  local governments  have  "cross                                                            
purposes"   with   different   entities   in  charge   of   facility                                                            
9:38:22 AM                                                                                                                    
Co-Chair Wilken  agreed. He told of his participation  in a deferred                                                            
maintenance  task force in  which he traveled  to different  schools                                                            
and made  a comparison of  the condition  of different schools  some                                                            
within the  same district. The issue  is not a matter of  money, but                                                            
rather of attitude.                                                                                                             
9:39:34 AM                                                                                                                    
Senator Bunde  commented to  the mentality  that residents  are less                                                            
inclined  to  maintain  a  facility   they  did  not  contribute  to                                                            
financially.  He indicated the next  bill on the Committee's  agenda                                                            
could assist in overcoming this.                                                                                                
Senator Bunde  clarified the intent is to utilize  earnings from the                                                            
Alaska Permanent Fund for this appropriation.                                                                                   
9:41:17 AM                                                                                                                    
Senator B. Stevens  listed the three justifications  for his efforts                                                            
on this bill.  The proposed projects  are nonrecurring expenditures                                                             
and would not require ongoing  funding from this source. It could be                                                            
argued that  deferred maintenance  is an  ongoing service;  however,                                                            
this  legislation  does  not  stipulate  continued  appropriations.                                                             
Secondly,  this  is an  investment.  The  Alaska Permanent  Fund  is                                                            
viewed  as an  investment  fund and  the  earnings have  never  been                                                            
expended for any  purposes other than investments.  Past investments                                                            
have been made  for a monetary return;  this would be an  investment                                                            
in educational facilities  and would provide an intellectual return.                                                            
It  is important  to  invest in  these  facilities that  provide  an                                                            
intellectual return. Lastly,  the Alaska Constitution mandates these                                                            
funds  be deposited  into the State  general  fund unless  otherwise                                                            
provided for  in statute. Current  statute provides that  funds from                                                            
the earnings  reserve account  must first  be utilized to  inflation                                                            
proof the Fund with excess  earnings available for allocation at the                                                            
discretion  of the  legislature. Past  legislatures  have chosen  to                                                            
invest the funds for monetary return.                                                                                           
9:44:18 AM                                                                                                                    
Senator  Bunde  asking that  this  information  be conveyed  to  the                                                            
public to promote understanding  of this philosophy. He indicated he                                                            
is a cosponsor of this legislation.                                                                                             
Senator Bunde stated that  investments, dividends, and hold harmless                                                            
provisions  are appropriate  uses  of the earnings  reserve  account                                                            
funds. Constitutionally  these are State funds and  are no different                                                            
than  oil revenues  or other  revenues  generated by  the State.  He                                                            
countered the argument  that proceeds from the Alaska Permanent Fund                                                            
should not  be spent without  a public vote  by contending  that all                                                            
State appropriations  should therefore require such  voter approval.                                                            
Every year the legislature expends excess earnings of the Fund.                                                                 
9:46:17 AM                                                                                                                    
Senator Hoffman noted the  sponsor statement reference to the effect                                                            
of  this legislation  on  dividend  payments,  which is  likely  the                                                            
highest  concern of  citizens.  The impact  would be  less than  one                                                            
percent,  or a $10 reduction  to the amount  of the previous  year's                                                            
dividend payment.                                                                                                               
9:47:09 AM                                                                                                                    
Senator B.  Stevens stated he would  provide further details  on the                                                            
calculations [copy on file.]                                                                                                    
Senator  B.  Stevens  clarified  these  calculations   are  "forward                                                            
looking", explaining that  the one-percent impact on dividends would                                                            
be an  impact on  the distribution  of future  dividends, as  growth                                                            
rates would  not be as  high. He cited information  provided  by the                                                            
Division  of  Legislative   Finance,  "the  impact   on  the  future                                                            
distribution over the next  15 years is anticipated under the status                                                            
quo … would be  $29,690 in distributions." If this  legislation were                                                            
implemented  and this "one-time  draw" were  made from the  earnings                                                            
reserve account,  the distribution  is estimated to be $29,393.  The                                                            
total reduction  would therefore  be $297  in future distributions.                                                             
Dividends  would   continue  to  increase  from  royalty   deposits,                                                            
inflation-proofing  the principal  of the  Fund would continue,  and                                                            
with  prudent  management,  the  Fund would  continue  to  grow.  He                                                            
informed  that  over the  15  years  an individual  is  educated  in                                                            
kindergarten through college,  that individual would receive $29,000                                                            
from the State.  These are conservative  estimates. The question  as                                                            
to whether this is a prudent investment is justified.                                                                           
9:50:19 AM                                                                                                                    
Senator Stedman  wanted elaboration on the history  of utilizing the                                                            
Alaska Permanent  Fund for  capital appropriations  versus  on-going                                                            
operation  expenses.  He  pointed  out  the significant   difference                                                            
between  these expenses.  He  also requested  clarification  on  the                                                            
differences  of  debt  versus  equity  financing.  This legislation                                                             
essentially  proposes to "pay cash"  for these projects,  as opposed                                                            
to borrowing money to fund the projects, which is "not free".                                                                   
9:51:21 AM                                                                                                                    
Senator B. Stevens replied  that a capital expenditure is a one-time                                                            
expense  not  a  baseline  number  for  future appropriations.   The                                                            
operating  budget  uses  a management   plan to  create  an  ongoing                                                            
funding  source  to provide  a  steady  stream  of funds  for  State                                                            
services. This legislation  is a one-time appropriation bill with no                                                            
expectation  to continue the following  year. The proposed  projects                                                            
are worthy of this funding source.                                                                                              
9:53:22 AM                                                                                                                    
Senator B. Stevens  continued that certain projects  are "worthy" of                                                            
debt financing,  while others  should be funded  with cash.  None of                                                            
the proposed  projects are  to "cash generating"  facilities.  Roads                                                            
would  generate  commerce  from  freight  transports  and  commuters                                                            
traveling  to jobs.  The  proposed projects  provide  education  for                                                            
students. This  funding source would allow the proposed  projects to                                                            
be completed earlier.  An argument could be made that  the funds are                                                            
currently  invested  to  earn  money and  would  not  earn  interest                                                            
through this  appropriation. However,  funding would be required  to                                                            
pay for the  projects or to pay off  debt incurred to undertake  the                                                            
projects. Investing equity  into an "instrument" that earns money is                                                            
sensible; investing equity  into a facility that does not make money                                                            
only increases the debt.                                                                                                        
9:56:11 AM                                                                                                                    
Co-Chair  Green  recalled  calculations  done  on  a  separate  bond                                                            
proposal of $350 million  paid out over 20 years estimated a debt of                                                            
$600 to $700 million  over the life of the bonds.  The interest owed                                                            
on bonds  issued  for these  projects could  impede  the ability  to                                                            
undertake new projects.                                                                                                         
9:57:02 AM                                                                                                                    
Co-Chair  Wilken   appreciated  Senator  B.  Stevens'   efforts  and                                                            
recognizing  that the  State has the  capacity to  pay for  projects                                                            
without debt  financing. Conditions  may not be as favorable  in the                                                            
future and efforts should  be made to ensure that future generations                                                            
are not encumbered.                                                                                                             
Co-Chair Wilken  emphasized that appropriations  would be  made from                                                            
the earnings  reserve account  after the  Fund is inflation  proofed                                                            
and after dividends are  paid. He acknowledged that constituents are                                                            
concerned about  reduced dividends,  but stressed that once  this is                                                            
explained to  them, they understand.  Many mistakenly predict  their                                                            
annual  dividend  would be  reduced  significantly,  at about  $900;                                                            
however,  the actual  reduction  is approximately  $42.  This is  an                                                            
investment  he could accept for "building  Alaska". This  requires a                                                            
change in "how we view  Alaska" but Alaskans have a fund of billions                                                            
of  dollars to  benefit  600,000 people,  which  no  other state  or                                                            
country has.  This presents a "daunting responsibility."                                                                        
10:00:51 AM                                                                                                                   
Senator Bunde compared  this legislation to personal finances. It is                                                            
illogical to incur maximum  debt on personal credit cards if one has                                                            
sufficient  funding in  a bank  account. He  expressed concern  that                                                            
Alaska could  become akin to an eccentric  who dies in poverty  with                                                            
millions of dollars stuffed into a mattress.                                                                                    
10:01:58 AM                                                                                                                   
Senator  Stedman  referenced  a  table  titled,  "State  of  Alaska,                                                            
Department of  Education and Early Development, Capital  Improvement                                                            
Projects  (FY 2006),  Major  Maintenance  Grant Fund,  Final  Agency                                                            
Decision" dated  March 11, 2005 [copy on file] that  lists the total                                                            
cost  of  the  projects  at  $187  million.  He  noted  the  sponsor                                                            
statement   includes   a  list   of   "K-12  Maintenance   and   New                                                            
Construction"  totaling over $212 million. He understood  the intent                                                            
of  this   legislation   to  address   every   identified   deferred                                                            
maintenance project  and asked about the additional  $25 million. He                                                            
agreed to  the necessity  to prioritize investment  in areas  of the                                                            
State  with increasing  student  population growth  and anticipated                                                             
future  growth as  a result  of the  construction of  a natural  gas                                                            
10:03:16 AM                                                                                                                   
Senator B.  Stevens replied that appropriations  made in  Sections 1                                                            
and 2  of the legislation  equal  $212 million.  Section 2 lists  14                                                            
specific  projects.  Section  3  appropriates  funding  to  for  the                                                            
construction of  a virology laboratory managed by  the University of                                                            
Alaska, Fairbanks. Section  4 appropriates funding to the University                                                            
of Alaska for  projects at various campuses. Section  5 appropriates                                                            
funding for the Anchorage Museum of History and Art.                                                                            
10:04:32 AM                                                                                                                   
Senator Stedman  calculated this legislation would  appropriate $141                                                            
million  for deferred  maintenance  projects,  $80  million for  new                                                            
construction  of schools, the University  of Alaska and the  museum.                                                            
Senator B. Stevens affirmed.  The University of Alaska would receive                                                            
$119 million, $80 million  would be appropriated for construction of                                                            
new K-12 facilities,  approximately  $142 would be appropriated  for                                                            
deferred maintenance, and $5 million for the museum.                                                                            
10:05:32 AM                                                                                                                   
Senator   Stedman  commented   that   in  the   past,  some   school                                                            
construction   has   been  undertaken   without   consideration   to                                                            
population changes. He  agreed with the concept of directing capital                                                            
to  areas with  population  growth  and not  stagnant  or  declining                                                            
populations.  "There  is  only so  much  money  to go  around."  The                                                            
distribution proposed in  this legislation is fair and would address                                                            
areas experiencing  population growth much quicker  than would occur                                                            
if past practices were continued.                                                                                               
10:06:47 AM                                                                                                                   
Senator  Olson noted  the proposed  projects listed  in the  sponsor                                                            
statement are  not all maintenance  and deferred maintenance  items,                                                            
but  also include  new  construction,  which he  considered  capital                                                            
10:07:18 AM                                                                                                                   
Senator B.  Stevens replied  that the list  of deferred maintenance                                                             
projects  is provided  separately  than the proposed  new  projects.                                                            
Individual new construction  projects are listed in Section 2 of the                                                            
10:07:48 AM                                                                                                                   
Senator  Olson  asked  that  although  such   withdrawals  from  the                                                            
earnings  reserve  account   are legal,   how  assurances  would  be                                                            
provided that future projects  would be as worthy and the draw would                                                            
not escalate in future years.                                                                                                   
10:08:24 AM                                                                                                                   
Senator B.  Stevens reiterated this  legislation is a "stand  alone"                                                            
capital appropriation  worthy of consideration. Future  legislatures                                                            
would have discretion  to make future withdrawals  from the account.                                                            
This is  not a binding  process. He intended  to utilize the  excess                                                            
earnings  of the  Fund for  an investment.  The "time  is right"  to                                                            
undertake these projects  in this manner, and circumstances could be                                                            
more or less favorable  in the future. These projects  are necessary                                                            
and the State has the resources to fund them.                                                                                   
10:09:37 AM                                                                                                                   
Senator  B.   Stevens  addressed   a  spreadsheet  titled,   "Alaska                                                            
Permanent Fund, Fund Financial  History & Projections, as of January                                                            
31, 2005"  [copy on file.]  Each year the  financial projections  of                                                            
the  that  FY  05 would  be  the  first  year  the  expenditure  for                                                            
inflation  proofing  the principal  of  the  Fund would  exceed  the                                                            
dividend  payout. The end  of year balance  is important because  of                                                            
concerns that  appropriation of the  earnings reserve account  would                                                            
affect dividend  distribution. The  balance of the earnings  reserve                                                            
account has  been "swept",  or transferred  to the principal  of the                                                            
Fund, seven  times and  has never  been used to  pay dividends.  The                                                            
appropriation  of this legislation  would be less than one-third  of                                                            
the excess amount in the account in the worst-case scenario.                                                                    
10:14:05 AM                                                                                                                   
Co-Chair  Wilken directed  attention  to the  total  balance of  the                                                            
Fund, which is expected to be $49 billion in FY 2015.                                                                           
Co-Chair Wilken  spoke of the upcoming  election year and  suggested                                                            
the Committee  members could campaign  for reelection on  a platform                                                            
that utilizing  a portion of the earnings reserve  account funds for                                                            
these projects  would have improved the condition  of the State at a                                                            
cost of $154  per person over ten  years of receiving approximately                                                             
$10,000 in  Permanent Fund dividends.  Some would argue this  amount                                                            
is too  high and  therefore  the question  is political.  If  voters                                                            
disapprove  of the decision to appropriate  these funds,  they could                                                            
vote for a different candidate.                                                                                                 
10:17:36 AM                                                                                                                   
Senator Olson  asked the source of the $49 billion  FY 15 projection                                                            
of the balance of the Permanent Fund.                                                                                           
10:18:00 AM                                                                                                                   
Co-Chair Wilken corrected the projected amount is $48 billion.                                                                  
10:18:13 AM                                                                                                                   
Senator  Olson expressed  concern  with the  projection,  cautioning                                                            
that  the situation  might not  be as  favorable in  the future.  In                                                            
constructing  new facilities,  maintenance  and  operation  expenses                                                            
would increase.  He cited the under funding of the  State retirement                                                            
system as an example of unforeseen circumstances.                                                                               
10:19:19 AM                                                                                                                   
Co-Chair Wilken agreed  that the situation could decline but pointed                                                            
out that during  the worst bear market since the 1930s,  the balance                                                            
of the Fund declined from  $26.5 billion to $23.5 billion. This loss                                                            
is inconsequential given the circumstances.                                                                                     
10:20:08 AM                                                                                                                   
Senator B.  Stevens informed that  endowments to the Permanent  Fund                                                            
are  dependant  upon  receipt  of  royalty  payments   from  natural                                                            
resource development. The  projected amounts of these royalties only                                                            
reflect  proven  oil reserves  and  production  of  those  reserves.                                                            
However,  efforts  continue  to  identify   and develop   additional                                                            
reserves. The  projected amounts do not include potential  royalties                                                            
as a result of  a natural gas pipeline, development  of resources in                                                            
the  Arctic  National  Wildlife  Refuge  (ANWR)  or  other  sources.                                                            
Therefore,  future  royalty  projections   are significantly   under                                                            
10:21:55 AM                                                                                                                   
Co-Chair Green  reported a student  population growth in  the Mat-Su                                                            
School District  of 300 since October 2004. This places  pressure on                                                            
existing facilities.                                                                                                            
KIM FLOYD  of the Mat-Su  School District,  and a parent,  testified                                                            
via  teleconference  from  Mat-Su to  thank  the Committee  for  the                                                            
discussion, which  has informed her on this matter.  She would share                                                            
this information  with others.  She detailed  the growth in  student                                                            
population  and need  for three new  elementary  schools not  in the                                                            
future but for  today. Additional schools would be  needed in future                                                            
years.  She preferred  utilizing  funds  from the  earnings  reserve                                                            
account,  which  she  stated  she  would  "never  see"  rather  than                                                            
increased property taxes.  She spoke to a positive impact created by                                                            
investing  in  the   future.  She  pledged  her  support   for  this                                                            
10:24:50 AM                                                                                                                   
KRIS  MOORE, Wasilla  resident,  testified via  teleconference  from                                                            
Mat-Su  glad  to  the  growth  rate  in  the  area.   She  witnesses                                                            
development activities  daily. While she is privileged to live in an                                                            
area  with  potential,  some  issues must  be  addressed  to  ensure                                                            
quality of  life. She supported  this legislation  and the  proposed                                                            
funding source  for the listed  projects. She  intended to  speak to                                                            
others  about this bill.  It offers  a fiscally  responsible  way to                                                            
address these needs.                                                                                                            
10:26:55 AM                                                                                                                   
Co-Chair Wilken  asked if either of the previous two  witnesses were                                                            
elected officials.                                                                                                              
Ms. Moore  informed she  is a mother,  a student  at "Mat-Su"  and a                                                            
member of the community.                                                                                                        
Ms. Floyd listed her title  as the Public Information Specialist for                                                            
the Mat-Su  School  District,  although her  role as  mother of  two                                                            
elementary-school aged students is primary.                                                                                     
10:27:31 AM                                                                                                                   
Co-Chair Wilken  understand the needs  of the Matanuska and  Susitna                                                            
valleys area. He questioned  the decision of the local government to                                                            
not  issue   bonds  to   fund  additional   school  facilities   and                                                            
expansions.  This  is  an  appropriate   question  for  the  elected                                                            
10:28:09 AM                                                                                                                   
Co-Chair  Wilken spoke of  preventative  maintenance, reminding  the                                                            
Committee of legislation  adopted in 1998 stipulating rules by which                                                            
grants for deferred maintenance  projects could be received from the                                                            
State.  These  rules  require  that  a  school  district  develop  a                                                            
preventative  maintenance  plan  acceptable  to  the  Department  of                                                            
Education   and  Early  Development.   The   plan  must  include   a                                                            
computerized  maintenance  management   program,  regular  custodial                                                            
care,  facilities   training,  energy  management,   and  renew  and                                                            
replacement  schedules.  Department  regulations  require that  each                                                            
school district  be visited one of  every five years. All  53 school                                                            
districts  have been visited  at least once  and the Department  has                                                            
issued  a report  titled,  "Preventative  Maintenance  State of  the                                                            
State,  Report  of   the  ADA  [Americans  With  Disabilities   Act]                                                            
Assessments and Related  Data" [copy not provided.] The preventative                                                            
maintenance  plans of six  districts do not  meet the five  criteria                                                            
necessary  to  receive  grants. If  the  Department  enforces  these                                                            
regulations,  premature  deferred   maintenance  projects  would  be                                                            
minimized.  Therefore,  the list  of proposed  deferred maintenance                                                             
projects would not "grow out of control" in the future.                                                                         
10:30:46 AM                                                                                                                   
Co-Chair Green  clarified that additional  language in this  bill is                                                            
not necessary to address this matter.                                                                                           
10:30:56 AM                                                                                                                   
Co-Chair  Wilken  stated  that  "preventative   language"  could  be                                                            
10:31:11 AM                                                                                                                   
Co-Chair Green assigned Co-Chair Wilken to draft this language.                                                                 
10:31:36 AM                                                                                                                   
Co-Chair Green ordered the bill HELD in Committee.                                                                              
10:32:09 AM                                                                                                                   
     CS FOR SENATE BILL NO. 112(CRA)                                                                                            
     "An Act imposing a tax on residents of regional educational                                                                
     attendance areas and relating to permanent fund dividend                                                                   
     applications; and providing for an effective date."                                                                        
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Senator Bunde  presented this bill saying it relates  to discussions                                                            
on the previous bill. The  Committee has heard testimony that school                                                            
districts   need  more  money.  This   legislation  would   generate                                                            
approximately  $13 million. The intent  is that this money  would be                                                            
used for education  purposes as "new  funding" rather than  supplant                                                            
existing funding.  Residents of cities  and communities governed  by                                                            
home rule  contribute  some money  for operation  of the schools  in                                                            
their  communities.   This  is  an   "important  expression"   of  a                                                            
community's   investment  in   their  schools   both  fiscally   and                                                            
psychologically.  Residents  who  have  a local  investment  take  a                                                            
greater  interest in protecting  that investment.  This legislation                                                             
would generate  additional revenue  as well as local responsibility                                                             
for schools.                                                                                                                    
10:34:47 AM                                                                                                                   
Senator Bunde  relayed an incident  told by a school superintendent                                                             
in the  Bristol Bay  region. School  supplies would  be received  in                                                            
small  communities and  left unprotected  from  the weather  without                                                            
concern by local residents.  Once those residents began contributing                                                            
financially  to  the  operation   of  the  small  schools  in  their                                                            
communities,  the supplies  were  better cared  for. This  is not  a                                                            
reflection  solely on rural  residents, but  rather of human  nature                                                            
regardless of location.                                                                                                         
10:36:46 AM                                                                                                                   
Co-Chair Green noted a proposed committee substitute.                                                                           
Senator Bunde  moved for  adoption of CS SB  112, 24-LS0505\L,  as a                                                            
working document.                                                                                                               
Co-Chair Green objected for an explanation.                                                                                     
10:38:02 AM                                                                                                                   
Senator Bunde outlined  the committee substitute. Language beginning                                                            
on page  1, line  12 provides that  individuals  aged 21 through  65                                                            
would be liable  for the tax. This mirrors the requirements  of many                                                            
organized communities.                                                                                                          
10:38:36 AM                                                                                                                   
Senator  Bunde noted  language  beginning on  page 2,  line 8  lists                                                            
exemptions  for those whose income  is less below the poverty  line,                                                            
disabled  veterans, and  those owning  real property,  but also  pay                                                            
property tax in another Alaskan jurisdiction.                                                                                   
Senator Bunde  deemed this legislation a "fairness  bill" that would                                                            
"allow"  contribution  by  those  not  paying  taxes.  Residents  of                                                            
unorganized areas  would pay the proposed tax. The  intent is not to                                                            
"double  tax" residents  and  therefore the  exemption  is given  to                                                            
those who are levied a tax in an organized area.                                                                                
10:40:06 AM                                                                                                                   
CHUCK HARLAMERT,  Juneau Section Chief, Tax Division,  Department of                                                            
Revenue, testified the  Department had some technical suggestions to                                                            
make the tax "administratable".                                                                                                 
10:40:33 AM                                                                                                                   
Co-Chair  Green  asked if  those  suggestions  are included  in  the                                                            
committee substitute.                                                                                                           
10:40:38 AM                                                                                                                   
Senator Bunde affirmed.                                                                                                         
10:40:41 AM                                                                                                                   
Mr. Harlamert  stated that Section 2, on page 2, line  16 relates to                                                            
paying the  tax in the event an employer  did not withhold  the tax.                                                            
10:41:34 AM                                                                                                                   
Senator  Bunde furthered  that if the  tax was  not withheld  from a                                                            
paycheck, the individual must file the tax.                                                                                     
10:41:58 AM                                                                                                                   
Mr. Harlamert continued  that the language contained on page 2, line                                                            
22 through page  3, line 21 simplify and clarify the  provisions for                                                            
withholding the tax.                                                                                                            
10:43:01 AM                                                                                                                   
Co-Chair  Green, Senator  Bunde and Mr.  Harlamert established  that                                                            
similar technical  changes are included  through line 21  of page 3.                                                            
10:43:37 AM                                                                                                                   
Mr. Harlamert  next addressed the  refund provision on page  3, line                                                            
26. Refunds would be issued  the calendar year after the tax year to                                                            
avoid redundant claims  during the year. This corresponds with other                                                            
administrative procedures.                                                                                                      
10:44:00 AM                                                                                                                   
Co-Chair  Green asked  if the provision  relating  to the Office  of                                                            
Administrative Hearings was new to the committee substitute.                                                                    
10:44:24 AM                                                                                                                   
Mr. Harlamert  affirmed and explained this provision  is intended to                                                            
avoid  frivolous   appeals.  These  appeals  would   be  subject  to                                                            
adjudication  in  the  same  manner  as  other  State  administered                                                             
10:44:56 AM                                                                                                                   
Co-Chair Green  asked for an explanation of the language  on page 7,                                                            
line 14.                                                                                                                        
Mr. Harlamert was unable to answer.                                                                                             
10:45:17 AM                                                                                                                   
Senator Bunde  informed that the legislative bill  drafters inserted                                                            
this language, although he was unsure the reason.                                                                               
10:45:31 AM                                                                                                                   
LAUREN  WICKERSHAM,  Staff to  Senator  Bunde, elaborated  that  the                                                            
drafter stated  this language was necessary for "upkeep".  She would                                                            
obtain additional information.                                                                                                  
10:45:57 AM                                                                                                                   
Co-Chair Wilken  asked if the fiscal  note amount would be  adequate                                                            
to cover the provisions  inserted in the committee  substitute, such                                                            
as increased enforcement.                                                                                                       
10:46:44 AM                                                                                                                   
Mr.  Harlamert replied  that  the  fiscal note  was  written to  the                                                            
original version  of the bill and  assumes the "best case  scenario"                                                            
for  administrative  purposes.  The  fiscal note  also  assumes  the                                                            
Division would  "take business decisions  for third party  data" and                                                            
"administer  tax from  our  desks". The  fiscal notes  would  change                                                            
according to the committee substitute.                                                                                          
10:47:46 AM                                                                                                                   
Co-Chair  Wilken asked if  the Department would  issue a new  fiscal                                                            
note for the committee substitute.                                                                                              
10:47:55 AM                                                                                                                   
Co-Chair Green affirmed this would occur.                                                                                       
10:47:58 AM                                                                                                                   
Co-Chair Wilken  relayed he has heard some support  of withholding a                                                            
portion  of permanent  fund dividend  payments  for those  residents                                                            
living  in  unorganized  boroughs  who  do  not  already  pay  taxes                                                            
supporting local schools.                                                                                                       
10:48:25 AM                                                                                                                   
Senator Bunde  affirmed this suggestion has been discussed  with the                                                            
Permanent  Fund Dividend  Division.  The Division  is "hesitant"  to                                                            
support  this,   as  it  would  be  cumbersome  to  administer   and                                                            
expensive.  In  addition,  garnishment  for this  purpose  would  be                                                            
prioritized  with garnishment for  child support payments  and other                                                            
obligations.  The likelihood of garnering  revenue from this  source                                                            
for education would be limited.                                                                                                 
10:49:24 AM                                                                                                                   
Co-Chair Wilken  reminded the Committee  that organized communities                                                             
have  contributed  $177.9  million  to  schools.  Senator  Bunde  is                                                            
attempting  to "level  the  playing field  a bit".  Co-Chair  Wilken                                                            
supports this legislation and is a co-sponsor.                                                                                  
10:50:01 AM                                                                                                                   
Senator  Hoffman  suggested  that  if this  legislation  is  a  fair                                                            
proposal it  could be made universal  to all areas of the  state and                                                            
subsequently, organized  communities could reduce property taxes for                                                            
their  residents. Contrary  to  statements  that this  tax would  be                                                            
fair,  there are  many inequities  because  while  residents in  one                                                            
school  district  pay  the  maximum  allowable   tax,  other  school                                                            
districts impose  a lesser tax. The  tax rate proposed in  this bill                                                            
is based  on the  average  amount paid  by those  who currently  are                                                            
taxed. The fairest system would be a statewide tax.                                                                             
10:51:16 AM                                                                                                                   
Senator  Bunde  explained   current  State  statute   requires  that                                                            
organized communities  contribute "some local support"  for schools.                                                            
How that funding  is generated, whether through property  tax, sales                                                            
tax  or   other  sources,   is   the  decision   of  the   community                                                            
representatives.   The  legislature   sits   as  the  assembly   for                                                            
unorganized  boroughs. A statewide  head tax would be a progressive                                                             
income tax, which he did not support.                                                                                           
10:52:32 AM                                                                                                                   
LESTER   LUNCEFORD,    resident    of   Whittier,   testified    via                                                            
teleconference  from an offnet location  to applaud Senator  Bunde's                                                            
courage  in sponsoring  this bill.  Mr. Lunceford  heard  complaints                                                            
about  the  fairness  or unfairness  of  taxation  for  schools  and                                                            
surmised this proposal would be implement fairness.                                                                             
10:53:33 AM                                                                                                                   
DAN  BOCKHORST,  staff,  Local  Boundary  Commission,   Division  of                                                            
Community   Advocacy,   Department   of   Community   and   Economic                                                            
Development,  testified via teleconference  from an offnet  location                                                            
that the Commission unanimously supports this bill.                                                                             
10:54:03 AM                                                                                                                   
Co-Chair  Green asked whether  the Commission  has provided  written                                                            
documentation of that support.                                                                                                  
10:54:09 AM                                                                                                                   
Mr. Bockhorst replied that  a letter of support was written on April                                                            
1 and submitted.                                                                                                                
10:54:22 AM                                                                                                                   
KATHY WASSERMAN,  Alaska  Municipal League,  testified in Juneau  to                                                            
the need to address and  resolve this issue. However, she questioned                                                            
the use of the  individual average amount paid in  property taxes as                                                            
the method for establishing  this tax rate. The average property tax                                                            
assessed  for education purposes  in organized  communities  is four                                                            
mils  and equals  approximately  $426  per  person.  However,  lower                                                            
income  citizens  presumably  live  in  homes of  lesser  value  and                                                            
subsequently  pay less  than those  living in  higher valued  homes.                                                            
Additionally,  property values  in unorganized  boroughs tend  to be                                                            
significantly  lower than properties located in organized  boroughs.                                                            
She furthered  that schools  located in  Rural Education  Attendance                                                            
Areas (REAA)  serve as a microcosm  to the community. Funding  these                                                            
schools would  result in  less money available  for other  community                                                            
Ms. Wasserman  suggested  that community members  of both  organized                                                            
and unorganized  boroughs should  meet and  find a solution  to this                                                            
issue. More information is needed to ensure the tax is fair.                                                                    
10:57:28 AM                                                                                                                   
Senator  Bunde  was  aware  of the  different  costs  of  living  in                                                            
organized  and  organized  boroughs  but pointed  out  the  combined                                                            
income of residents  of unorganized boroughs is $505.5  million. For                                                            
this  reason  he supported  a  head  tax  over a  property  tax.  He                                                            
reminded that Alaska had  a head tax in the past with those proceeds                                                            
going toward education expenses.                                                                                                
10:58:16 AM                                                                                                                   
Co-Chair Green  directed that any additional questions  be submitted                                                            
to Senator Bunde.                                                                                                               
Co-Chair  Green  withdrew  her  objection  to the  adoption  of  the                                                            
committee substitute and Version "L" was ADOPTED.                                                                               
Co-Chair Green ordered bill HELD in committee.                                                                                  
Co-Chair Green adjourned the meeting at 10:58 AM                                                                                

Document Name Date/Time Subjects