Legislature(2005 - 2006)SENATE FINANCE 532

04/15/2005 09:00 AM FINANCE


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= HB 66 APPROP: MENTAL HEALTH BUDGET TELECONFERENCED
Moved Out of Committee 4/14
+= HB 67 APPROP: OPERATING BUDGET/LOANS/FUNDS/CBR TELECONFERENCED
Moved Out of Committee 4/14
+= SB 130 WORKERS' COMPENSATION TELECONFERENCED
Moved Out of Committee 4/11
+ SB 131 WAGE & HOUR ACT: EXEC/PROF/ADMIN/SALES TELECONFERENCED
Moved CSSB 131(FIN) Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
+= SB 16 POWERS/DUTIES DOTPF/TRANSPORTATION PLAN TELECONFERENCED
Moved CSSSSB 16(TRA) Out of Committee
+= SB 88 POLICY ON GENERAL FUND REVENUE SHORTFALL TELECONFERENCED
Moved SB 88 Out of Committee
+= SB 112 TAX ON REAA RESIDENTS TELECONFERENCED
Heard & Held
+= SB 158 MUNI TAX ON STATE CONSTRUCTION CONTRACTS TELECONFERENCED
Moved SB 158 Out of Committee
+= SB 147 SPORT FISHING FACILITY REVENUE BONDS TELECONFERENCED
Scheduled But Not Heard
                              MINUTES                                                                                         
                     SENATE FINANCE COMMITTEE                                                                                 
                          April 15, 2005                                                                                      
                             9:06 a.m.                                                                                        
                                                                                                                                
                                                                                                                              
CALL TO ORDER                                                                                                               
                                                                                                                                
Co-Chair Green convened the meeting at approximately 9:06:30 AM.                                                              
                                                                                                                                
PRESENT                                                                                                                     
                                                                                                                                
Senator Lyda Green, Co-Chair                                                                                                    
Senator Gary Wilken, Co-Chair                                                                                                   
Senator Bert Stedman                                                                                                            
Senator Lyman Hoffman                                                                                                           
Senator Fred Dyson                                                                                                              
Senator Donny Olson                                                                                                             
                                                                                                                                
Also Attending:  SENATOR  CHARLIE  HUGGINS; JANE  ALBERTS, Staff  to                                                          
Senator  Con  Bunde; GREY  MITCHELL,  Director,  Division  of  Labor                                                            
Standards & Safety,  Department of Labor and Workforce  Development;                                                            
DOUG LETCH, Staff  to Senator Gary Stevens; JEFF OTTESEN,  Director,                                                            
Division of  Program Development,  Department of Transportation  and                                                            
Public Facilities; KATHIE WASSERMAN, Alaska Municipal League                                                                    
                                                                                                                                
Attending  via  Teleconference:   From  Offnet  Sites:  JOHN  SEDOR,                                                          
Anchorage  Society  for Human  Resource  Management;  KAREN  ROGINA,                                                            
President & CEO,  Alaska Hospitality Alliance; JACK  AMON, Co-Owner,                                                            
Marx Brothers  Café  and Marx Brothers  Café  Catering, and  Member,                                                            
Alaska  Hospitality Alliance;  From  Anchorage:  STEVE BOYD,  Alaska                                                            
Chapter, National Electrical Contractors Association                                                                            
                                                                                                                                
SUMMARY INFORMATION                                                                                                         
                                                                                                                                
SB 131-WAGE & HOUR ACT: EXEC/PROF/ADMIN/SALES                                                                                   
                                                                                                                                
The  Committee heard  from  the bill's  sponsor,  the Department  of                                                            
Labor  and Workforce  Development,  and took  public testimony.  One                                                            
amendment was adopted and the bill reported from Committee.                                                                     
                                                                                                                                
SB 16-POWERS/DUTIES DOTPF/TRANSPORTATION PLAN                                                                                   
                                                                                                                                
The Committee  heard from  the bill' sponsor  and the Department  of                                                            
Transportation  and  Public  Facilities.   The  bill  reported  from                                                            
Committee.                                                                                                                      
                                                                                                                                
SB 158-MUNI TAX ON STATE CONSTRUCTION CONTRACTS                                                                                 
                                                                                                                                
The committee heard from the bill's sponsor, the Department of                                                                  
Transportation and Public Facilities, and took public testimony.                                                                
The bill reported the bill from Committee.                                                                                      
                                                                                                                                
SB 88-POLICY ON GENERAL FUND REVENUE SHORTFALL                                                                                  
                                                                                                                                
The Committee heard from the bill's sponsor and reported the bill                                                               
from Committee.                                                                                                                 
                                                                                                                                
SB 112-TAX ON REAA RESIDENTS                                                                                                    
                                                                                                                                
This bill was scheduled but not heard.                                                                                          
                                                                                                                                
SB 147-SPORT FISHING FACILITY REVENUE BONDS                                                                                     
                                                                                                                                
This bill was scheduled but not heard.                                                                                          
                                                                                                                                
                                                                                                                                
     CS FOR SENATE BILL NO. 131(L&C)                                                                                            
     "An Act amending the  Alaska Wage and Hour Act as it relates to                                                            
     the employment of  a person acting in a supervisory capacity or                                                            
     in  an administrative,  executive,  or  professional  capacity;                                                            
     relating to definitions  under the Alaska Wage and Hour Act and                                                            
     providing  definitions for persons employed in  administrative,                                                            
     executive, and professional  capacities, for persons working in                                                            
     the  capacity of an  outside salesman,  for persons working  in                                                            
     the capacity  of a salesman employed  on a straight  commission                                                            
     basis,   and   for  persons   that  perform   computer-related                                                             
     occupations; and providing for an effective date."                                                                         
                                                                                                                                
                                                                                                                                
This was the first hearing for this bill in the Senate Finance                                                                  
Committee.                                                                                                                      
                                                                                                                                
JANE ALBERTS, Staff to Senator Con Bunde, the bill's sponsor, read                                                              
from the sponsor statement as follows.                                                                                          
                                                                                                                                
     Alaska's   Wage  and  Hour  Act  (AS  23.10.050   -  23.10.150)                                                            
     establishes  the  provisions   for overtime   compensation.  AS                                                            
     23.10.055  sets forth exemptions to the Wage  and Hour Act. One                                                            
     of these  exemptions is "an individual employed  in a bona fide                                                            
     executive,  administrative or  professional capacity  or in the                                                            
     capacity  of an outside salesman or a salesman  who is employed                                                            
     on a straight commission basis".                                                                                           
                                                                                                                                
     As   currently  defined   in  our   administrative  code,   the                                                            
     definitions    of   "executive    capacity,"   "administrative                                                             
     capacity,"  and  "professional   capacity"  are  confusing  and                                                            
     difficult to interpret.  In order to determine if someone is an                                                            
     executive,  administrative or  professional employee,  you have                                                            
     to  use  what is  known  as the  "long  test." In  addition  to                                                            
     numerous  other factors, the  long test includes a calculation                                                             
     of the  employee's time spent  on "non-exempt work"  (i.e. work                                                            
     that is not  executive, administrative or professional).  If an                                                            
     employee  spends more than 20 percent (40 percent  in retail or                                                            
     service establishments)  of their time on non-exempt work, they                                                            
     become  subject to the  Wage and Hour  Act and can qualify  for                                                            
     overtime.  The ambiguity within the definitions,  including the                                                            
     implementation  of the  80/20 test, has  lead to numerous  wage                                                            
     and  hour lawsuits,  causing  great  expense to  employers  and                                                            
     employees.                                                                                                                 
                                                                                                                                
     HB 182 deletes the  80/20 test and sets forth definitions which                                                            
     are much  more understandable.  The simplicity provided  by the                                                            
     new  definitions  will  lead  to greater  compliance  with  the                                                            
     statute.  It is in the best interests of both  the employer and                                                            
     employee  that the statutes are straightforward,  practical and                                                            
     easy to follow.                                                                                                            
                                                                                                                                
     HB 182  also clarifies  another area of  confusion in  the Wage                                                            
     and  Hour   provisions.  Currently,   a  person  acting   in  a                                                            
     "supervisory capacity"  is exempt from payment of overtime, but                                                            
     not exempt  from the full Wage and Hour Act.  The definition of                                                            
     "supervisory  capacity"  in the regulations  is also  ambiguous                                                            
     and difficult to interpret.  HB 182 removes this exemption from                                                            
     statute.  There are two reasons for deletion  of the provision.                                                            
     The   first  reason   is  that  due   to  the  uncertainty   in                                                            
     interpretation  of  the  definition,  the statue  is  currently                                                            
     unworkable.   Secondly,  the  new  definitions   of  "executive                                                            
     capacity" and "administrative  capacity" would subsume a person                                                            
     working in a supervisory  capacity. Therefore, there is no need                                                            
     to have a separate provision.                                                                                              
                                                                                                                                
     Enacting  this bill  will eliminate  ambiguities, align  Alaska                                                            
     more  closely  with  other  states  and reduce  the  number  of                                                            
     frivolous   lawsuits,  while  protecting  workers'   rights  to                                                            
     receive overtime.                                                                                                          
                                                                                                                                
     [NOTE: References  to HB 182 should be correctly interpreted as                                                            
     references SB 131]                                                                                                         
                                                                                                                                
Ms. Alberts informed the Committee that a forthcoming amendment                                                                 
would address the application of the proposed law.                                                                              
                                                                                                                                
Co-Chair Green noted that Senator Bunde, although absent, has                                                                   
provided the forthcoming amendment.                                                                                             
                                                                                                                                
Senator  Hoffman asked for  further information  about which  states                                                            
Alaska would be aligned were this legislation adopted.                                                                          
                                                                                                                                
Ms. Alberts deferred to  Mr. John Sedor of the Anchorage Society for                                                            
Human Resource Management.                                                                                                      
                                                                                                                                
JOHN SEDOR, Anchorage Society  for Human Resource Management (ACHRM)                                                            
testified via teleconference  from an offnet site and noted that the                                                            
ACHRM,  which  represents  200  business  members,  as well  as  the                                                            
Society  for Human Resource  Management Alaska  State Council,  with                                                            
approximately  250 business  members, support  this legislation.  In                                                            
response  to Senator Hoffman's  question, he  stated that this  bill                                                            
would,  foremost,  align  Alaska  with  federal  system guidelines.                                                             
Currently, Alaskan private  employers and employees must comply with                                                            
two  sets  of  overtime  standards:  federal   standards  and  State                                                            
standards.  This bill  would  move Alaska  toward  a single  unified                                                            
system  for  overtime,  consistent   with  the  federal  Fair  Labor                                                            
Standards Act  (FLSA). Thirty-two of the fifty-one  jurisdictions in                                                            
the nation, including the  District of Columbia, defer solely to the                                                            
federal  standard. Eight  others defer  to a standard  known  as the                                                            
"short  test"  rather than  "the  80/20  test"  that is  applied  in                                                            
Alaska.  In effect,  were  this legislation  adopted,  Alaska  would                                                            
mirror or  be consistent  with 40 of the  51 jurisdictions.  Alaskan                                                            
employers  and employees would  benefit by  not having to apply  two                                                            
different   standards  to  exempt   executive,  administrative   and                                                            
professional employees' hours each week.                                                                                        
                                                                                                                                
Co-Chair  Green understood  that  this  information  is included  in                                                            
Members' packets.                                                                                                               
                                                                                                                                
Mr. Sedor affirmed  that this information  is included in  a handout                                                            
titled "State  by State Overtime Comparison, completed  Spring, 2004                                                            
By: John M. Sedor" [copy on file].                                                                                              
                                                                                                                                
Co-Chair  Green  stated that  a  breakout  of states'  standards  is                                                            
included in the handout.                                                                                                        
                                                                                                                                
Senator  Dyson surmised  that the  onus of adhering  to the  current                                                            
standard has  "more impact" on small  enterprises than larger  ones.                                                            
                                                                                                                                
Mr. Sedor replied that  currently, any business "regardless of size"                                                            
that has  exempt employees  and desires to  conduct business  in the                                                            
State, must  comply with two sets  of standards. To that  point, any                                                            
business operating  in Alaska as well  as in other jurisdictions  is                                                            
required  to establish a  separate process  for addressing  Alaska's                                                            
set  of   exempt  employees   standards.   Smaller  businesses   are                                                            
"especially  impacted because the  increased cost of administration                                                             
is  more  difficult  to bear  on  a small  business  than  a  larger                                                            
business".                                                                                                                      
                                                                                                                                
Senator Dyson  acknowledged the administrative impacts  mentioned by                                                            
Mr.  Sedor, and  further questioned  this  issue's  impact on  small                                                            
businesses'  manpower allocations  in  that an employee  of a  small                                                            
business might be required  to work in a "supervisory and leadership                                                            
role" in addition  to conducting "routine  and manual labor  duties"                                                            
due to  a limited  employee base.  Applying the  exempt standard  in                                                            
this scenario is difficult.                                                                                                     
                                                                                                                                
Mr.  Sedor  concurred  that  the  existing  statutory   language  is                                                            
especially  impacting to small businesses.  People who are  employed                                                            
at an executive,  administrative or  professional exempt  level "are                                                            
hired to accomplish duties  … and complete tasks". The time it might                                                            
take to do  something should be "irrelevant  in the actual  business                                                            
model". The  current law forces both  sides into either maintaining                                                             
"journals or requiring  time entries that say" that the person spent                                                            
six minutes  making a pot of coffee,  twelve minutes driving  to the                                                            
store; eight  minutes reviewing  people's work  for the day;  or two                                                            
minutes opening  the door. This legislation would  move the existing                                                            
mode  of  interpreting   the  exempt   status  "from  a   time-based                                                            
unmanageable system"  toward a system of a "primary  or duties-based                                                            
test where  people are employed  to do duties  and that is  what the                                                            
courts  would  consider  in  determining  whether  or not  they  are                                                            
exempt".                                                                                                                        
                                                                                                                                
Senator Dyson acknowledged the response.                                                                                        
                                                                                                                                
Senator Olson asked whether  this legislation would align with FLSA.                                                            
                                                                                                                                
Mr.  Sedor  replied  that  certain  aspects   of Alaska's   overtime                                                            
standards differ from the  federal standard. The federal standard is                                                            
40 hours a week whereas  the Alaska standard is eight hours a day or                                                            
40 hours a  week. This legislation  would substantially move  Alaska                                                            
closer  to the  FLSA exempt  definitional  standards  in regards  to                                                            
executive,  administrative,  and professional  employees.  Employers                                                            
would only be  required "to apply one test rather  than two and that                                                            
test is a duties based  test". The State however would not be one of                                                            
the  32 states  that  defers  entirely  to the  federal  FLSA.  This                                                            
legislation would provide  an answer to the question "what is unique                                                            
about overtime  in Alaska?" The answer, in his perspective,  is that                                                            
Alaska pays higher wages  than the rest of the nation. Therefore, to                                                            
qualify  for an exemption,  Alaskan  businesses  must compensate  an                                                            
exempt administrative,  executive  or professional  employee  with a                                                            
rate that  is "two  times the  minimum" wage.  Therefore, an  exempt                                                            
employee's salary in Alaska  would be higher than the federal exempt                                                            
wage requirement.                                                                                                               
                                                                                                                                
Senator  Olson asked whether  the business  community supports  that                                                            
salary requirement.                                                                                                             
                                                                                                                                
Mr. Sedor responded  that members of both the Anchorage  Society for                                                            
Human  Resource  Management  and  the  Society  for  Human  Resource                                                            
Management Alaska State Council support this legislation.                                                                       
                                                                                                                                
In response to  a question from Co-Chair Green, Mr.  Sedor specified                                                            
that he had concluded  his remarks and would be available  to answer                                                            
any further questions.                                                                                                          
                                                                                                                                
Amendment  #1:  This amendment  inserts  new  language  in the  bill                                                            
title, following  the word "occupations;" on page  one, beginning on                                                            
line seven, as follows.                                                                                                         
                                                                                                                                
     directing  retrospective application of the provisions  of this                                                            
     Act  to work performed  before the effective  date of  this Act                                                            
     for purposes of claims  filed on or after the effective date of                                                            
     this  Act,  and  disallowing   retrospective  application   for                                                            
     purposes  of claims  for that  work that are  filed before  the                                                            
     effective date of this Act;                                                                                                
                                                                                                                                
In addition, a new bill  section is inserted on page five, following                                                            
line 30 as follows.                                                                                                             
                                                                                                                                
     Sec. 6.  The uncodified law of  the State of Alaska  is amended                                                            
     by adding a new section to read:                                                                                           
          APPLICATION AS TO WORK PERFORMED BEFORE THE EFFECTIVE                                                                 
     DATE OF THIS ACT.  (a) This Act applies retrospectively to work                                                            
     performed  before the effective  date of this Act for  purposes                                                            
     of any  claim or proceeding based  on AS 23.10.050 -  23.10.150                                                            
     (Alaska  Wage  and Hour  Act) that  is  filed on  or after  the                                                            
     effective date of this Act.                                                                                                
          (b) This Act does not apply to work performed before the                                                              
     effective  date  of  this Act  for  purposes  of any  claim  or                                                            
     proceeding  based  on AS 23.10.050  - 23.10.150  that is  filed                                                            
     before the effective date of this Act.                                                                                     
                                                                                                                                
Co-Chair  Wilken  moved  on  behalf   of  Senator  Bunde,  to  adopt                                                            
Amendment #1.                                                                                                                   
                                                                                                                                
Co-Chair Green objected for explanation                                                                                         
                                                                                                                                
Ms.  Alberts  explained  that  this  amendment   would  provide  the                                                            
effective  date for the  application of the  new primary  duty-based                                                            
standards. The current  80/20 State standard would be applied to any                                                            
claim  brought before  that date  and the new  primary duties-based                                                             
standard  would  be  applied  to  any  claim   submitted  after  the                                                            
effective date.                                                                                                                 
                                                                                                                                
9:20:22 AM                                                                                                                    
                                                                                                                                
Mr. Sedor affirmed  Ms. Alberts' remarks. A two-year  "rolling week-                                                            
by-week" statute  of limitations applies to overtime  lawsuits. This                                                            
amendment  specifies  that,  after  the effective  date,  the  rules                                                            
specified in SB 131 would  be applied to the entire claim for events                                                            
up to  two-years. This  would allow  one rule to  be applied  to the                                                            
claim rather than having  a debate about which weeks would be argued                                                            
under the current  standards and which  weeks would be argued  under                                                            
the new standards. This  is "an extremely practical approach to this                                                            
issue".                                                                                                                         
                                                                                                                                
Co-Chair Green  removed her objection and noted that  this amendment                                                            
would incur a title change.                                                                                                     
                                                                                                                                
There being no other objection, Amendment #1 was ADOPTED.                                                                       
                                                                                                                                
9:22:43 AM                                                                                                                    
                                                                                                                                
KAREN  ROGINA,  President   &  CEO,  Alaska  Hospitality   Alliance,                                                            
testified  via  teleconference  from an  offnet  site  to voice  the                                                            
Alliance industry's support  of this legislation. She asked that the                                                            
Committee also support  the bill. Not only is this an important bill                                                            
for the hospitality industry,  it is important to all employers with                                                            
exempt  employees, as  it would  apply  a single  set of  standards,                                                            
which would  be easier to  understand and  comply with. Because  the                                                            
current  Alaska  exemption  status  is  time-based,   an  employee's                                                            
eligibility  is determined  by how the employee  spends their  time.                                                            
This bill would change  the definition of exempt status to one based                                                            
on primary  duties. This would better  reflect "real life  workplace                                                            
roles".  Business owners  and operators  should be  able to rely  on                                                            
exempt  workers  to  deliver  results  without  being  required  "to                                                            
micromanage"  exactly  those  employees  are  spending  their  time.                                                            
Oftentimes,  a business  owner or operator  is not  on site  and is,                                                            
therefore,  "unable  to  ascertain  just what  their  employees  are                                                            
doing.  Instead  they  must  manage  by  results  achieved."   Labor                                                            
attorneys  would support  the fact  that "this  is one  of the  most                                                            
litigated areas of wage and hour law".                                                                                          
                                                                                                                                
Ms. Rogina  shared  an example  of a  wage and  hour dispute,  which                                                            
involved  a  prominent  Kenai  Peninsula  hotel  and  its  food  and                                                            
beverage director who "was  considered exempt". The director oversaw                                                            
a $750,000 budget and was  responsible for hiring, firing, staffing,                                                            
and the  overall food,  beverage, and catering  responsibilities  of                                                            
the hotel.  Upon that  person's  termination, she  produced a  "log"                                                            
that detailed  "by the minute how she spent her time  each day". Due                                                            
to  a combination  of  "the  seasonality  changes" inherent  to  the                                                            
hospitality  industry and  the employer's  desire  to provide  year-                                                            
round  employment,  there  are  times  during  the  year  when  that                                                            
employee  could have bused  a table or seated  guests. However,  her                                                            
primary  duties,  for  the  most  part,  were  those  of  an  exempt                                                            
employee. This  lawsuit cost the employer  thousands of dollars  and                                                            
almost put  the hotel  out of business.  The hotel  was "at  a total                                                            
loss of being  able to prove otherwise" as it had  not kept track of                                                            
how the person  had spent her time  "by the minute" since  she was a                                                            
salaried employee.  As a consequence of that lawsuit,  the hotel now                                                            
hires  only hourly  employees.  That is  the impact  of the  current                                                            
standard on  the industry. It is detrimental  to employees  as well,                                                            
as, absent "a  clearer definition of who is exempt  and who is not",                                                            
employers are denying their  executive, professional, and management                                                            
staff  access to such  things as  better health  insurance  benefits                                                            
that could  otherwise  be offered to  them because  "they are  not a                                                            
segregated   group  that  could  be   classified  differently".   In                                                            
conclusion,  this  legislation  would  benefit  both  employees  and                                                            
employers.                                                                                                                      
                                                                                                                                
9:25:42 AM                                                                                                                    
                                                                                                                                
JACK  AMON, Co-Owner,  Marx  Brothers Café  and Marx  Brothers  Café                                                            
Catering,  and Member, Alaska  Hospitality  Alliance, testified  via                                                            
teleconference  from  an offnet  site in  support of  the bill.  The                                                            
proposed changes  regarding the exempt employee definition  would be                                                            
"a great  step forward in  modernizing Alaska's  labor laws  to more                                                            
accurately reflect  the current workplace"; specifically  in regards                                                            
to exempt employees  in the hospitality and food service  industries                                                            
and in small  businesses where both  the employer and the  employees                                                            
"wear  many hats".  Alaska's  80/20 definition  "is  so onerous  and                                                            
restrictive  that   it  has  forced  most  operators   to  keep  all                                                            
employees,  including  those  who  head  departments   or  supervise                                                            
others,  hourly.  This  results  in negative  impacts  to  both  the                                                            
employer  and the employee"  who might  be the  highest skilled  and                                                            
highest paid worker. As  benefit costs increase, employers have been                                                            
required  to  change their  benefit  plans  to  the effect  that  an                                                            
employee must be salaried in order to qualify.                                                                                  
                                                                                                                                
Mr. Amon  noted that two  of his twelve  restaurant employees  would                                                            
qualify as salaried  employees as opposed to hourly  employees under                                                            
the  new  standards  proposed  in  this bill.  In  his  opinion,  an                                                            
employee with the authority  to hire and fire and who is responsible                                                            
for the work of  others should be considered managers  regardless of                                                            
whether they  work from behind a stove  or behind a desk.  He warned                                                            
that  this   legislation  might  be   interpreted  by  some   as  an                                                            
opportunity  through   which  employers  could  "cheat  hardworking                                                             
employees  out of  legitimate overtime;  however,  nothing could  be                                                            
further from the  truth. In order to run a successful  business, "it                                                            
is essential"  that quality employees  are properly compensated  for                                                            
their skills.  Such employees know  that their skills are  in demand                                                            
and  would  not  remain with  an  employer  who  attempted  to  take                                                            
advantage  of them. "The  flexibility" offered  by this legislation                                                             
would allow "compensation  arrangements" that would be beneficial to                                                            
both the employee and the employer.                                                                                             
                                                                                                                                
9:28:37 AM                                                                                                                    
                                                                                                                                
GREY  MITCHELL, Director,  Division  of  Labor Standards  &  Safety,                                                            
Department  of Labor and Workforce  Development spoke in  support of                                                            
the bill, as  it "would streamline  the complex set of criteria  for                                                            
establishing  overtime exemptions".  One example  of the  80-percent                                                            
test is  that under  the current  regulations, there  is a  fallback                                                            
test, which requires only  a 60-percent test when applied to service                                                            
and  retail   establishments.  However,   there  is  a  provisional                                                             
requirement  that the employee earn  at least two times the  federal                                                            
minimal  wage for  the first  40 weekly  work hours.  Thus, while  a                                                            
minimal salary  provision currently exists, it only  pertains to the                                                            
service  and retail  industries  and only  when applied  to the  60-                                                            
percent  rather  than 80-percent   test. The  Division's  staff  has                                                            
occasionally experienced  difficulty in explaining this to employers                                                            
and employees.  The proposed legislation  would assist the  Division                                                            
in  alleviating  the often  difficult  "burden"  of  explaining  the                                                            
existing 80/20  Exempt Status Test to both employees  and employers.                                                            
                                                                                                                                
Senator Stedman  understood that this  is a complex issue  that even                                                            
larger  employers have  trouble  deciphering.  Currently,  employers                                                            
could be  subject to litigation  involving  "a revolving  multi-year                                                            
timeframe".                                                                                                                     
                                                                                                                                
Mr.  Mitchell affirmed  that  this issue  "has  caused litigation".                                                             
Years could pass  before an employer might "find themselves  at odds                                                            
with the  requirements".  Sometimes,  employees know  the rules  and                                                            
start spending more than  20-percent of their time making coffee and                                                            
other non-managerial  duties and deliberately  "put their  employers                                                            
in a  difficult position,  based on  the complexity  of the  current                                                            
definitions".                                                                                                                   
                                                                                                                                
Co-Chair Green  asked whether this  legislation would also  simplify                                                            
regulations.                                                                                                                    
                                                                                                                                
Mr. Mitchell  replied that the legislation  would remove  the burden                                                            
of issuing  regulations because  it would  allow the Department  "to                                                            
simply adopt the federal regulatory definitions".                                                                               
                                                                                                                                
Senator Olson,  observing that no  one has spoken against  the bill,                                                            
asked the reason that "it took so long" for it to be presented.                                                                 
                                                                                                                                
Mr. Mitchell  replied that  he could not provide  the answer  to the                                                            
question.                                                                                                                       
                                                                                                                                
Senator Olson  noted that  he had experience  in the retail  service                                                            
area, and  to that point,  asked the reason  that the 60/40  percent                                                            
standard  rather  than  the  80/20   standard  is  applied  to  that                                                            
industry. Furthermore,  he inquired whether this is addressed in the                                                            
bill.                                                                                                                           
                                                                                                                                
Mr. Mitchell responded  that the 40-percent test was  established as                                                            
a fall-back  from the 80-percent  standard  as a result of  concerns                                                            
raised  by those  affected  industries.  The concerns  being  voiced                                                            
today echo those earlier  concerns. It is difficult to adhere to the                                                            
current standards in those  businesses where you need the manager to                                                            
jump in and perform production  related tasks in order to manage the                                                            
business.                                                                                                                       
                                                                                                                                
In response to a question  from Co-Chair Green, Senator Olson stated                                                            
that he is in support of the legislation.                                                                                       
                                                                                                                                
Co-Chair Green voiced support for it as well.                                                                                   
                                                                                                                                
Co-Chair Wilken  moved to report SB 131, as amended,  from Committee                                                            
with individual recommendations and accompanying fiscal notes.                                                                  
                                                                                                                                
There  being  no  objection,  CS SB  131  (FIN)  was  REPORTED  from                                                            
Committee with  previous zero Fiscal  Note #1, dated March  14, 2005                                                            
from the Department of Labor and Workforce Development.                                                                         
                                                                                                                                
                                                                                                                                
     CS FOR SPONSOR SUBSTITUTE FOR SENATE BILL NO. 16(TRA)                                                                      
     "An Act relating to  the powers and duties of the Department of                                                            
     Transportation    and   Public   Facilities;    repealing   the                                                            
     requirement  for a long-range program for highway  construction                                                            
     and  maintenance;  and  repealing  a  requirement  that  public                                                            
     facilities   comply  with  energy  standards   adopted  by  the                                                            
     Department   of  Transportation  and  Public  Facilities;   and                                                            
     providing for an effective date."                                                                                          
                                                                                                                                
                                                                                                                                
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
DOUG  LETCH, Staff  to Senator  Gary  Stevens, the  bill's  sponsor,                                                            
informed the Committee  that this legislation would either eliminate                                                            
or update several  obsolete statutes  relating to the powers  of the                                                            
Department  of Transportation  and Public  Facilities. Specifically                                                             
the  bill would  remove  the burden  of  conducting  a cost  benefit                                                            
analysis for each of the  Department's projects, regardless of size.                                                            
This   cost-effectiveness   analysis    requirement   has   provided                                                            
opportunities  for  project opponents  to  sue the  State. The  bill                                                            
contains  several key provisions  that would  change the powers  and                                                            
duties of the  Department to bring  those statutes in line  with the                                                            
Department's  practice  of today.  There is widespread  support  for                                                            
this legislation,  as indicated by  the letters of support  included                                                            
in  the  Member's  backup material.  He  asked  that  any  technical                                                            
questions regarding this  legislation be directed to the Department.                                                            
                                                                                                                                
9:35:51 AM                                                                                                                    
                                                                                                                                
Senator Stedman  understood that one of the bill's  provisions would                                                            
exclude  the  cost   effective  analysis  for  local   service  area                                                            
projects. He asked for further information in this regard.                                                                      
                                                                                                                                
9:36:24 AM                                                                                                                    
                                                                                                                                
JEFF OTTESEN,  Director, Division of Program Management,  Department                                                            
of Transportation  and Public Facilities,  stated that the  language                                                            
in question  is  located in  Section 5,  subsection  (e), page  six,                                                            
beginning  on  line  five  of the  bill.  Subsection  (e)  reads  as                                                            
follows.                                                                                                                        
                                                                                                                                
     (e) In evaluating  new highways, airports, terminals,  ferries,                                                            
     and  other major  components  for inclusion  in  the plan,  the                                                            
     commissioners   shall prepare  a  cost-effectiveness   analysis                                                            
     using a consistent  methodology. A cost-effectiveness  analysis                                                            
     is not required for  a project that involves the rehabilitation                                                            
     and maintenance  of an existing  transportation system  or that                                                            
     primarily serves local transportation needs.                                                                               
                                                                                                                                
Mr. Ottesen  clarified that the cost  benefit analysis would  not be                                                            
required  for the  rehabilitation and  maintenance  of a variety  of                                                            
existing projects  or that are essentially  local in nature  such as                                                            
local  roads, local  trails,  buses, and  vans for  senior  centers.                                                            
Conducting  such analyses is currently  a burden on the Department.                                                             
                                                                                                                                
Senator Stedman asked for  further information regarding the "local"                                                            
exemption; specifically  whether it would pertain  to such things as                                                            
roads on islands.                                                                                                               
                                                                                                                                
Mr.  Ottesen   responded  that  the   bill's  sponsor,  working   in                                                            
conjunction with  the Department, deliberately drafted  a short bill                                                            
with the  determination  that the  specifics would  be addressed  in                                                            
regulations.   "Generally   speaking,   a   local  road   would   be                                                            
transportation  within a  borough that basically  moves people  from                                                            
one part of a  borough to another, be it on an island  or be it on a                                                            
part of the  mainland". This would  include National Highway  System                                                            
(NHS)  routes,  major  airports,  and  major  port  facilities  that                                                            
connect  the State.  The  cost effectiveness  requirement  would  be                                                            
required on any  "major new facilities, with new being  the key word                                                            
here, that  are not local  in nature. The  trouble with the  current                                                            
statute, which  was developed in 1977, is that it  is now being used                                                            
as  a club  to halt  projects.  It applies  to anything".  The  cost                                                            
benefit  analysis requirement  applies to  projects approved  by the                                                            
Legislature, projects approved  by voters, or even a transit van for                                                            
a senior citizen center.  It also applies to such things as training                                                            
programs  and other  things to which  determining  how to develop  a                                                            
cost benefit  analysis  would be difficult.  The  goal is to  exempt                                                            
local  roads and  activities  from "this  burdensome"  cost  benefit                                                            
analysis.                                                                                                                       
                                                                                                                                
Senator Stedman  opined that, "by that definition,  all the roads in                                                            
Southeast Alaska  would be excluded" from the exemption,  as none of                                                            
the  roads are  tied together.  The  majority  of the  roads are  on                                                            
islands.                                                                                                                        
                                                                                                                                
Mr.  Ottesen clarified  that  the NHS  connection  definition  would                                                            
apply to  a variety of  roads in Southeast  Alaska. In Ketchikan  it                                                            
would apply  to the  ferry from the  airport to  town; in Juneau  it                                                            
would apply to Egan Drive  between the airport and downtown. Most of                                                            
the other roads in Juneau  and similar roads across the State "would                                                            
be excepted".                                                                                                                   
                                                                                                                                
Senator Olson  inquired to the two  accompanying zero fiscal  notes:                                                            
Fiscal Note #1,  dated March 22, 2005 from the Department  of Public                                                            
Safety  and zero  Fiscal  Note #2,  dated March  21,  2005 from  the                                                            
Department  of Transportation  and  Public Facilities.  It would  be                                                            
expected that this legislation would save the State money.                                                                      
                                                                                                                                
Mr. Ottesen  responded  that  there would  be cost  savings in  that                                                            
"more  money would  be spent  on pavement  and less  money spent  on                                                            
process". The  amount of money that the Department  is allocated is,                                                            
in its entirety,  reflected in the budget; however,  now it is being                                                            
divvied  up   "to  support  economists   and  planners  to   conduct                                                            
processes" rather than building projects.                                                                                       
                                                                                                                                
Co-Chair  Green understood  therefore that  the funds would  be more                                                            
project specific.                                                                                                               
                                                                                                                                
Mr.  Ottesen responded  that  the total  amount received  would  not                                                            
change.                                                                                                                         
                                                                                                                                
Senator  Dyson questioned  whether, "aside  from the standards  that                                                            
are  applied  to  really  minor  sorts  of  things",   some  federal                                                            
standards  in  regards  to  such  things  as  thermal  and  lighting                                                            
analysis  on  highways  are really  inappropriate  because  of  such                                                            
things as the State's environment and population densities.                                                                     
                                                                                                                                
Mr. Ottesen responded that  the State's responsibility in regards to                                                            
thermal  standards  and  lighting  standards  were  incorporated  in                                                            
statute in  the 1970s at a time when  the nation was undergoing  its                                                            
first energy crisis. The  Department was designated as the entity to                                                            
have that oversight;  however, over  time, the Department's  role in                                                            
"the building  world" has  diminished and  the Department no  longer                                                            
conducts building  projects for municipalities or  schools for Rural                                                            
Educational  Attendance  Areas. National  entities  rather than  the                                                            
Department set  standards, which are then adopted  by local building                                                            
codes.  The  Department's  role  in that  entire  arena  has  simply                                                            
evaporated yet the statute  remains the same. This legislation is an                                                            
attempt to conduct some housekeeping."                                                                                          
                                                                                                                                
Co-Chair  Wilken  moved  to  report the  bill  from  Committee  with                                                            
individual recommendations and accompanying fiscal notes.                                                                       
                                                                                                                                
There  being  no objection,  CS  SSSB  16 (TRA)  was  reported  from                                                            
Committee with  zero Fiscal Note #1,  dated March 22, 2005  from the                                                            
Department  of Public Safety  and zero Fiscal  Note #2, dated  March                                                            
21,  2005   from  the  Department   of  Transportation  and   Public                                                            
Facilities.                                                                                                                     
                                                                                                                                
9:42:54 AM                                                                                                                    
                                                                                                                                
                                                                                                                                
     SENATE BILL NO. 158                                                                                                        
     "An Act prohibiting the imposition of municipal sales and use                                                              
     taxes on state construction contracts and certain                                                                          
     subcontracts; and providing for an effective date."                                                                        
                                                                                                                                
                                                                                                                                
This was  the second  hearing for  this bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
SENATOR  CHARLIE   HUGGINS,  the  bill's  sponsor,  explained   that                                                            
business  conducted  in this  State  should occur  in  a stable  and                                                            
predictable  climate.  "A  known"  incident   that  "highlights  the                                                            
difficulty"  encountered  when  this  is not  the  case was  when  a                                                            
subcontractor,  conducting an approximate  $400,000 State  contract,                                                            
was levied a $20,000 tax assessment from a local community.                                                                     
                                                                                                                                
Senator  Huggins  continued  that  that  incidence  is  becoming  "a                                                            
trend", as  addressed in an Alaska  Municipal League correspondence                                                             
[copy  not  provided],  which  noted  that  three  communities  have                                                            
adopted  "a policy  of collecting  sales taxes  from subcontractors                                                             
doing  business  in  their  community  regardless   of  the  funding                                                            
source".  Those communities  have retained  legal representation  in                                                            
this regard.  He warned  that while  the practice  might be  limited                                                            
today, without  being addressed, it could become a  statewide issue.                                                            
The potential cost of this  practice "would place an undue burden on                                                            
the State; it would be  "unfair to contractors" were the Legislature                                                            
"not to correct that situation".  The solution proposed in this bill                                                            
is simple: it  would work for all parties; it would  create a stable                                                            
business environment; it  would protect the State; and would clarify                                                            
the rules  in this  regard going  forward. "It  is not punitive  and                                                            
does not seek to recoup any monies".                                                                                            
                                                                                                                                
9:46:09 AM                                                                                                                    
                                                                                                                                
STEVE  BOYD,   Alaska  Chapter,  National   Electrical  Contractors                                                             
Association  (NECA), testified  via teleconference  from  Anchorage,                                                            
and noted that he was available to answer questions.                                                                            
                                                                                                                                
9:46:21 AM                                                                                                                    
                                                                                                                                
KATHIE WASSERMAN,  Alaska Municipal League, spoke  against the bill.                                                            
She stressed that, "no  municipality in the State taxes a contractor                                                            
on  a  State  job.  This  issue  is  about  the  tax  imposed  on  a                                                            
subcontractor,  hired  by the contractor".  This  legislation  could                                                            
expand the  exemption to  such things  as the hotel  bed tax  or the                                                            
meal tax  charged to contractors  while performing  a State  job. It                                                            
could also  "be extended  to include  a subcontractor  hired  by the                                                            
subcontractor that is hired  by the contractor. Sales tax is a local                                                            
provision"  and, therefore,  "local governments  should exert  local                                                            
control  over  those  taxes.  Restrictions  on  local  sales  taxes"                                                            
currently exist  through the local  election process. The  State has                                                            
curtailed  its municipal  support  that  came in  the  form of  such                                                            
things as revenue  sharing and capital  matching grants while  local                                                            
community  expenses   relating  to  such  as  fuel  and  the  Public                                                            
Employees'  Retirement System  and the Teachers'  Retirement  System                                                            
(PERS/TRS)  have increased  "dramatically". "Tax  revenue is  one of                                                            
the  few  remaining  revenue  streams  left  to  communities".  Even                                                            
thought the State is exempt  from municipality property taxes, State                                                            
"properties  receive  the  same  benefits   and  services  as  local                                                            
property"  taxpayers do. The  decision as to  whether or not  to tax                                                            
subcontractors  should   be  made  by the  municipality.   Were  the                                                            
imposition  of such  a  tax to  have "a  detrimental  affect on  the                                                            
economy of the  community", local elected officials  should initiate                                                            
changes to those ordinances.                                                                                                    
                                                                                                                                
Ms. Wasserman  stated that the terms  "consistency" and "stability"                                                             
have been used  throughout this legislation's proceedings,  "yet the                                                            
State has chosen  not to impose any State taxes".  That decision has                                                            
been  left  to  local   communities.  It  would  be  impossible   to                                                            
incorporate a  consistent taxation methodology as  the more than 190                                                            
communities that do tax  have "different needs, different resources,                                                            
different  locations;  there is  not and  cannot  be consistency  in                                                            
taxing".  Oil  companies  that  operate  globally  must familiarize                                                             
themselves  with  different   tax  structures  in  each  locale.  "A                                                            
nationwide  tax  would  be more  consistent,  probably  make  things                                                            
easier for oil  contractors, but would it be great  for the State of                                                            
Alaska?"                                                                                                                        
                                                                                                                                
Ms.  Wasserman   reminded  the  Committee   that  the  majority   of                                                            
Department  of Transportation and  Public Facilities (DOT)  projects                                                            
are conducted  in either Anchorage  or Fairbanks. The concern  about                                                            
large  taxation  on DOT  projects  therefore  should  be  alleviated                                                            
because neither  of these  two communities  imposes sales taxes.  In                                                            
addition, most airport  projects occurring in the Sate are typically                                                            
92 percent  to 100 percent  funded through  Federal Aviation  Agency                                                            
(FAA)  funds  rather  than State  funding.  In  conclusion,  AML  is                                                            
requesting that the Legislature  "trust local communities to do what                                                            
is right for our shared constituents".                                                                                          
                                                                                                                                
Senator  Olson inquired  as to  how local communities  address  road                                                            
maintenance  issues such as  broken asphalt  that might result  from                                                            
heavy equipment used in DOT contract projects.                                                                                  
                                                                                                                                
Ms. Wasserman  responded that  the community  where she resides  has                                                            
had to  deal with such  issues. In  one case,  the community  had to                                                            
address  boardwalk   damage  with   community  general  maintenance                                                             
funding.  Demands to  the contractor  for  money to  fix the  damage                                                            
would  be  inappropriate  as  all  he  had  done  was  to  "run  the                                                            
equipment"   for   a  contracted   project   down   the   Boardwalk.                                                            
Unfortunately  the Boardwalk  construction  was inadequate for  that                                                            
type of use.                                                                                                                    
                                                                                                                                
Senator  Olson inquired as  to what other,  oftentimes inadvertent,                                                             
burden  communities   might  have  had  to  address  in  regards  to                                                            
subcontractors or contractors.                                                                                                  
                                                                                                                                
Ms. Wasserman  replied  that typically  when  a contractor  conducts                                                            
work in a community,  a certain amount  of administrative  work must                                                            
be conducted by  the city. This is usually not accounted  for in the                                                            
project  expenses.  It  is acknowledged   that the  workers  on  the                                                            
project do contribute  to the local economy via such  things as meal                                                            
taxes  and  bed  taxes,  and  other  support  of  local businesses.                                                             
However, "there  is still a very big  revolving seed of money  where                                                            
the majority of the money  and the payroll" moves between the agency                                                            
to the large  contracting corporations.  "The cities a lot  of times                                                            
certainly do not come out as well as other entities".                                                                           
                                                                                                                                
9:52:18 AM                                                                                                                    
                                                                                                                                
Senator Olson noting that  during the April 13, 2005 hearing on this                                                            
bill,  he had  asked  Steve  Boyd of  the  Alaska Chapter  of  NECA,                                                            
whether  a local  building  permit  is required,  as  that  building                                                            
permit fee would assist  in supporting associated city expenses. The                                                            
reply from Mr.  Boyd was that no local building permit  was required                                                            
for the  contract work.  To that  point, he inquired  to the  reason                                                            
that for the permit exemption.                                                                                                  
                                                                                                                                
9:52:39 AM                                                                                                                    
                                                                                                                                
Ms. Wasserman  understood that State  projects are typically  exempt                                                            
from the permitting process.                                                                                                    
                                                                                                                                
Senator Olson pointed out  however, that the contractor is a private                                                            
entity.                                                                                                                         
                                                                                                                                
Ms. Wasserman surmised  that when a contractor is working on a State                                                            
project, the State exemption would apply.                                                                                       
                                                                                                                                
Senator Stedman stated  that many communities have imposed a maximum                                                            
tax  limitation,  of, for  example,  $1,000 or  $500,  as the  total                                                            
amount of tax  that could be collected  on a single sale.  Therefore                                                            
$1,000  might be the  total tax  amount collected  on a one  million                                                            
dollar  State contracted  project occurring  in a  community with  a                                                            
local five percent sales  tax. However, it should be noted that some                                                            
communities do not have a limit. That is a local prerogative.                                                                   
                                                                                                                                
Senator Stedman  theorized a scenario in which the  contractor might                                                            
pay the  tax on the entire  project; however,  due to the fact  that                                                            
most projects  have multiple  subcontractors,  it might be  feasible                                                            
that each of those subcontractors  would also be required to pay the                                                            
local sales tax  on work relating to that project.  This would raise                                                            
the issue of  multiple layer or "double"  taxation. While  he agreed                                                            
that the sales tax issue  should be a decision of local governments,                                                            
at some point,  there is a concern  when dealing with large  capital                                                            
projects that  a local sales tax might be charged  numerous times on                                                            
the same project.                                                                                                               
                                                                                                                                
9:54:51 AM                                                                                                                    
                                                                                                                                
Ms. Wasserman  appreciated the concern; however, countered  that DOT                                                            
could take the  position "that this doesn't work for  us", and, as a                                                            
result,  were negative  affects to  occur on the  community then  it                                                            
could address the situation  and make changes. Another option, which                                                            
she believed would not  occur as such jobs are sought after, is that                                                            
contractors could decide  not to accept jobs in various communities.                                                            
In conclusion,  the decision should be left to the  community rather                                                            
than DOT or the contractors.                                                                                                    
                                                                                                                                
Co-Chair Green  opined that the local community could  also refuse a                                                            
project if they  felt that "the detriment to the community  would be                                                            
greater than the appeal".                                                                                                       
                                                                                                                                
Senator Hoffman stated  that the issue of double taxation could also                                                            
apply  to the purchase  of,  for instance,  a case  of apples.  That                                                            
product would be subject  to multiple taxes ranging from the airport                                                            
tax levied  on the carrier delivering  it to the community,  the gas                                                            
tax charged  to the transporter  delivering  it from the airport  to                                                            
the store,  or,  it could  be transported  from the  airport to  the                                                            
store in  a rented vehicle  to which a local  tax would be  applied.                                                            
The store  would than collect  the local tax  from the consumer  who                                                            
purchased the apples. It  could be difficult to separate the various                                                            
taxes in order to specify that only one tax would be levied.                                                                    
                                                                                                                                
Co-Chair Green  expressed that there is a "distinction"  between the                                                            
imposition  of a local  tax on a  purchase of a  product such  as an                                                            
apple and "the  State paying millions of dollars for  local projects                                                            
… which money  does not go to the project". That is  the issue being                                                            
addressed in this legislation.                                                                                                  
                                                                                                                                
9:57:40 AM                                                                                                                    
                                                                                                                                
Senator Dyson  observed that "the  sales tax on the services  that a                                                            
subcontractor  provides"… differs  "in order of magnitude"  from the                                                            
taxes  placed on  the sale  of  consumer goods  such  as apples.  He                                                            
agreed with Co-Chair  Green's comment that the action  of imposing a                                                            
local  tax on  State  resources that  are  being used  to  construct                                                            
something  of "significant  value to  the local  community …  sounds                                                            
like the  local community  is looking  for another  way to bite  the                                                            
hand  that is feeding"  it  or "providing  a huge  resource at  very                                                            
little direct cost to that community".                                                                                          
                                                                                                                                
Co-Chair  Wilken  moved  to  report the  bill  from  Committee  with                                                            
individual recommendations and accompanying fiscal note.                                                                        
                                                                                                                                
There being  no objection, SB 158  was REPORTED from Committee  with                                                            
zero fiscal  note #1,  dated April  6, 2005 from  the Department  of                                                            
Commerce, Community and Economic Development.                                                                                   
                                                                                                                                
9:59:40 AM                                                                                                                    
                                                                                                                                
                                                                                                                                
     SENATE BILL NO. 88                                                                                                         
     "An Act relating to the policy of the state regarding the                                                                  
     source of funding used to cover a shortfall in general fund                                                                
     revenue."                                                                                                                  
                                                                                                                                
                                                                                                                                
This was  the second  hearing for  this bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
Co-Chair Wilken,  the bill's sponsor, stated that  in the time since                                                            
the April  5, 2005  first hearing  on this legislation  he has  been                                                            
encouraged by the comments,  suggestions, and ideas that individuals                                                            
have  shared with  him.  During  those conversations,   it has  been                                                            
realized that  "this is a very flexible  plan … that can  be used as                                                            
needed  when needed".  He acknowledged  that "it  is strange"  to be                                                            
discussing  this legislation  during  a time  when  the State's  oil                                                            
revenues are increasing.  However, it is encouraging  that "we don't                                                            
have  our head  in the sand".  No one  should  ignore the  projected                                                            
future oil revenues the  State could receive as reflected on what he                                                            
referred to as the "sensitivity  chart", on page five of the "Senate                                                            
Bill 88  A Bridge to Development  A Policy  on General Fund  Revenue                                                            
Shortfall" handout  [copy on file] discussed during  the April fifth                                                            
hearing.                                                                                                                        
                                                                                                                                
Senator  Stedman   summarized  that   the  plan  proposed   in  this                                                            
legislation   would,  were  the  State   to  experience   a  revenue                                                            
shortfall, split  the draw that might historically  have occurred on                                                            
"the State's  savings account",  the Constitutional  Budget  Reserve                                                            
(CBR), between  the CBR and  the Earnings  Reserve Account  (ERA) of                                                            
the Permanent  Fund. While  the principal of  the Permanent  Fund is                                                            
protected,   the  Legislature   has  the   Statutory  authority   to                                                            
appropriate  money  from  the  ERA  after  dividends  and  inflation                                                            
proofing  have occurred.  Over the  past several  years, a total  of                                                            
approximately  five billion dollars  has been drawn from  the CBR to                                                            
address  the State's  funding shortfall.  The CBR  balance today  is                                                            
approximately  $2.4 billion.  Were the  State to  continue having  a                                                            
funding deficit,  the draw on the CBR might lower  the balance to "a                                                            
threshold of approximately  one billion dollars. This  is of concern                                                            
to the  Administration". While  there is debate  in regards  to what                                                            
appropriate  balance should  be maintained  in the CBR, "clearly  at                                                            
some point, the State needs  to have an adequate cash reserve to use                                                            
in cash managing  its week-to-week  business relationships".  Rather                                                            
than  incorporating  language   into  regulation  or  Statute,  this                                                            
legislation would "recommend  a policy for the Legislature to follow                                                            
to extend the  life of the CBR" by "jointly and equally"  drawing on                                                            
both the ERA  and the CBR. The intent  is to extend the life  of the                                                            
CBR  with the  hope  that the  State  could  reach the  point  where                                                            
revenue from  a gas pipeline or oil  field expansions could  provide                                                            
additional  revenue  to the State.  "On  the surface"  this is  good                                                            
policy … some  decision should be  made. While he had supported  the                                                            
Percent  of Market  Value  (POMV)  plan legislation  that  had  been                                                            
discussed the previous  year as a means through which to address the                                                            
State's  fiscal  dilemma,  the  Legislature   had  not  adopted  it.                                                            
Therefore another plan  must be pursued through which to address the                                                            
continuing problem. Compromises along the way would occur.                                                                      
                                                                                                                                
Senator Stedman  shared that his concern with this  proposal is that                                                            
neither a maximum CBR or  ERA draw amount limit is specified nor has                                                            
a "trigger  point" or a specified  CBR balance been identified  upon                                                            
which  time  the draw  would  be split  between  the  two  accounts.                                                            
Nonetheless, he would not  oppose advancing the bill because he felt                                                            
that the  "debate  needs to  go forward".  It would  be in the  best                                                            
interest of  the State to further  discuss and debate the  merits of                                                            
the bill. "Clearly the  numbers" and the sponsor's presentations are                                                            
very "enlightening. The  impact is minimal" in comparison to that of                                                            
imposing a  State income or sales  tax "on the individual  wealth of                                                            
the Alaskan residents".                                                                                                         
                                                                                                                                
Senator  Stedman suggested  that,  in the  "finer points  of a  long                                                            
range  fiscal  plan", consideration   be given  to  incorporating  a                                                            
trigger point of, for example,  a $2.5 billion CBR balance being the                                                            
point at which  any draw would be equally split between  the CBR and                                                            
the  ERA. Thus  the ERA  would not  be utilized  were  the State  to                                                            
experience "the good fortune"  of such things as economic expansion,                                                            
additional  resource development  revenues,  and budgetary  controls                                                            
that negated the need for  a CBR draw and its balance remained above                                                            
the  specified threshold.  He  considered  the "Permanent  Fund  the                                                            
source of  capital of last  resort for virtually  everything  in the                                                            
State".  It  is estimated  that  the  CBR would  contain  funds  for                                                            
approximately another ten  years; therefore the State must develop a                                                            
plan that would fund State  operations until at least the year 2015.                                                            
                                                                                                                                
10:07:16 AM                                                                                                                   
                                                                                                                                
Senator Stedman  desired that the State's policy decisions  relating                                                            
to this  bill would include  a maximum ERA  draw amount. This  issue                                                            
would require more work  than the issue of designating a CBR trigger                                                            
balance. "The  point is that" it would be very easy  for Legislators                                                            
to appease  constituents by presenting  "more proposals for  capital                                                            
spending than the State  could possibly fund … and it is also easier                                                            
to let  the budget  grow than to  hold it  back". Easily  accessible                                                            
funding could  serve to increase the  State's operating budget  to a                                                            
point  that would  not  be in  the best  financial  interest of  the                                                            
State.                                                                                                                          
                                                                                                                                
Senator  Stedman concluded  therefore that  incorporating a  maximum                                                            
limit on  the ERA  draw in addition  to establishing  a CBR  Trigger                                                            
mechanism  balance would be  worthwhile efforts  in regards  to this                                                            
bill. When this issue moves  from this Committee to the Senate Rules                                                            
Committee,  it should  be  accompanied  by a  clear  message to  the                                                            
people in the  State "that the Legislature is serious  about dealing                                                            
with  this  fiscal  issue".  The  State's   fiscal  issue  has  been                                                            
discussed for  years and cannot be ignored, even now  when the price                                                            
of North Slope  crude oil is in the range of $48 a  barrel. High oil                                                            
prices  would provide  additional  time in  which the  issue can  be                                                            
addressed.                                                                                                                      
                                                                                                                                
10:09:54 AM                                                                                                                   
                                                                                                                                
Senator  Dyson concurred  with Senator  Stedman's  remarks and  also                                                            
echoed Senator  Stedman's compliments regarding the  efforts exerted                                                            
by Senator  Wilken in the  development of  this legislation  and his                                                            
"clear" portrayal  of the State financial  situation going  forward.                                                            
                                                                                                                                
Senator Dyson  stated that  as the solutions  to the State's  fiscal                                                            
crisis are  discussed, it  would be his desire  that in addition  to                                                            
the  inclusion  of such  things  as a  "trigger  point"  on the  CBR                                                            
balance and "stringent  restraints" on State spending, that prior to                                                            
utilizing  ERA funds,  consideration  be  given to  incorporating  a                                                            
general  State tax.  He would  support  "a consumption  tax of  some                                                            
sort".  A paradigm  shift  is occurring  and these  discussions  are                                                            
alerting  the  public  that  the  State  could  not  continue  "with                                                            
business as usual". Tough decisions must be made.                                                                               
                                                                                                                                
Senator  Dyson stated  that, while he  would object  to a motion  to                                                            
move this bill from Committee, the discussion is valuable.                                                                      
                                                                                                                                
In  response  to a  question  from  Co-Chair  Green,  Senator  Dyson                                                            
restated that he would object to moving the bill from Committee.                                                                
                                                                                                                                
Co-Chair  Green asked whether  the reason for  that position  was to                                                            
allow the  Committee to conduct  further the  work on it as  Senator                                                            
Dyson's desire  to not move the bill from Committee  was in conflict                                                            
with  his earlier  remarks  in  support  of developing  legislation                                                             
through which to address the State's fiscal gap.                                                                                
                                                                                                                                
10:12:09 AM                                                                                                                   
                                                                                                                                
Senator  Dyson opined  that a "better  product"  could be  developed                                                            
that  would  meet  his and  Senator  Stedman's  concerns.  While  he                                                            
"guessed" that  the bill would move forward, it would  do so without                                                            
"his support at this time".                                                                                                     
                                                                                                                                
Co-Chair Green  asked Co-Chair Wilken whether his  desire is for the                                                            
legislation to move forward  at this time or whether the suggestions                                                            
presented   by  Senator  Stedman   and  Senator  Dyson  be   further                                                            
considered by this Committee.                                                                                                   
                                                                                                                                
10:12:45 AM                                                                                                                   
                                                                                                                                
Co-Chair  Wilken   responded  that  due  to  the  amount   of  other                                                            
legislation that the Committee  must address during the limited time                                                            
remaining in this  Legislative session and the fact  that he did not                                                            
expect this bill to be  adopted by the Legislature this year or even                                                            
the  following  year,  his desire  would  be  to  move it  from  the                                                            
Committee  at this  time. This  "very flexible"  policy legislation                                                             
could be revisited  and adjustments  could be made were the  need to                                                            
arise. He  noted that the  bill could be  returned to the  Committee                                                            
for further  consideration and that  he is receptive to some  of the                                                            
suggestions  that were  offered.  In view  of the  favorable  fiscal                                                            
situation  that  the State  is  currently  experiencing,  it is  his                                                            
determination  that  this  legislation  would  not be  awarded  much                                                            
forward  momentum.  Were  the decision  made  to  keep the  bill  in                                                            
Committee,  he  doubted  it  would  receive   another  hearing  this                                                            
Session.                                                                                                                        
                                                                                                                                
Co-Chair Green commented  that in 1997, 1999, and 2002, she had been                                                            
"very involved"  in efforts to protect  the Permanent Fund  Dividend                                                            
and  incorporate  inflation  proofing of  the  Fund in  the  State's                                                            
Constitution.  This purpose was to protect the Fund  from being "the                                                            
focus  of the  conversation"  when  addressing  the  State's  fiscal                                                            
challenge.  It is frustrating  that  those efforts  did not come  to                                                            
fruition. Nonetheless,  language that is worthy of mentioning in Co-                                                            
Chair Wilken's aforementioned  presentation is the line item on page                                                            
25 that states that this  legislation "strengthens the Alaska's bond                                                            
rating and saves millions  of dollars". "There's a terrible irony in                                                            
the State's" funding, bonding,  and revenue scenarios because "we do                                                            
not use anything  from the Permanent Fund earnings";  that money "is                                                            
not considered part of  the State's revenue stream … Therefore, it's                                                            
not part of the  State's fiscal plan, it doesn't reflect  as well as                                                            
it should on" the State's  bond rating. However, people who "survey"                                                            
the State's  debt  situation determine  that the  State has  minimal                                                            
debt. Nonetheless,  they point out  that "the State does  not have a                                                            
fiscal plan, which really  means you don't have an income tax". This                                                            
is  being  mentioned  as,  today,  April  15th,  is  the  date  that                                                            
individual's federal  income tax is due. She declared  that she does                                                            
not support a State income  tax and for that reason alone, she is in                                                            
favor of this  legislation. The State must determine  how to improve                                                            
its ability,  "in times of  need", to bond  for a needed project  by                                                            
being able  to show that  the Permanent Fund  is a component  of the                                                            
State's portfolio.  Currently, that  is not the case. It  is "awful"                                                            
that  the  State must  be  required  to  show "on  paper"  that  the                                                            
Legislature  could  use Permanent  Fund  earnings,  even though  the                                                            
Legislature  already   has  the  authority  to  do   so.  "It's  not                                                            
prohibited,  it's  allowed,  it's provided  and  … nothing  in  this                                                            
should constitute a limitation on that right or charge".                                                                        
                                                                                                                                
10:17:12 AM                                                                                                                   
                                                                                                                                
Co-Chair Green voiced appreciation  for Co-Chair Wilken' development                                                            
of legislation  that would remove  "pressure" on both systems.  This                                                            
legislation,  "more than anything"  protects  the CBR. "It  ends the                                                            
conversation of  'oh, how horrible that you have to  take money from                                                            
the CBR'".                                                                                                                      
                                                                                                                                
10:17:37 AM                                                                                                                   
                                                                                                                                
Senator Dyson  voiced appreciation for Co-Chair Green's  remarks and                                                            
clarified  that  his comments  should  not  be misconstrued,  as  he                                                            
"clearly"  understands that  the Permanent  Fund was established  to                                                            
provide  funding   when  the  day   came  that  oil  revenues   were                                                            
insufficient  to  fund  State  operations.  Nothing  more  would  be                                                            
required to allow "the  Legislature to access the ERA for support of                                                            
government". Accusations  that he is "much too idealistic  or naïve"                                                            
occur when  he shares his position  that the three sources  of State                                                            
income: revenues,  the CBR, and the ERA, should be  accessed in that                                                            
order rather  than being  viewed as equals.  The CBR should  be used                                                            
for the short-term  and the ERA for the long-term.  He would support                                                            
utilizing "the  ERA to support a level of government  that the State                                                            
requires  when revenues  are insufficient  and  the CBR approaches"                                                             
some determined minimal threshold.                                                                                              
                                                                                                                                
AT EASE 10:19:35 AM / 10:19:45 AM                                                                                           
                                                                                                                                
Co-Chair Wilken reiterated  his earlier comment that, "the beauty of                                                            
this  is that  it provides  a  great deal  of flexibility  for  this                                                            
Legislature  and all  Legislatures  that will  follow  until we  can                                                            
build a bridge to development".  The details would be developed over                                                            
time, as currently  sufficient funds  are available; however,  there                                                            
would  be a  need to  complete the  task within  four,  six, or  ten                                                            
years.  That is  what  this legislation  "is  all about".  He  again                                                            
voiced  appreciation  for  the  support  that  the  legislation  has                                                            
received.  It is a  flexible plan  and would provide  one more  tool                                                            
through which  to balance the State's  budget, "with minimal  impact                                                            
to families and those people who choose to invest" in the State.                                                                
                                                                                                                                
Co-Chair  Green asked  regarding  the use  of the  word "policy"  in                                                            
Section 1(b), line five,  page one of the bill; specifically whether                                                            
a "policy"  differs from  being a  mandate or  a requirement  or the                                                            
word "shall", in that it is a suggestion.                                                                                       
                                                                                                                                
Co-Chair Wilken responded  that, in this sense, the term "policy" is                                                            
a  suggestion:  it  could  be  ignored,  changed,  or  whatever  the                                                            
Legislature seated at the time, might feel appropriate.                                                                         
                                                                                                                                
Co-Chair  Wilken  moved  to  report the  bill  from  Committee  with                                                            
individual recommendations and accompanying fiscal note.                                                                        
                                                                                                                                
Senator Dyson objected.                                                                                                         
                                                                                                                                
A roll call was taken on the motion.                                                                                            
                                                                                                                                
IN FAVOR: Senator  Olson, Senator Hoffman, Co-Chair  Wilken, and Co-                                                            
Chair Green                                                                                                                     
                                                                                                                                
OPPOSED: Senator Dyson and Senator Stedman                                                                                      
                                                                                                                                
ABSENT: Senator Bunde                                                                                                           
                                                                                                                                
The motion to report the bill from Committee PASSED (4-2-1).                                                                    
                                                                                                                                
SB 88 was REPORTED  from Committee  with Department of Revenue  zero                                                            
Fiscal Note #1, dated February 15, 2005.                                                                                        
                                                                                                                                
ADJOURNMENT                                                                                                                 
                                                                                                                                
Co-Chair Green adjourned the meeting at 10:22 AM.                                                                               

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