Legislature(2007 - 2008)SENATE FINANCE 532

05/07/2007 09:00 AM FINANCE


Download Mp3. <- Right click and save file as

* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ SB 168 PASSENGER VESSEL TAX CREDIT TELECONFERENCED
Moved SB 168 Out of Committee
+ SB 80 OIL & GAS PRODUCTION TAX: EXPENDITURES TELECONFERENCED
Heard & Held
+ SB 27 MEDICAL ASSISTANCE ELIGIBILITY TELECONFERENCED
Heard & Held
+ SB 116 UNIFORM MONEY SERVICES ACT TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
                            MINUTES                                                                                           
                    SENATE FINANCE COMMITTEE                                                                                  
                          May 7, 2007                                                                                         
                           9:09 a.m.                                                                                          
                                                                                                                                
                                                                                                                              
CALL TO ORDER                                                                                                               
                                                                                                                                
Co-Chair  Bert  Stedman  convened the  meeting  at  approximately                                                               
9:09:25 AM.                                                                                                                   
                                                                                                                                
PRESENT                                                                                                                     
                                                                                                                                
Senator Lyman Hoffman, Co-Chair                                                                                                 
Senator Bert Stedman, Co-Chair                                                                                                  
Senator Charlie Huggins, Vice Chair                                                                                             
Senator Kim Elton                                                                                                               
Senator Donny Olson                                                                                                             
Senator Joe Thomas                                                                                                              
Senator Fred Dyson                                                                                                              
                                                                                                                                
Also Attending:  SENATOR TOM  WAGONER; SENATOR BETTYE DAVIS; MARY                                                             
JACKSON, Staff  to Senator Tom  Wagoner; TOM OBERMEYER,  Staff to                                                               
Senator  Bettye  Davis;  JANET  CLARKE,  Assistant  Commissioner,                                                               
Department  of  Health  and   Social  Services;  WALTER  MAJOROS,                                                               
Executive  Director,  Juneau  Youth Services,  President,  Alaska                                                               
Association  of Homes  for Children,  and Vice  President, Alaska                                                               
Behavioral Health  Association, testified  in Juneau,  in support                                                               
of this legislation;                                                                                                            
                                                                                                                                
Attending  via  Teleconference:    From  offnet  locations:  JUDY                                                             
BRADY, Executive  Director, Alaska Oil and  Gas Association; JOHN                                                               
IVERSON, Director,  Tax Division,  Department of  Revenue; CLOVER                                                               
SIMON,  Chief Executive  Officer, Planned  Parenthood of  Alaska;                                                               
LEONARD  FANCHER, lifelong  Alaskan,  representing Mighty  Bikes;                                                               
MARK  DAVIS,  Director,  Division   of  Banking  and  Securities,                                                               
Department of Commerce, Community  and Economic Development; From                                                               
Anchorage:  DAVID  ALEXANDER  MD,  Retired  Pediatrician;  JANICE                                                               
TOWER,  Executive  Director,   American  Academy  of  Pediatrics,                                                               
Alaska Chapter;  SARA JACKSON, Board  Member, Anchorage  Faith in                                                               
Action Congregations  Together, and human  services professional;                                                               
SANDRA  CASTLE;   ANGELA  LISTON,   Anchorage  Faith   in  Action                                                               
Congregations Together.                                                                                                         
                                                                                                                                
SUMMARY INFORMATION                                                                                                         
                                                                                                                                
SB 168-PASSENGER VESSEL TAX CREDIT                                                                                              
                                                                                                                                
The bill was reported from Committee.                                                                                           
                                                                                                                                
SB  80-OIL & GAS PRODUCTION TAX: EXPENDITURES                                                                                   
                                                                                                                                
The Committee heard  from the sponsor, the  Department of Revenue                                                               
and industry representatives. The bill was held in Committee.                                                                   
                                                                                                                                
SB  27-MEDICAL ASSISTANCE ELIGIBILITY                                                                                           
                                                                                                                                
The Committee  heard from the  sponsor, the Department  of Health                                                               
and  Social  Services,  a  faith  based  organization,  pediatric                                                               
health care  providers and advocates  for pediatric  health care.                                                               
The bill was held in Committee.                                                                                                 
                                                                                                                                
SB 116-UNIFORM MONEY SERVICES ACT                                                                                               
                                                                                                                                
The  Committee  heard from  the  sponsor  and the  Department  of                                                               
Commerce, Community  and Economic Development. The  bill was held                                                               
in Committee.                                                                                                                   
                                                                                                                                
9:10:17 AM                                                                                                                    
                                                                                                                                
                                                                                                                                
     SENATE BILL NO. 168                                                                                                        
     "An  Act  providing a  credit  for  the payment  of  certain                                                               
     municipal passenger taxes or fees  against the excise tax on                                                               
     travel  aboard commercial  passenger vessels;  and providing                                                               
     for an effective date."                                                                                                    
                                                                                                                                
                                                                                                                                
This was the  second hearing for this bill in  the Senate Finance                                                               
Committee.                                                                                                                      
                                                                                                                                
9:10:35 AM                                                                                                                    
                                                                                                                                
Co-Chair  Stedman asked  if members  had additional  questions on                                                               
this legislation. It  was established that there  were no further                                                               
questions.                                                                                                                      
                                                                                                                                
9:10:43 AM                                                                                                                    
                                                                                                                                
Senator Elton offered a motion  to report the bill from Committee                                                               
with individual recommendations and accompanying fiscal note.                                                                   
                                                                                                                                
Without objection SB  168 was REPORTED from Committee  with a new                                                               
fiscal note  dated 5/4/07  from the Department  of Revenue  in an                                                               
indeterminate amount.                                                                                                           
                                                                                                                                
9:11:08 AM                                                                                                                    
                                                                                                                                
                                                                                                                                
     CS FOR SENATE BILL NO. 80(RES)                                                                                             
     "An  Act relating  to allowable  lease expenditures  for the                                                               
     purpose of determining  the production tax value  of oil and                                                               
     gas for the purposes of the  oil and gas production tax; and                                                               
     providing for an effective date."                                                                                          
                                                                                                                                
                                                                                                                                
This was  the first hearing for  this bill in the  Senate Finance                                                               
Committee.                                                                                                                      
                                                                                                                                
Co-Chair Stedman announced action would  not be taken on the bill                                                               
at this hearing.                                                                                                                
                                                                                                                                
9:11:47 AM                                                                                                                    
                                                                                                                                
SENATOR TOM WAGONER, sponsor of  the bill, introduced himself and                                                               
a member of his staff.                                                                                                          
                                                                                                                                
9:12:13 AM                                                                                                                    
                                                                                                                                
MARY JACKSON, Staff  to Senator Tom Wagoner,  testified that this                                                               
bill would  prohibit oil and  gas producers from  deducting, from                                                               
the net tax  calculation of the Petroleum Profits  Tax (PPT), any                                                               
costs incurred  as a  result of improper  maintenance or  lack of                                                               
maintenance  by the  producer. By  stipulating this  in statutes,                                                               
the   Department  of   Revenue  would   be  allowed   to  develop                                                               
regulations to implement the provisions.                                                                                        
                                                                                                                                
Ms. Jackson explained  that Section 1 of the bill  would amend AS                                                               
43.55.165(e), providing  for exclusions from  lease expenditures,                                                               
by adding  a new subparagraph  (19) on  page 3, lines  19 through                                                               
30. This subparagraph "set out  who's responsible for determining                                                               
improper  maintenance."   Currently,  the  commissioner   of  the                                                               
Department of  Revenue in consultation with  the commissioners of                                                               
the Department  of Environmental Conservation and  the Alaska Oil                                                               
and Gas Conservation Commission  (AOGCC), had the responsibility.                                                               
This bill would  provide that the commissioner  of the Department                                                               
of  Revenue would  make determinations  in consultation  with the                                                               
commissioner  of  the Department  of  Natural  Resources and  the                                                               
"newly formed"  Petroleum System  Integrity Office  (PSIO) within                                                               
the   Department  of   Natural  Resources.   The  PSIO   was  not                                                               
specifically named  in the  provision in the  event the  title of                                                               
the office  was changed;  instead a  description of  the Office's                                                               
purpose was provided.                                                                                                           
                                                                                                                                
Ms.  Jackson acknowledged  the  possible  duplicity of  requiring                                                               
consultation  with  both  the Department  of  Natural  Resources'                                                               
commissioner   and  PSIO.   However  inclusion   of  both   would                                                               
demonstrate legislative intent that the  PSIO was "charged with …                                                               
overseeing the pipeline systems in the state of Alaska."                                                                        
                                                                                                                                
9:14:43 AM                                                                                                                    
                                                                                                                                
Ms. Jackson informed that the  existing statute utilized the term                                                               
"standard  practices of  the industry"  and would  be changed  to                                                               
"good oil  field practice", a  term that was "recognized"  by the                                                               
industry.                                                                                                                       
                                                                                                                                
Ms. Jackson  reported that the "affected  agencies" supported all                                                               
the  amendments   adopted  in  the  Senate   Resources  Committee                                                               
substitute. Some were proposed by the departments.                                                                              
                                                                                                                                
9:15:15 AM                                                                                                                    
                                                                                                                                
Ms.  Jackson pointed  out that  the committee  substitute deleted                                                               
the language of (19)(B) from  the existing statute, which Senator                                                               
Wagoner would speak to.                                                                                                         
                                                                                                                                
9:15:32 AM                                                                                                                    
                                                                                                                                
Ms. Jackson stated  that Section 2 of the bill  provided that the                                                               
changes made in Section 1  would have a retroactive applicability                                                               
date for oil and gas produced  after March 31, 2006. This was the                                                               
effective date of the original statute.                                                                                         
                                                                                                                                
9:16:12 AM                                                                                                                    
                                                                                                                                
Senator  Wagoner  objected  to  the  Senate  Resources  Committee                                                               
substitute  because  of  the  deletion  of  unallowable  expenses                                                               
described in  AS43.55.165(e)(19)(B) from the original  version of                                                               
the bill and which read as follows.                                                                                             
                                                                                                                                
                    (B) incurred to maintain the operational                                                                    
          capability  of   facilities  or  equipment   shut  down                                                               
          because   of  improper   maintenance  of   property  or                                                               
          equipment                                                                                                             
                                                                                                                                
Senator Wagoner  informed that  this language  was deleted  by an                                                               
amendment offered in the Senate  Resources Committee by a vote of                                                               
five yeas,  two nays.  The argument employed  in this  effort was                                                               
the same argument presented by  Senator Ben Stevens to the Senate                                                               
Special Committee  on Natural Gas Development  during the special                                                               
legislative session  held in August  2006 pertaining to  the PPT.                                                               
Senator Wagoner "found that connection  to be at least curious in                                                               
the sight of the ongoing investigation of PPT."                                                                                 
                                                                                                                                
Senator  Wagoner  read  further  from  a  prepared  statement  as                                                               
follows.                                                                                                                        
                                                                                                                                
     I was not a supporter of  the net system. I worked very hard                                                               
     to keep  the net system  at a higher  level than it  came in                                                               
     at. I did finally vote for  the net system, but I prefer the                                                               
     gross system at  all times. And I still at  this time prefer                                                               
     a gross  system. I think we're  starting to see some  of the                                                               
     reasons why a gross system is less controversial.                                                                          
     I  resign  myself  to  the  net  system  and  made  numerous                                                               
     attempts  to   amend  that   system.  Those   attempts  were                                                               
     successful  except for  one instance  and that  was done  at                                                               
     this table and that's why we're  here at this table now. The                                                               
     one amendment that  failed is the bill before  you today. It                                                               
     failed by  a vote of  five yeas, seven nays.  Obviously, had                                                               
     it not failed we wouldn't be here discussing it today.                                                                     
     More importantly, all those concerns  now connected with the                                                               
     bill, the retroactive implementation,  the lack of standards                                                               
     or  regulations of  the Department  of Revenue,  which would                                                               
     have  followed  the  passage of  the  amendment,  all  those                                                               
     concerns would  be nonexistent. But  they are  existence and                                                               
     how to implement  this provision to put a  tourniquet on the                                                               
     potential revenue bleed from deductions is at issue.                                                                       
                                                                                                                                
9:18:40 AM                                                                                                                    
                                                                                                                                
Senator  Huggins commented  that  the  amendment Senator  Wagoner                                                               
referred to was  brought to him as chair of  the Senate Resources                                                               
Committee by  John Norman, Chair,  AOGCC. Mr. Norman  pointed out                                                               
the  advantages and  disadvantages  of "what  it represented".  A                                                               
policy call  was necessary  to determine  whether to  provide "an                                                               
incentive  to  keep  a  facility   operating  when  it  could  be                                                               
dangerous."  Mr.  Norman  analogized an  aircraft  that  required                                                               
maintenance yet continued to fly.                                                                                               
                                                                                                                                
9:20:03 AM                                                                                                                    
                                                                                                                                
Senator Wagoner  affirmed the account  of Mr.  Norman's testimony                                                               
before the  Senate Resources Committee was  correct. However, not                                                               
mentioned  was that  Kevin  Banks of  the  Department of  Natural                                                               
Resources was available but not  provided an opportunity to speak                                                               
to the  amendment. Additionally,  John Iverson was  available but                                                               
not provided  an opportunity to  testify to the  amendment. These                                                               
two people would  be involved in the drafting  of the regulations                                                               
to  implement  this  legislation  and  they  disagreed  with  Mr.                                                               
Norman's summary of the bill.                                                                                                   
                                                                                                                                
Senator Wagoner opined,  "Let's face it, John  Norman through the                                                               
Oil and  Gas Conservation  Commission, he's  a brilliant  man and                                                               
everything else,  but his responsibility stops  at the wellhead."                                                               
By  contrast,  the  Department   of  Natural  Resources  and  the                                                               
Department  of Revenue  had responsibility  for actions  from the                                                               
point  of  the wellhead  to  transfer  to  an oil  freighter  for                                                               
shipment out of the state.                                                                                                      
                                                                                                                                
9:21:38 AM                                                                                                                    
                                                                                                                                
JUDY BRADY,  Executive Director, Alaska Oil  and Gas Association,                                                               
testified via  teleconference from  an offnet location  about the                                                               
trade association that  represented oil and gas  producers in the                                                               
state.   This  bill   reflected   a  topic   of  discussion   and                                                               
"controversy"   and  she   appreciated   the  co-chair's   stated                                                               
objective  to  hold the  bill  in  Committee  at this  time.  All                                                               
parties must avoid "a reaction that ends in a bad bill."                                                                        
                                                                                                                                
Ms. Brady reminded  that the amendment offered  during the August                                                               
2006 special  session by  Senator Wagoner was  done so  after the                                                               
closure of BP's  operations on the North Slope due  to leakage in                                                               
the oil transit line. However  the question of the definitions of                                                               
"properly  maintained"  and  "diminished capacity"  remained,  as                                                               
well  as identification  of the  appropriate  party qualified  to                                                               
make  such  determinations.   She  detailed  the  considerations,                                                               
including  whether  an  auditor  would  make  determinations  and                                                               
whether  an event  such as  an oil  spill must  occur before  the                                                               
determination could  be made. She  remarked "If so,  it's already                                                               
taken care of."                                                                                                                 
                                                                                                                                
Ms. Brady surmised  that the original amendment  was defeated due                                                               
to an  understanding at the  time that "the concerns  of improper                                                               
maintenance were already taken care  of" through "other pieces of                                                               
the Act". The  Association continued to hold  this opinion. Pedro                                                               
Van Meurs who  served as an oil and gas  consultant to the former                                                               
Murkowski Administration, suggested as  an alternative "to trying                                                               
to  look at  every  single incidence  of  capital expenditure,  a                                                               
three-cent deduction that  would act as a proxy  for decisions on                                                               
every single capital expenditure."                                                                                              
                                                                                                                                
Ms. Brady continued as follows.                                                                                                 
                                                                                                                                
     Expenditures  related  to  actual  leaks  or  incidents  are                                                               
     already  taken care  of. You  cannot deduct  those. So  what                                                               
     you're talking about here in  this bill is having an auditor                                                               
     have  to   make  the  decision   on  every   single  capital                                                               
     expenditure for  every time there  is a shut down,  taking a                                                               
    look to see if that was related to improper maintenance.                                                                    
     That simply is not done  anywhere. It's not done anywhere in                                                               
     the world; it's  not done between operators on  a field. All                                                               
     of  the  main  concerns  that legislators  had  are  already                                                               
     incorporated  in  the  Act.  Lease  expenditures  would  not                                                               
     include  costs arising  from  fraud,  willful misconduct  or                                                               
     gross negligence.                                                                                                          
     Lease  expenditures   -  costs  incurred   for  containment,                                                               
     control,  cleanup   or  removal   in  connection   with  any                                                               
     unpermitted release of oil or  hazardous substance would not                                                               
     be included in the lease expenditures.                                                                                     
     There  seems to  be  a  conversation here  going  on in  the                                                               
     background  that legislators  at  the time  were not  paying                                                               
     attention to  what happened  at Prudhoe  Bay [and]  were not                                                               
     concerned that the State's interests were being protected.                                                                 
     Not only were  the State's interests being  protected by the                                                               
     legislators at the time, Governor  Murkowski at the time and                                                               
     the  director  of DEC  put  120  hour notification  of  fund                                                               
     access to  the response account  for $8 million for  a study                                                               
     for the  Department of  Law and  DEC to take  a look  at the                                                               
     State's  interests  in  the  spill.   That  study  is  still                                                               
     ongoing.  We  found  out  about it  just  recently  when  we                                                               
     realized that  the $50  million response  fund and  the "470                                                               
     fund" was open again for  the one-cent per barrel money from                                                               
     Prudhoe Bay.                                                                                                               
     Let me  read you  what the  State is  looking at  right now.                                                               
     This  is  an ongoing  study  going  on  right now,  I  would                                                               
     suggest, Mr. Chairman  that perhaps the people  from Law and                                                               
     DEC  could come  in  and  talk about  where  they are.  "The                                                               
     purpose  of   this  was   to  investigate   the  maintenance                                                               
     corrosion  management practices  and  to  recover all  State                                                               
    costs and lost revenues including fines and penalties."                                                                     
     They asked for the $8  million because they talked about the                                                               
     amount of work  that was going to be required  to go through                                                               
     all of the investigations, to  hire engineer companies to do                                                               
     all of the  things that were going to be  required for them.                                                               
     And  they  said  that  "the State  has  incurred  costs  for                                                               
     response oversight mitigation  assessment repair replacement                                                               
     of   corroded   pipeline.   Moreover  the   State   incurred                                                               
     substantial losses  in revenue  from royalty,  severance tax                                                               
     and  corporate  income  tax  from  the  loss  of  crude  oil                                                               
     production as a result."                                                                                                   
     So if anybody  is implying or believes  that legislators and                                                               
     people  in DEC  and Department  of  Law last  year were  not                                                               
     paying  attention to  the State's  interests, they're  wrong                                                               
     with respect, because  the State was taking  all the actions                                                               
     you  would  expect  the  State  to take  to  make  sure  its                                                               
     interests were covered.                                                                                                    
     The reason that this amendment  last year was voted down was                                                               
     because the people  - because there was a  good showing that                                                               
     in  fact all  of the  concerns that  were expressed  in this                                                               
     amendment were  already taken  care of, and  as a  matter of                                                               
     fact  the language  in the  amendment was  unworkable. …when                                                               
     this bill  was introduced  again this  year, both  DEC, DNR,                                                               
     AOGCC, all  wrote letters saying  that the language  was not                                                               
     workable. Some changes have been made  now to try to move it                                                               
     in a direction  that it is workable, but you've  still got a                                                               
     couple of issues.                                                                                                          
     One  is that  …  there  is no  incident  that  kicks off  an                                                               
     investigation or  kicks of a  red flag to the  auditor. It's                                                               
     going to have  to be every capital expense.  That's going to                                                               
     be a huge issue.                                                                                                           
     The other thing I'm hoping that  you will have time to do is                                                               
     have someone from  Department of Revenue talk to  you who is                                                               
     familiar  with  the audit  process;  someone  who knows  the                                                               
     audit process. It's at least a three-year process.                                                                         
     Commissioner John  Norman when he was  talking earlier about                                                               
     how difficult this  is going to be to  implement, was saying                                                               
     if an  auditor red flags a  cost, and they're going  to have                                                               
     to look at  every one of them, it's going  to be three years                                                               
     before you know  - before the company knows,  what costs are                                                               
     approved and what  costs aren't approved. By  that time, the                                                               
     likelihood is you're going to be  in either court or in some                                                               
     kind  of administrative  action and  we are  going to  be in                                                               
     exactly  the same  situation  that we  were  with the  gross                                                               
     production tax  because it was  not thought out at  the very                                                               
     beginning and  we ended up  with billions of dollars  in tax                                                               
     revenues in dispute.                                                                                                       
     Once  that  happens, neither  the  companies  nor the  State                                                               
     could make  a move to  resolve the issues  because everybody                                                               
    was afraid of influencing or losing money on both sides.                                                                    
     I think  there was a  commitment made when PPT  passed, that                                                               
     this  not  happen again  -  that  the regulations  would  be                                                               
     clear;  that  there  would  be a  process  that  worked  for                                                               
     everybody,  because   everybody  was  concerned   about  the                                                               
     process, that we  would not get into this  backed up billion                                                               
     dollar  tax  unbreakable  dead   end  again.  It  makes  for                                                               
     terrible relationships  between the State and  the companies                                                               
     and  influences everything  that happens  because its  right                                                               
     there, like this black cloud in the background.                                                                            
     We have expressed some other  legal concerns with this and I                                                               
     will with  your permission  not take your  time now.  I will                                                               
     send  you a  copy  of  our testimony.  The  main points  are                                                               
     these.                                                                                                                     
     We believe the  State is already protected.  We believe that                                                               
     this bill is  going to affect Cook Inlet as  well as it will                                                               
     affect  the  whole  state.  It  will  affect  every  capital                                                               
     expenditure.  It  adds a  convoluted  process  that has  not                                                               
     happened in any other taxing  jurisdiction as far as we know                                                               
     in the world.                                                                                                              
     The  two  things I  would  hope  you  would  do is  talk  to                                                               
     Department of Law  and DEC about how  their investigation is                                                               
     going  to   make  sure  you  are   comfortable  the  State's                                                               
     interests  are  covered;  to  go over  again  the  first  18                                                               
     exclusions in  the bill  to reconfirm  to yourself  that you                                                               
     believe  that the  State's interests  are protected.  And to                                                               
     have  a discussion  of  the  audit process  so  you can  see                                                               
     what's  going  to happen  automatically  with  this kind  of                                                               
     hang-up with every capital expenditure that is requested.                                                                  
     What this  does of course  is make it almost  impossible for                                                               
     the PPT  tax system  to work.  And if  that was  the intent,                                                               
     it's very successful intent.                                                                                               
                                                                                                                                
Co-Chair Stedman requested the witness summarize her testimony.                                                                 
                                                                                                                                
Ms. Brady continued.                                                                                                            
                                                                                                                                
     The hope now  would be again that Department of  Law and DEC                                                               
     come  in and  talk about  the  $8 million  of study  they're                                                               
     undertaking as well  as the audit process. Our  hope is that                                                               
     the  legislature  will  come  to  the  conclusion  that  the                                                               
     State's rights and interests are protected.                                                                                
                                                                                                                                
9:34:13 AM                                                                                                                    
                                                                                                                                
JOHN  IVERSON, Director,  Tax  Division,  Department of  Revenue,                                                               
testified via teleconference from an offnet location.                                                                           
                                                                                                                                
9:34:38 AM                                                                                                                    
                                                                                                                                
Co-Chair  Stedman  requested  Mr.  Iverson speak  to  the  fiscal                                                               
notes.                                                                                                                          
                                                                                                                                
9:34:46 AM                                                                                                                    
                                                                                                                                
Mr. Iverson  stated that  the Department  of Revenue  fiscal note                                                               
reflected  that  the Department  did  not  know what  the  actual                                                               
fiscal impact of this legislation  would be. A petroleum engineer                                                               
was currently  contracted by the Department  to provide expertise                                                               
on oil  and gas industry  practices. Passage of  this legislation                                                               
would  likely require  that a  second engineer  be contracted  to                                                               
assist  in   determinations  of  proper  maintenance   and  other                                                               
matters.                                                                                                                        
                                                                                                                                
Mr.  Iverson, addressing  the issue  of  auditing, informed  that                                                               
each  capital   expenditure  would  not  be   audited.  Rather  a                                                               
"sampling" method would be employed.                                                                                            
                                                                                                                                
9:38:20 AM                                                                                                                    
                                                                                                                                
Senator Thomas identified the impetuous  of this provision as the                                                               
oil  spill that  occurred  the  previous summer  as  a result  of                                                               
corrosion. He  understood that  tax filings  made by  BP indicate                                                               
that the company intended to "write  off" the costs to repair the                                                               
system.                                                                                                                         
                                                                                                                                
9:39:02 AM                                                                                                                    
                                                                                                                                
Mr.  Iverson referenced  a media  report  published February  16,                                                               
2007 by  the Anchorage  Daily News that  indicated that  BP would                                                               
seek  tax  relief for  pipeline  repairs.  He could  not  provide                                                               
details  of   taxpayer  returns   because  the   information  was                                                               
statutorily confidential.                                                                                                       
                                                                                                                                
9:39:42 AM                                                                                                                    
                                                                                                                                
Co-Chair Stedman  asked the  date the  Department would  have the                                                               
ability  to  inform  the Committee  of  the  claimed  deductions,                                                               
including those that were rejected.                                                                                             
                                                                                                                                
9:40:17 AM                                                                                                                    
                                                                                                                                
Mr. Iverson  estimated the information could  either be available                                                               
in  one  year's   time  or  two  year's  time.   The  process  in                                                               
establishing an audit system of  the PPT required recruitment and                                                               
training of  auditors. The  normal audit  process would  last one                                                               
year once the system was operational.                                                                                           
                                                                                                                                
9:40:53 AM                                                                                                                    
                                                                                                                                
Senator  Thomas asked  if the  tax returns  were filed  for a  12                                                               
month calendar year period.                                                                                                     
                                                                                                                                
9:41:02 AM                                                                                                                    
                                                                                                                                
Mr. Iverson affirmed.                                                                                                           
                                                                                                                                
9:41:14 AM                                                                                                                    
                                                                                                                                
Co-Chair   Stedman  established   no  additional   testimony  was                                                               
forthcoming and that members had no further questions.                                                                          
                                                                                                                                
Co-Chair Stedman ordered the bill HELD in Committee.                                                                            
                                                                                                                                
AT EASE 9:41:28 AM / 9:42:51 AM                                                                                             
                                                                                                                                
9:42:58 AM                                                                                                                    
                                                                                                                                
                                                                                                                                
     CS FOR SENATE BILL NO. 27(HES)                                                                                             
     "An Act relating to eligibility requirements for medical                                                                   
     assistance for certain children, pregnant women, disabled                                                                  
     persons,  and  persons  in   medical  or  intermediate  care                                                               
     facilities; and providing for an effective date."                                                                          
                                                                                                                                
                                                                                                                                
This was the first hearing for this bill in the Senate Finance                                                                  
Committee.                                                                                                                      
                                                                                                                                
Co-Chair Stedman announced intent to hear bill but not take                                                                     
action on it at this time.                                                                                                      
                                                                                                                                
9:43:28 AM                                                                                                                    
                                                                                                                                
TOM OBERMEYER, Staff to Senator Bettye Davis, sponsor of the                                                                    
bill, presented the bill, reading the following statement into                                                                  
the record.                                                                                                                     
                                                                                                                                
     This was an  Act relating to medical  assistance for certain                                                               
     children,  pregnant   women  and   persons  in   medical  or                                                               
     immediate care  facilities, and  providing for  an effective                                                               
     date.                                                                                                                      
     The  focus of  this  bill initially  is  the Denali  KidCare                                                               
     portion of  the State's children's health  insurance program                                                               
     that is sponsored throughout all 50 states.                                                                                
     In Alaska there are  an estimated 18,000 uninsured children,                                                               
     or  about nine  percent of  the  children under  age 18  and                                                               
     under.  Private  health  care   coverage  for  children  has                                                               
     declined  over 30  percent  in  the last  ten  years. It  is                                                               
     estimated that children  with a medical need  are five times                                                               
     as likely  that are uninsured  as to  not to have  a regular                                                               
     doctor as those insured children  and four times more likely                                                               
     to use emergency rooms at a much higher cost.                                                                              
     The  eligibility rates  in Alaska  dropped dramatically  for                                                               
     children  after  the  formula   was  changed  in  2003.  The                                                               
     eligibility rates  had been  frozen in  2003 at  the federal                                                               
     poverty  levels  at that  time,  which  was a  fixed  dollar                                                               
     amount. It was  reduced from 200 percent to  175 percent and                                                               
     under  Senate  Bill 27,  eligibility  for  persons under  19                                                               
     would  increase to  200  percent of  the  poverty level  and                                                               
     requires  others   who  qualify  and  can   afford  to  make                                                               
     contributions toward that coverage.                                                                                        
     Without Senate Bill 27, it's  estimated that our eligibility                                                               
     rate in, since it was a  fixed dollar amount in 2003 and now                                                               
     floating  with the  federal poverty  guidelines, as  all the                                                               
     other states,  that our eligibility  rate would drop  to 154                                                               
     percent and  it may drop  below 150 percent, at  which point                                                               
     Alaska will  loose immediately 3 million  in federal funding                                                               
     and the  State has  already had 2,553  children drop  off of                                                               
     this program.                                                                                                              
     There  were 7,600  children covered  by this  program as  of                                                               
     December  of  2006.  We've  lost over  30  percent  of  them                                                               
     already due to  this fixed guideline and  these children are                                                               
     going to  also incur  greater health  coverage later  on. So                                                               
     you  essentially  have  a  transfer   costs  here  to  other                                                               
     elements  of government  as they  require additional  health                                                               
     care  coverage  later  on  for failure  to  help  them  when                                                               
     they're children.                                                                                                          
     So nothing  has really changed  on this other than  the fact                                                               
     that  there  have  been   other  bills  addressed  regarding                                                               
     similar  subjects. We  do have  people  from the  department                                                               
     here that might assist with  some of the dollar amounts, but                                                               
     I must  note for the  record, that the children  provide the                                                               
     least costly types covered under  this type of program. It's                                                               
     an  estimated at  about $1,700  per child  compared to  many                                                               
     thousands for severely disabled  and elderly and health care                                                               
     facilities and so forth.                                                                                                   
     The  numbers  that  came  across from  other  bills  can  be                                                               
     addressed by the State, but it  may be as little as $783,000                                                               
     out of the federal fund.  Federal share again at an enhanced                                                               
     share rate  of 70  percent, which is  a bargain  in anyone's                                                               
     analysis would be  a total Denali KidCare cost  of maybe two                                                               
     million six or seven hundred thousand dollars.                                                                             
                                                                                                                                
9:47:33 AM                                                                                                                    
                                                                                                                                
SENATOR BETTYE  DAVIS spoke to  the need of this  legislation and                                                               
the many  people dependant  upon the  legislature to  address the                                                               
Denali KidCare program during this  session. This bill included a                                                               
component  that would  "alleviate some  of the  problems that  we                                                               
will have  if we  don't implement this."  She indicated  a figure                                                               
[not specified]  related to the  bill, as well as  another figure                                                               
[not specified] of 175. If  passage were dependant upon the lower                                                               
figure, she would agree to it  "because that would be better than                                                               
nothing".                                                                                                                       
                                                                                                                                
9:48:35 AM                                                                                                                    
                                                                                                                                
Senator Dyson  directed attention  to AS  47.17.020(b)(6) amended                                                               
by Section  1 on page 2,  lines 15 through 19.  This subparagraph                                                               
related to "persons  in a medical or  intermediate care facility"                                                               
and amended the  income qualification to "not  exceed 300 percent                                                               
of  the  supplemental  security  income  benefit".  The  existing                                                               
statute  specified  the  income qualification  as  not  exceeding                                                               
$1,656  a  month. He  asked  the  current  dollar amount  of  300                                                               
percent of supplemental security income.                                                                                        
                                                                                                                                
9:49:23 AM                                                                                                                    
                                                                                                                                
Mr. Obermeyer  deferred to  the Department  of Health  and Social                                                               
Services.   He  noted   that  seven   other  states   utilized  a                                                               
qualification of 300 percent or  more and that 39 states provided                                                               
services for  those whose  income did not  exceed 200  percent of                                                               
the supplement  security benefit.  Existing Alaska  statute fixed                                                               
the income  amount at "the  very lowest level was  something like                                                               
$1,635  per month".  This amount  had been  established utilizing                                                               
the federal poverty guideline as a  base. The change from a fixed                                                               
income  amount  to  a percentage  of  the  supplemental  security                                                               
benefit  was intended  to eliminate  the need  for each  state to                                                               
annually  amend  its  statute  to  reflect  the  current  federal                                                               
guideline level.                                                                                                                
                                                                                                                                
9:50:49 AM                                                                                                                    
                                                                                                                                
Senator Dyson  commented that the  legislature "had  always faced                                                               
pressure  to put  escalator clauses"  into  its budget.  Although                                                               
this was a simple method, it  concerned him, as it embedded these                                                               
clauses into the operating budget.  A discussion on this practice                                                               
should be held.  He also wanted to know the  actual dollar amount                                                               
calculated for this bill for comparison purposes.                                                                               
                                                                                                                                
9:51:47 AM                                                                                                                    
                                                                                                                                
Co-Chair Stedman agreed with Senator  Dyson's concern and advised                                                               
that this issue should be monitored.                                                                                            
                                                                                                                                
9:52:07 AM                                                                                                                    
                                                                                                                                
Co-Chair  Stedman  requested  information  regarding  the  fiscal                                                               
notes accompanying this bill.                                                                                                   
                                                                                                                                
9:52:22 AM                                                                                                                    
                                                                                                                                
JANET CLARKE,  Assistant Commissioner,  Department of  Health and                                                               
Social Services,  testified to  a table  titled, "SB  27 Summary"                                                               
that outlined  the costs to  implement this legislation  [copy on                                                               
file]. The  provision Senator Dyson  questioned was  not included                                                               
in other legislation addressing  the Denali KidCare program. Four                                                               
years  ago,  eligibility for  the  program  was codified  at  175                                                               
percent of  the federal  poverty level and  the income  amount to                                                               
qualify for  care in an  intermediate care facility  was codified                                                               
in  statute.   The  population  served  by   the  latter  program                                                               
qualified  for  nursing   home  care  or  had   a  disability  as                                                               
determined by  the federal Social Security  Administration, was a                                                               
different  population  than that  served  by  the Denali  KidCare                                                               
program, and was more expensive.                                                                                                
                                                                                                                                
9:54:55 AM                                                                                                                    
                                                                                                                                
Ms.  Clarke pointed  out  that  because of  the  addition of  the                                                               
change  to  the  nursing  home  and  intermediate  care  facility                                                               
program,  the  fiscal  notes for  this  bill  were  significantly                                                               
higher than the  fiscal notes accompanying the  other bills. This                                                               
bill  would  "unfreeze"  the eligibility  requirements  for  both                                                               
programs.                                                                                                                       
                                                                                                                                
Ms. Clarke  explained that SB  27 would unfreeze  the eligibility                                                               
requirement for the Denali KidCare  program at 200 percent of the                                                               
federal poverty level and unfreeze  the "special population group                                                               
at 300 percent as well."                                                                                                        
                                                                                                                                
Ms.  Clarke  noted the  fiscal  note  estimates did  not  include                                                               
administrative costs.                                                                                                           
                                                                                                                                
Ms. Clarke  overviewed the  aforementioned table,  which provided                                                               
an  enrollment  summary  of  children,  pregnant  women  and  the                                                               
"special income group". The fiscal  notes reflect that in 2008 an                                                               
additional  2,553 children,  436 pregnant  women and  106 special                                                               
income individuals  would be eligible for  the Medicaid services.                                                               
Expenditures   to  serve   the  additional   children  would   be                                                               
$3,905,000, expenditures  to serve the additional  pregnant women                                                               
would  be $1,401,000,  and expenditures  to serve  the additional                                                               
special  income individuals  would be  $6,103,000. These  amounts                                                               
total $11.4 million, not including administrative costs.                                                                        
                                                                                                                                
Ms. Clarke  reemphasized that  the majority of  the cost  of this                                                               
legislation  would   be  the  additional   participants  eligible                                                               
through the special income group.  Nursing home care and services                                                               
for those with disabilities are the most costly.                                                                                
                                                                                                                                
9:57:03 AM                                                                                                                    
                                                                                                                                
Ms.  Clarke  stated   that  the  total  cost   to  implement  the                                                               
legislation before the Committee would be $4.6 million.                                                                         
                                                                                                                                
9:57:23 AM                                                                                                                    
                                                                                                                                
Senator  Elton asked  if the  ratio of  federal funds  to general                                                               
fund matching funds was the  same for services for pregnant women                                                               
and children and services for the special income group.                                                                         
                                                                                                                                
9:57:50 AM                                                                                                                    
                                                                                                                                
Ms. Clarke answered  that the State did not  receive an "enhanced                                                               
rate"  for services  provided to  the special  income group.  The                                                               
regular Medicaid rate was currently 57.58 percent.                                                                              
                                                                                                                                
9:58:06 AM                                                                                                                    
                                                                                                                                
Senator Elton clarified that a  higher percentage of general fund                                                               
matching funds  was required for  services to the  special income                                                               
group  than  was required  for  services  to pregnant  women  and                                                               
children.                                                                                                                       
                                                                                                                                
9:58:24 AM                                                                                                                    
                                                                                                                                
Ms.  Clarke  affirmed  and  pointed   out  that  the  spreadsheet                                                               
demonstrated the "melding" of the different rates.                                                                              
                                                                                                                                
9:58:37 AM                                                                                                                    
                                                                                                                                
Senator Olson, in  reviewing the annual costs of  services to the                                                               
special income group, noted that  the cost increases between 2008                                                               
and 2013 would  only be $3 million. He asked  the validity of the                                                               
projections.                                                                                                                    
                                                                                                                                
9:59:00 AM                                                                                                                    
                                                                                                                                
Ms.  Clarke told  of a  study conducted  by the  Lewin Group  and                                                               
released the previous year that  developed a Medicaid forecasting                                                               
model  to estimate  future Medicaid  costs. The  report predicted                                                               
that  the special  income population  would remain  "fairly flat"                                                               
for approximately eight years after  which it "really takes off".                                                               
The  cost  estimates for  the  years  listed on  the  spreadsheet                                                               
reflected that period of flat population growth.                                                                                
                                                                                                                                
9:59:37 AM                                                                                                                    
                                                                                                                                
CLOVER  SIMON, Chief  Executive  Officer,  Planned Parenthood  of                                                               
Alaska,  testified via  teleconference  from  an offnet  location                                                               
that  she  also was  a  social  worker with  approximately  eight                                                               
years'  experience working  with low  income women  and children.                                                               
She read her testimony into the record as follows.                                                                              
                                                                                                                                
     I support the increase in  eligibility for Denali KidCare to                                                               
     the  200 percent  of the  federal  poverty level.  Providing                                                               
     health  care  early  in a  woman's  pregnancy  improves  the                                                               
     health outcomes for  both the woman and the  child. I really                                                               
     feel  it  should  be  a  priority  in  Alaska  to  have  the                                                               
     healthiest children that we can.                                                                                           
     I urge the  members to consider this  increase. I understand                                                               
     the  members' concern  regarding  fiscal  escalators in  the                                                               
     budget. However,  I want to  remind you that  spending money                                                               
     now  saves money  in  the  long run  for  the management  of                                                               
     chronic preventable illnesses.                                                                                             
                                                                                                                                
10:00:31 AM                                                                                                                   
                                                                                                                                
LEONARD  FANCHER, lifelong  Alaskan,  representing Mighty  Bikes,                                                               
testified via teleconference from an  offnet location in favor of                                                               
the  bill.  For  eight  years  he has  volunteered  for  a  youth                                                               
recreation  program  teaching  children  to  ride  bicycles.  The                                                               
program  encouraged children  to get  physical exercise  "off the                                                               
couch  away from  T.V. and  video games."  It was  important that                                                               
kids  stay physically  active  and  to have  the  best access  to                                                               
health care possible so they  could remain healthy. Approximately                                                               
18,000 children  were currently not covered  by health insurance.                                                               
These  children were  from working  families whose  employers did                                                               
not  provide insurance.  The federal  government  was willing  to                                                               
contribute 70 percent of the  cost to provide insurance for these                                                               
children. With the  State contribution of 30 percent,  this was a                                                               
"bargain" and the State could "well afford" the expense.                                                                        
                                                                                                                                
10:02:05 AM                                                                                                                   
                                                                                                                                
DAVID   ALEXANDER  MD,   Retired   Pediatrician,  testified   via                                                               
teleconference  from Anchorage,  about  the wide  support of  the                                                               
Denali  KidCare   program  and  this  legislation.   He  recently                                                               
attended a  gathering of Anchorage Faith  in Action Congregations                                                               
Together -  the AFACT, along  with approximately 200  others. The                                                               
attendees were  all in favor  of improving health  care coverage.                                                               
He read the following testimony into the record.                                                                                
                                                                                                                                
     There  is absolutely  no question  that routine  health care                                                               
     provides better health and therefore  better living both for                                                               
     kids  and for  adults. Poor  health means  you miss  work or                                                               
     school or else you just miss-perform.                                                                                      
     Since 2003 when  Denali KidCare was cut back,  most of these                                                               
     cut out  [from the program]  could not afford  buying health                                                               
     care. So many of them did  not get routine care. They missed                                                               
     a lot more school and if  needed, went to an emergency room;                                                               
     and because the federal government  says ERs must be willing                                                               
     to give free  care if needed, so Alaska  emergency rooms are                                                               
     now  having  some  $90  million  of  unpaid  emergency  room                                                               
     charges. So the rest of us  therefore have to pay a lot more                                                               
     to cover those unpaid fees.                                                                                                
     There is  no question  that the  State Legislature  did save                                                               
     some  money  - obviously  the  rest  of  us lost  money.  In                                                               
     addition, since  the federal government  pays 70  percent of                                                               
     the  charges  under  each   state's  CHIP,  children  health                                                               
     insurance  program,  that  meant  the State  lost  a  couple                                                               
     million dollars in federal support.                                                                                        
     It is  also very important  to realize  35 to 40  percent of                                                               
     money  that  goes  to  insurance  companies  goes  to  their                                                               
     overhead  expenses,  while only  five  to  eight percent  of                                                               
     money that goes to government  health coverage goes into the                                                               
     maintenance   of   those  programs.   Therefore   government                                                               
     programs  provide  about  50   percent  more  actual  health                                                               
     coverage than  insurance companies  do with the  same amount                                                               
     of funding.                                                                                                                
     So supporting  these new proposals will  improve health care                                                               
     for the  kids; improve  their ability  to attend  school and                                                               
     actually greatly  decrease the health expenses  of the whole                                                               
     State.                                                                                                                     
                                                                                                                                
10:04:34 AM                                                                                                                   
                                                                                                                                
JANICE   TOWER,   Executive   Director,   American   Academy   of                                                               
Pediatrics,  Alaska Chapter,  testified  via teleconference  from                                                               
Anchorage  about the  organization's long  term goal  of insuring                                                               
all children  in Alaska. The  Alaska chapter  currently consisted                                                               
of 87 pediatricians located throughout  the state. She understood                                                               
the  Committee's  time  constraints  and the  necessity  to  make                                                               
important priority  decisions. Children should be  considered the                                                               
highest priority.                                                                                                               
                                                                                                                                
Ms.  Tower reported  that 39  other states  provide coverage  for                                                               
children  living at  up to  200  percent of  the federal  poverty                                                               
level.  Alaska was  ranked "in  the bottom  five". The  states of                                                               
Montana and  South Carolina  covered children  at 150  percent of                                                               
the federal  poverty level.  Only North  Dakota and  South Dakota                                                               
provided coverage to  a lower rate of 140 percent  of the federal                                                               
poverty  level;  however,  that coverage  was  not  "artificially                                                               
restricted".  With   the  "poverty  percentage   reduction",  the                                                               
coverage provided in  Alaska had decreased to 154  percent of the                                                               
federal poverty level.                                                                                                          
                                                                                                                                
Ms.  Tower stated  that the  states  of California,  Connecticut,                                                               
Maryland, Massachusetts,  Missouri and Vermont  provided coverage                                                               
for participants  with up to  300 percent of the  federal poverty                                                               
level. New Hampshire provided coverage  for children living up to                                                               
400  percent  of the  federal  poverty  level. Illinois  provided                                                               
"unlimited coverage" with a "program  buy-in" to allow some level                                                               
of coverage to all children at an affordable rate.                                                                              
                                                                                                                                
Ms. Tower  disapproved of the  coverage provided by the  state of                                                               
Alaska  in  comparison  to   other  states.  Significant  revenue                                                               
sources  existed for  the State  from natural  resources, tourism                                                               
and other activities.                                                                                                           
                                                                                                                                
10:07:28 AM                                                                                                                   
                                                                                                                                
SARA   JACKSON,  Board   Member,   Anchorage   Faith  in   Action                                                               
Congregations  Together,   and  "human   services  professional",                                                               
testified   via   teleconference    from   Anchorage   that   the                                                               
organization was comprised of 15  local churches "concerned about                                                               
this issue".  She told  of her family's  experience in  which her                                                               
granddaughter received "inconsistent  and inadequate" health care                                                               
although  her   mother  worked   full  time.   Her  granddaughter                                                               
experienced complex  medical conditions  and during  most crises,                                                               
the family incurred  significant medical debt and had  to rely on                                                               
the  "mercy  of  a  kind doctor."  The  family  "celebrated"  the                                                               
creation of  Denali KidCare and  the granddaughter  qualified for                                                               
services under the  income provision of less than  200 percent of                                                               
the  federal  poverty  level.  She was  able  to  receive  dental                                                               
preventative care, an eye examination  and other needed services.                                                               
Two  years later,  however, she  was "dropped"  from the  program                                                               
because  her mother  earned  $100 per  month  over the  allowable                                                               
income amount. Ongoing  counseling and other medical  care was no                                                               
longer available.  As a  child of the  working middle  class, the                                                               
granddaughter  was  part of  a  significant  population that  was                                                               
"medically neglected."  Ms. Jackson spoke to  the hesitancies and                                                               
delays of  parents in  seeking medical  care for  their children.                                                               
This could exacerbate simple medical conditions.                                                                                
                                                                                                                                
10:10:51 AM                                                                                                                   
                                                                                                                                
SANDRA CASTLE  testified via  teleconference from  Anchorage that                                                               
she  had  previously  received health  care  through  the  Denali                                                               
KidCare program  under the 150  percent of federal  poverty level                                                               
income provision. However,  she was "cut" and was  no longer able                                                               
to  continue her  counseling  treatment or  receive  care from  a                                                               
pediatric   endocrinologist   for   her  diabetes.   To   receive                                                               
treatment, she  had to go to  an emergency room. Children  in the                                                               
state of  Alaska need  health care whether  or not  their parents                                                               
have funding to pay for it.                                                                                                     
                                                                                                                                
10:11:56 AM                                                                                                                   
                                                                                                                                
ANGELA LISTON, Anchorage Faith  in Action Congregations Together,                                                               
testified via teleconference from  Anchorage that over 200 people                                                               
recently  gathered  in  a  local church  to  speak  about  Denali                                                               
KidCare.  Many  family members  shared  "one  horror story  after                                                               
another"  about caring  for their  children's health  needs since                                                               
the reduction  to the  Denali KidCare  program four  years prior.                                                               
These family  members were  employed and  therefore could  not be                                                               
present  to  testify  at this  hearing.  They  represented  every                                                               
ethnic  group,  15  faith communities  and  all  social  economic                                                               
groups. Additionally,  religious leaders in the  state, including                                                               
Catholic  bishops,  Presbyterian  ministers, a  Russian  Orthodox                                                               
bishop and  Lutheran bishops, had  joined the  AFACT organization                                                               
in  supporting  an  increase  to   the  Denali  KidCare  program.                                                               
Recently  AFACT  met with  US  Senator  Lisa Murkowski  and  were                                                               
assured that  she and US Senator  Ted Stevens were seeking  an S-                                                               
CHIP  reauthorization  to  allow states  the  "broadest  possible                                                               
latitude".   If  that   latitude  were   granted,  it   would  be                                                               
unfortunate  if Alaska  did not  take advantage  of it.  Coverage                                                               
should  be extended  at least  to  those children  living at  200                                                               
percent of the federal poverty level.                                                                                           
                                                                                                                                
10:13:38 AM                                                                                                                   
                                                                                                                                
WALTER  MAJOROS,  Executive   Director,  Juneau  Youth  Services,                                                               
President,  Alaska Association  of Homes  for Children,  and Vice                                                               
President,  Alaska Behavioral  Health  Association, testified  in                                                               
Juneau, in  support of this  legislation. He spoke to  the impact                                                               
of  Denali  KidCare  on children's  behavioral  health  services,                                                               
specifically for  children with severe mental  health problems as                                                               
well  as children  with substance  abuse  problems. Juneau  Youth                                                               
Services (JYS)  serves approximately  700 of these  children each                                                               
year.                                                                                                                           
                                                                                                                                
Mr. Majoros informed that Denali  KidCare was the primary funding                                                               
source  for  children's  behavioral health  services  in  Alaska,                                                               
providing  75  to 80  percent.  Effective  implementation of  the                                                               
Bring the  Kids Home initiative  was impossible without  a viable                                                               
funding  source. A  diminished  funding source  results in  fewer                                                               
children able to  access care in the state  and subsequently more                                                               
children   transferred  to   receive  treatment   in  residential                                                               
psychiatric facilities  in the Lower  48. The number  of children                                                               
eligible for  services through JYS  had declined from  75 percent                                                               
to  69  percent. This  trend  is  similar statewide.  Alaska  was                                                               
ranked the  third lowest "eligibility  threshold" at  154 percent                                                               
of the  federal poverty level.  Additionally fewer  children were                                                               
covered by  private health care  insurance. All  Alaskan children                                                               
should have access  to health care services and  the State should                                                               
"invest early"  in children's health to  prevent serious problems                                                               
from developing.                                                                                                                
                                                                                                                                
10:16:18 AM                                                                                                                   
                                                                                                                                
Senator  Davis  considered  this  legislation  one  of  the  most                                                               
important  bills under  consideration  this legislative  session.                                                               
She advised the Committee to "do  the right thing", to debate the                                                               
issue and report  the bill from Committee. She  would not dictate                                                               
the exact percentage  of the federal poverty level  to be adopted                                                               
for income eligibility,  but stressed it should not  be less than                                                               
175 percent.                                                                                                                    
                                                                                                                                
10:17:35 AM                                                                                                                   
                                                                                                                                
Senator Olson requested  comment on the inclusion  of the special                                                               
income group.                                                                                                                   
                                                                                                                                
10:18:06 AM                                                                                                                   
                                                                                                                                
Senator Davis  admitted extension  of services  to those  in this                                                               
group living  at 300 percent  of the federal poverty  level would                                                               
triple the cost to implement  this legislation, but stated it was                                                               
an important issue that must  be addressed. However, if extension                                                               
of the  Denali KidCare program  were dependant upon  the deletion                                                               
of the  provision to  accommodate the  special income  group, she                                                               
would not oppose the change.                                                                                                    
                                                                                                                                
The bill was HELD in Committee.                                                                                                 
                                                                                                                                
10:18:32 AM                                                                                                                   
                                                                                                                                
                                                                                                                                
     CS FOR SENATE BILL NO. 116(L&C)                                                                                            
     "An Act relating to the Uniform Money Services Act, to                                                                     
     money transmission services, and to currency exchange                                                                      
     services; and providing for an effective date."                                                                            
                                                                                                                                
                                                                                                                                
This was  the first hearing for  this bill in the  Senate Finance                                                               
Committee.                                                                                                                      
                                                                                                                                
Co-Chair  Stedman announced  intent to  not take  action on  this                                                               
legislation at this hearing.                                                                                                    
                                                                                                                                
10:18:52 AM                                                                                                                   
                                                                                                                                
Senator Elton moved for adoption of  CS SB 116, 25-LS0508\O, as a                                                               
working document.                                                                                                               
                                                                                                                                
There was no objection and CS  SB 116, Version "O" was ADOPTED as                                                               
a working document.                                                                                                             
                                                                                                                                
10:19:16 AM                                                                                                                   
                                                                                                                                
Senator Elton, sponsor of the  bill, stated that it would "ensure                                                               
the safety and soundness in  financial institutions that are used                                                               
by Alaskans  who don't use  banks." These  financial institutions                                                               
are "the  money transferors". This  bill would also  address "two                                                               
of the  industries that pose  a risk for money  laundering: money                                                               
transmission  and  currency  exchange." Money  transmission  also                                                               
poses  a  risk for  terrorist  financing.  Transmission of  money                                                               
without a license  in states that require a license  is a federal                                                               
felony  offense.  Alaska is  one  state  that currently  did  not                                                               
require such a license.                                                                                                         
                                                                                                                                
Senator  Elton explained  that this  legislation was  based on  a                                                               
model  legislation  adopted  in  other states  with  one  "major"                                                               
exception. The  model legislation also proposed  licensing "check                                                               
cashers".  This bill  did not  include such  provisions, as  this                                                               
activity did  not pose a  risk for money laundering  or terrorist                                                               
financing.                                                                                                                      
                                                                                                                                
Senator  Elton   furthered  that  this  bill   would  ensure  law                                                               
enforcement  coordination to  ensure that  these businesses  were                                                               
"not abused  by people  who avoid banks  because they  don't want                                                               
the  scrutiny of  bank examiners."  Consumers would  be protected                                                               
through the provisions of this  bill relating to "bonding and net                                                               
worth requirements".  This bill  would require  a listing  of all                                                               
fees and terms  on the receipt supplied to the  customer, as well                                                               
as on-site  posting of  a notification  to consumers  of agencies                                                               
available to assist in the  event the customer has "problems with                                                               
the business."                                                                                                                  
                                                                                                                                
10:21:11 AM                                                                                                                   
                                                                                                                                
Senator  Elton  pointed out  that  this  bill would  be  "revenue                                                               
neutral"  to the  State. The  fiscal note  indicated the  cost to                                                               
implement the legislation would be  $80,000. As required of other                                                               
regulated businesses, the businesses  affected by this bill would                                                               
pay  a license  fee. The  Department of  Commerce, Community  and                                                               
Economic  Development  estimated  that  40  businesses  practiced                                                               
money  transferring  in  Alaska  and  that  "the  regulation  and                                                               
investigation component"  for the Department would  require a fee                                                               
of $2,000.                                                                                                                      
                                                                                                                                
Senator  Elton reported  that despite  the significant  amount of                                                               
the license fee, the affected  businesses seek the regulation and                                                               
the "safety"  that would be assured  through licensing. Licensing                                                               
would protect legitimate businesses  and would make operations of                                                               
non legitimate businesses more difficult.                                                                                       
                                                                                                                                
10:21:58 AM                                                                                                                   
                                                                                                                                
Senator Elton  disclosed that this  legislation was  requested by                                                               
the industry. In consideration of  this bill by Senate committees                                                               
and its  companion bill by  House of  Representatives committees,                                                               
it had  the received  endorsement and support  of Wells  Fargo, a                                                               
large money  transmitter as well  as that of small  "store front"                                                               
money transmitters,  many of  which operate  in cruise  ship port                                                               
towns.  The  Department  of   Commerce,  Community  and  Economic                                                               
Development and consumer advocates,  including the Alaska Bankers                                                               
Association, supported this bill.                                                                                               
                                                                                                                                
10:22:47 AM                                                                                                                   
                                                                                                                                
Senator  Elton  remarked  that this  legislation  was  the  first                                                               
attempt to regulate the money transfer industry.                                                                                
                                                                                                                                
Senator   Elton  concluded   his   presentation   of  the   bill,                                                               
reiterating  that   an  individual   involved  in   the  industry                                                               
requested it.  The more his  staff reviewed the matter,  the more                                                               
it was understood that consumers  must be protected and that this                                                               
legislation would assist in homeland security efforts.                                                                          
                                                                                                                                
10:23:57 AM                                                                                                                   
                                                                                                                                
Co-Chair  Stedman asked  about  any opposition  to  this bill  in                                                               
addition to money launderers.                                                                                                   
                                                                                                                                
10:24:08 AM                                                                                                                   
                                                                                                                                
Senator  Elton reported  that no  opposition had  been voiced  to                                                               
either this bill  or its companion bill. He attributed  this as a                                                               
"testament"  to  staff coordination  with  the  industry and  all                                                               
affected   parties.  He   repeated   that   the  Alaska   Bankers                                                               
Association, large  and small  businesses and  consumer interests                                                               
supported the bills.                                                                                                            
                                                                                                                                
10:24:51 AM                                                                                                                   
                                                                                                                                
Co-Chair  Stedman requested  Senator  Elton speak  to the  fiscal                                                               
note.                                                                                                                           
                                                                                                                                
10:24:55 AM                                                                                                                   
                                                                                                                                
Senator  Elton  explained that  as  required  of other  regulated                                                               
businesses,  the costs  of regulating  the currency  exchange and                                                               
money transfer  businesses would  be borne  by the  industry. The                                                               
Department  estimated the  annual cost  to implement  the program                                                               
would be $80,000  and that each business would pay  an annual fee                                                               
of $2,000. Although this would be  a higher license fee than most                                                               
other  businesses  paid,  the affected  businesses  support  this                                                               
program.                                                                                                                        
                                                                                                                                
10:25:53 AM                                                                                                                   
                                                                                                                                
MARK  DAVIS,  Director,  Division   of  Banking  and  Securities,                                                               
Department  of  Commerce,  Community  and  Economic  Development,                                                               
testified via  teleconference from an offnet  location in support                                                               
of  the bill.  The  revenues  collected from  the  fees would  be                                                               
utilized to  regulate the businesses and  for investigations. The                                                               
$2,000 licensee  fee was  calculated based  on the  37 businesses                                                               
currently registered  with the "federal financial  crime center";                                                               
however,   additional  businesses   could  be   practicing  money                                                               
transfers or currency exchange activities.                                                                                      
                                                                                                                                
Mr.  Davis  informed that  upon  implementation  of a  regulatory                                                               
program for some industries, more  licenses were applied for than                                                               
had been estimated.  This was likely because  some businesses had                                                               
been "reluctant" to practice in an unregulated industry.                                                                        
                                                                                                                                
10:27:12 AM                                                                                                                   
                                                                                                                                
Senator Thomas asked examples of  businesses that practiced money                                                               
transfers.                                                                                                                      
                                                                                                                                
10:27:30 AM                                                                                                                   
                                                                                                                                
Mr.  Davis gave  as examples,  Money Gram  and Western  Union. He                                                               
also  told of  a small  business  that operated  in the  election                                                               
district  represented  by  Senator Elton.  Most  businesses  were                                                               
affiliated  with a  large  company such  as  Western Union.  This                                                               
legislation would  allow the smaller companies  to "work through"                                                               
the  larger affiliates,  which would  result in  "less regulatory                                                               
burden" in the industry.                                                                                                        
                                                                                                                                
10:28:09 AM                                                                                                                   
                                                                                                                                
Senator  Thomas   asked  if  all  banks   were  considered  money                                                               
transferors.                                                                                                                    
                                                                                                                                
10:28:17 AM                                                                                                                   
                                                                                                                                
Mr.  Davis  responded  that  banks   would  be  exempt  from  the                                                               
provisions  of  this  legislation.  Consumers  could  have  funds                                                               
transferred from  one bank  to another.  This bill  would address                                                               
business  conducted  by  those consumers  that  did  not  utilize                                                               
banks, such as cruise ship crew members.                                                                                        
                                                                                                                                
10:28:46 AM                                                                                                                   
                                                                                                                                
Co-Chair Stedman asked  if security broker dealers  would also be                                                               
excluded from the provisions of this bill.                                                                                      
                                                                                                                                
10:28:54 AM                                                                                                                   
                                                                                                                                
Mr.  Davis answered  in the  affirmative,  explaining that  these                                                               
dealers provided money services  and were regulated through other                                                               
licensing  programs.  Money  transferors  and  currency  exchange                                                               
providers were regulated in 47 states.                                                                                          
                                                                                                                                
10:29:28 AM                                                                                                                   
                                                                                                                                
Senator  Olson asked  if the  implementation  of this  regulatory                                                               
program  could  interrupt  fund transfers  intended  for  college                                                               
students and for other legitimate purposes.                                                                                     
                                                                                                                                
10:30:03 AM                                                                                                                   
                                                                                                                                
Senator Elton  responded that  no provision  of this  bill should                                                               
delay access to funds.                                                                                                          
                                                                                                                                
10:30:38 AM                                                                                                                   
                                                                                                                                
Mr.  Davis   agreed.  This  legislation  would   not  change  the                                                               
industry, rather it  would require the businesses  to be licensed                                                               
and  comply   with  federal  reporting  procedures.   However,  a                                                               
business already licensed in another  state would not be required                                                               
to  secure an  additional  license. This  would  avoid causing  a                                                               
"regulatory burden" for large  companies. Additionally, this bill                                                               
would  provide  for  "a  timely   transmission  of  the  consumer                                                               
rights", which did not currently exist.                                                                                         
                                                                                                                                
10:31:19 AM                                                                                                                   
                                                                                                                                
Senator  Olson asked  if charges  had been  filed or  should have                                                               
been filed  against a party  attempting to launder  money through                                                               
such a business.                                                                                                                
                                                                                                                                
10:31:45 AM                                                                                                                   
                                                                                                                                
Mr. Davis  was unaware of  any violation in this  state, although                                                               
failures in transmitting money had  occurred. The US Congress and                                                               
federal   law  enforcement   agencies  urged   states  to   adopt                                                               
regulatory programs to comply with the federal Bank Secrecy Act.                                                                
                                                                                                                                
10:32:17 AM                                                                                                                   
                                                                                                                                
Co-Chair Stedman ordered the bill HELD in Committee.                                                                            
                                                                                                                                
ADJOURNMENT                                                                                                                 
                                                                                                                                
Co-Chair Bert Stedman adjourned the meeting at 10:32:44 AM                                                                    

Document Name Date/Time Subjects